![]() Improvement in quality of staff does not, therefore, translate into increased revenue. There is no incentive for you to work faster and smarter, thereby suffocating your skills development and that of your staff. You are tempted to work longer and dumber, because it equates to more hours and more money.The client will hesitate to call you if he has a problem, or an extra service he requires, because he automatically knows it will take more time and hence more money.The client will always want you to work less so he can pay you less. The faster and better you work, the less you get paid.So what exactly is wrong with time based pricing? With the growth in innovative economic theory in modern times, the concept has been formalised and expanded, and today holds the only realistic method of increasing revenue for service providers like accountants. Whenever someone supplied a service that was calculated on the result, or the perceived value to the customer, irrespective of how much time it took, you had value based pricing. ![]() Value based pricing has also been around for a long time, albeit in a different guise. One of advantages for clients is that they are comparing apples-to-apples, which makes life easier for them, and further ingrains the concept. Time based pricing has been around since man invented clocks, and as such, is so deeply ingrained in the minds of both the supplier of services and the customer, that it is difficult to contemplate another way of doing things. Value based pricing, like being an accountant, is a continuous learning process, and through that learning, one continuously adds value. We will also touch on some of the possible pitfalls you should be alert for when implementing value based pricing. Now we are going to go into pricing in much greater detail, to determine why you should switch to value based pricing, and we’ll explore some guidelines as to how to start implementing the concept. We have discussed the concept of the value chain we have completed the first step by starting to rethink our services and we have looked at how to put them into packages or bundles. Secondly, how strong are current competitors, and what are their pricing strategies? If the market is already dominated by large, low-price competitors, the company may be better advised to target unserved market niches with value-added products and prices.Value Based vs Time Based Pricing: An OverviewĪs we have discussed in earlier posts, the journey to value based pricing is fraught with many pitfalls for the unwary. First of all, how does the company’s market offering compare with competitors’ market offerings in terms of customer value? If consumers perceive that the company’s product provides greater value, the company can charge a higher price. However, in assessing competitors’ pricing strategies, the company should ask several questions. For instance in the gasoline industry, competition-based pricing is applied. In highly competitive markets, consumers will base their judgements of a product’s value on the prices that competitors charge for similar products. Competition-based Pricing – 3 major Pricing Strategiesįinally, competition-based pricing involves setting prices based on competitors’ strategies, costs, prices and market offerings. We can see that choosing between the 3 major pricing strategies is closely related to the overall marketing strategy – actually it is an integral part of it. By offering superior customer value, they can claim higher prices and margins – they pursue a customer value-based pricing strategy. Other companies, such as Apple or BMW, do not compete based on low prices. This goes along with accepting smaller margins but greater sales. Some companies, such as Ryanair or Walmart, pursue a low-cost strategy and aim to offer the lowest prices. In order to make some profit, a fair rate of return is added to account for efforts and risks. Therefore, cost-based pricing involves setting prices based on the costs for producing, distributing and selling the product. ![]() Costs set the floor for the price that the company can charge. While in customer value-based pricing, customers’ perceptions of value are key to setting prices, in cost-based pricing the seller’s costs are the primary consideration. Cost-based Pricing – 3 major Pricing Strategies Price is considered along with all other marketing mix variables before the marketing programme is set. ![]() This also means that we cannot design a product and marketing programme and then set the price. Summing these considerations up, we can say that customer value-based pricing uses buyers’ perceptions of value as the key to pricing, instead of the seller’s costs.
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