Unlocking profitability: When your offering’s value outweighs its price point

Consider this scenario: a company develops products that address critical needs within the industry and continually enhances the product over time. Their customer base is loyal and supportive, but despite the increasing value of the products, the prices remain stagnant. These companies have a tremendous amount of differentiated value but are lacking in execution to monetize the value created.

Many businesses can get stuck as they grow to dominate the market, even those with a dedicated customer base and innovative offerings. Leaders find themselves with insufficient resources to support customers, expand product offerings, or maintain profitability. This can often be attributed to a failure to adjust prices in line with the value provided.

This is where we see stale pricing. Without adjusting prices to reflect the increased value, businesses often find themselves struggling to reinvest in product development, customer support, and other essential areas. This lack of resources can hinder the business's ability to meet evolving customer demands and maintain a competitive edge in the market over time. 

When value increases but prices aren’t adjusted accordingly, we see lower perceived value of the products or services offered. Potential customers may question the quality and capabilities of the offerings if they are priced significantly lower than competitors or industry standards. The low price also serves to set a low anchor price for both your customers and the internal team. This discrepancy in pricing versus perceived value can impede the business's growth and limit its ability to attract new customers.

As the gap between value delivered and price widens, implementing price adjustments to align with the value provided will be daunting. Customers will resist price increases they are not accustomed to. Internal teams will also resist change in practice and lack the necessary training and skills to set and negotiate pricing effectively. 

Raising prices across a customer base may seem logical, but it comes with inherent risk. Existing customers may perceive pricing discrepancies between themselves and new customers as unfair, leading to dissatisfaction and, ultimately, loss of business.

Here are some best practices to navigate these challenges and maximize profitability:

Understand the value you create: Take the time to thoroughly understand the impact and benefits your products or services offer to customers. Recognize the value proposition from the customer's perspective. The market is ever-dynamic, and values will shift over time, so monitoring the dynamic value drivers regularly will help you determine your standing in the marketplace.  

Price according to value: Instead of basing prices solely on production costs or industry standards, adopt a value-based pricing approach. Ensure that your prices reflect the value customers receive from your offerings. As you innovate, you may need to restructure your packaging tiers to adjust for new features and benefits.

Breaking the anchor price: When your customers have only seen your low price, they tend to anchor their price expectations on the lower price. Here are some ways to reset when a customer is stuck on an outdated or low-price point from a competitor. 

Prepare your team: Provide your internal teams with training and resources to understand the value they contribute to the customer. As a starting point, the use of Give-Gets and flanking products can equip teams to defend and negotiate prices effectively.

To unlock additional profitability and get paid fairly, we must capture differentiated value through effective price execution. This begins with understanding the value you provide as you innovate. By understanding the value created, adopting value-based pricing, resetting customer expectations, and preparing your team, you can navigate pricing challenges and maximize profitability.