For many years, price positioning was basically reduced to the question how effective prices of products and services should be set compared to competitors. However, during the last decade of pricing, a new and a lot more complex perspective on price positioning has gained ground: the price and value perception. This development was based on the insight that one of the most important drivers of a customer’s price satisfaction is the perceived price-value-ratio.
A simple yet useful model that can be used to determine ones price-value ratio and though define ones price position in a certain market is called value map. The basic model of a value map is shown below:
The value map includes 3 key elements:
- Perceived price: Price perception is mainly driven by eight factors (price interest, price estimation, price knowledge, price image, willingness to pay, effective price, price preferences, price satisfaction).
- Perceived value: The dimensions of perceived value differ from company to company. The key question is always: which elements of the company’s value proposition are important for the customers and are therefore perceived as a benefit?
- Price-value-ratio: The buying decision of your customers depends on the price-value-ratio, meaning they compare the perceived price to the perceived value. More specifically: long-term success for companies is only possible if your position is inside the price-value corridor, which indicates fairness to customers.
Our experience shows that only very few companies have access to all that information, neither for their own company nor for their competitors. Therefore gathering the required customer and competitor insight is the first step. Based on this data the current price position in the value map can be derived. Depending on the price strategy and the position of competitors, the target position can be defined.