Customer-Driven Pricing

What Is Customer-Driven Pricing?

One important decision companies face is setting prices. The three major pricing strategies are cost-based pricing, competition-based pricing, and customer driver or customer value-based pricing. Customer-driven pricing is the practice of setting prices as indicated by customers' perceived value of a company's goods or services.

The assumption basis for this model is that a customer will pay a certain price when the value delivered surpasses that cost. Customer-driven pricing can work when a product or service is customizable rather than commoditized (e.g., corn) as there will be numerous options in the event that there are numerous contenders offering comparable products or services.

The pricing strategy can likewise be applied in various geographical markets, where supply and demand powers are biased toward the seller and the customer might pay in excess of a customer somewhere else. Customer-driven pricing is stood out from competition based pricing - setting prices based on contenders' prices and strategies — and cost-based pricing, in which a company focuses on coming to a margin target with little respect to examining customers' perceived value.

How Customer-Driven Pricing Works

To upgrade pricing, companies need to consider how to best segment the market so that prices mirror the differences in value observed by various types of consumers. To do this, companies must embrace a complete comprehension of how a customer values a product or service.

Assuming that it is a business, is this product or service essential to its operations, something totally important to keep the business running without a hitch? Does it give extra or separated benefits to an ordinary consumer? Provided that this is true, the company might have the option to set prices at premiums to increase aggregate sales.

In the event that the company's offering is available to customers from several rivals in a given market and needs significant differentiation, then, at that point, customer-driven pricing is probably not going to prevail as a strategy to upgrade revenues. Where competition might be more slender, even on the off chance that its product or service doesn't separate itself, a company might have the option to engage in customer-driven pricing since supply could be compelled relative to demand.

The customer-driven pricing strategy functions admirably for products that appeal to consumers' emotional necessities and in niche markets.

Customer-Driven Pricing in the Age of E-Commerce

In previous periods when data was not quite so free-streaming as today, companies had more scope to shift its prices of goods and services among various customer gatherings. Product and service credits, as well as prices, were not however transparent as they seem to be today. This presents difficulties to companies to set customer-driven prices since data advantages have been disintegrated.

It is as yet conceivable, however, for companies that stay current on the necessities of well established customers to hold pricing power when they give product or service value that surpasses the cost to the customers.

Features

• To be effective, companies ought to consider how to best segment the market so that prices mirror those segments perceptions of value.
• Customer-driven pricing is a pricing strategy wherein a company sets prices as per customers' perceived value of its products and services.