Pricing Based on Value – Small Business Tutorials

October 17th, 2011 admin Location: Raleigh, NC, Topic: Web Design | Digital Media

Profit is all about value, but it’s not about value in the eyes of the person providing the product, but for the person receiving it, in other words, you can’t sell something at what you feel is the right value to you. You’re supposed to sell it at the right value for the person receiving it. It’s almost obvious but most people don’t do this when they’re starting their small business. In this post I will explain why.
If you buy a bottle of water at the airport it’s going to be more expensive than if you buy the same bottle of water at a grocery store. The difference is not that the bottle water is more expensive for the vendor at the airport, the difference is that you are willing to pay a higher price at the airport than at the grocery store and the reason is simple. At the grocery store you have plenty of options, you can exit and go to a different store you can altogether make a decision that this store is too expensive or you can even decide not to shop there anymore. Your sense of urgency is typically lower. On the other hand at the airport, competition is not a problem you’re very unlikely to have the opportunity to fly out of other airports and find a significant difference in the prices that they use. Also, urgency is higher. If you need to drink clean water you are going to have to pay for it in this closed environment (the gates of the airport).

Value Pricing

Value Pricing

Another example here is a fruit producer. This person has a farm and then they sell their oranges. This person has a very low perceived value for these oranges. They have tons of trees of oranges and sometimes the trees have so many that they simply let them fall to the ground and spoil. In other words if you were to try to sell this person some oranges that person would pay very little if anything because he has trees and trees of the fruit – sometimes even rotting fruit. This example helps explain why some small business owners have problems setting a high price for their services. When they see the value of their products, they think as themselves, not their customers, so they see very little value in something that they already have.

To make a profit the fruit producer has to overcome his desire to price those oranges at his own perceive price, and price them at the right perceived value for his customers.

Let’s talk about another example, when I was a kid I used to receive different things as gifts for Christmas, probably just as you did. Some of them were items of clothing and some of them were toys. I loved receiving toys and I used to hate when I received socks. The difference between this items is very clear if you examine them in terms of value to the kid receiving the gift. If you examine them in terms of value of the person giving the gift maybe they have the same price. You could have given me the best pair of socks available from a great brand and perhaps a very expensive pair of socks and still I would have preferred to receive a toy. Why? Because I value toys. I don’t value socks. To a kid a toy represents entertainment, fun, excitement, desire, etc. Most kids don’t dream with socks (even when we all need them).

As people we have things that are of more perceived value to us than others. We are willing to pay a premium price for those things that we care the most about. Sometimes it’s not even products or services, sometimes it’s ideas or promises that we are willing to pay extra for. Perception is everything. And I won’t get into the details of perception because it could take a whole new set of posts to just cover it. But to give you an introduction: Perception is key. You only live your perception of reality.

So to summarize, make sure that your product provides perceived value to your customer. Try to deliver this value with the highest intensity possible. And finally, make sure that you price your products and services according to the value that they provide to them and not to you.

An excellent place to start is by examining the products that you would like to buy. Look at their prices. And then use them as a base point for your products and services.

If you are interested in learning more about digital media strategy or if you are in need of a strategic website, please don’t hesitate to contact Merkados™ today.[/private]

About the Author

Alex Centeno MBA., is an international creative director and digital media strategist. Currently residing minutes away from the Research Triangle Park (RTP) - North Carolina, and with over 10 years of interactive marketing training and experience, Alex leads Merkados' international clients to maximizing their online business strategies. One of Alex's biggest strengths is his world-class capacity to effectively combine interactive marketing, digital media design and web development.

You may find further information about Alex Centeno MBA. at: and Twitter.

Sobre el Autor

Alex Centeno MBA., Es un director creativo y estratega de medios digitales reconocido internacionalmente. En la actualidad reside a tan solo minutos del Research Triangle Park (RTP) - Carolina del Norte, y con más de 10 años de entrenamiento y experiencia en marketing interactivo, Alex lidera a los clientes internacionales de Merkados™ para maximizar sus estrategias de negocios en línea. Una de las mayores fortalezas de Alex es su capacidad global de combinar de manera efectiva, mercadeo interactivo, diseño de medios digitales y desarrollo web.

Para más información sobre Alex Centeno MBA. puede visitar: y Twitter.