What does Value mean in marketing terminology?


Value in marketing is the relative worth of a product, service, or brand against its perceived advantages and disadvantages. It is an important concept because it helps marketing leaders and team members decide what marketing initiatives to pursue, and how to position and price their products accordingly. Understanding value is essential in knowing how to differentiate a product from its competitors, and how to appeal to the greatest number of potential customers.

As well as addressing marketing objectives, value should be evaluated from a customer’s perspective. By understanding their needs, wants, and expectations, companies can identify opportunities to add value to the customer’s life, creating a positive experience and encouraging recommendations and repeat custom.

Put simply, value is perceived to be the reward a customer experiences by buying a particular product or service. This reward could be in terms of price, quality, durability, experience, convenience, etc. Value must be greater than the perceived cost, or else the customer is unlikely to bother buying it.

Value-Based Pricing

Value-based pricing is a pricing technique that sets a product’s price based on how much value the customer perceives. This method enables companies to focus on providing the best experience possible, while still making a profit by charging prices that are proportionate to the value received. When using value-based pricing, companies should:

• Define the product’s features and the service it may provide and then consider the value this adds for customers.

• Design the offering to meet customer needs and positions the company as offering a product of superior value.

• Price the product according to the perceived value it provides customers.

• Communicate the product, price, and value proposition effectively to the customer.

Premium Pricing

Premium pricing is a strategy where a company charges a higher price for a product or service based on its perceived quality, luxury, or trendiness. Premium pricing is based on the belief that customers will accept a higher-than-average price as long as they receive more than average value in return. The company benefits as it can receive a much-improved margin and revenue.

To optimise premium pricing, companies should:

• Communicate the product's value and benefit to the customer.

• Aim to differentiate their product through quality, innovation, and added features.

• Establish a clear gap between the company’s products and competitor’s offerings.

• Offer additional perks and benefits to reinforce customers’ view of the superior value of their product.

• Use pricing strategies such as discounts, bundle deals and offers to attract new customers.

• Place emphasis on brand building and creating a special customer experience.

Price Skimming

Price skimming is a pricing technique which involves setting a high initial price for a new product then gradually lowering it over time. The high initial price 'skims' the most profitable and loyal customers from the market, allowing the company to maintain a higher margin for a longer period. Over time, the price is reduced to capture the rest of the market, allowing the company to also benefit from a larger quantity of sales. To successfully execute price skimming, companies should:

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• Have a product of superior quality and high value that can command a higher initial price point.

• Establish a well-defined pricing strategy and schedule for reducing the price over time.

• Reinforce the product’s positioning with effective advertising, marketing and customer service.

• Track competitor’s pricing and adjust their own pricing accordingly.

• Monitor and adjust the price skimming cycle to account for any changes in market trends or customer demand.

Penetration Pricing

Penetration pricing is a pricing technique where a company lowers the price of a product or service in order to gain market share or to reach a broader target market. It is also used to increase competition in a particular market, or as a price-leader strategy. To optimise penetration pricing, companies should:

• Ensure the pricing is competitive in comparison to competitors.

• Position the product price low, but with added features or benefits to reinforce its position as providing superior value.

• Run a marketing and advertising campaign that targets a wide audience, ideally using digital media and social networking platforms.

• Focus on increasing sales volume rather than profits in early stages of the product life cycle.

• Monitor and adjust the pricing strategy to ensure that it remains competitive and profitable.

Value-Based Marketing

The aim of value-based marketing is to create value for customers, not just focus on the company’s product or solution. This is done by determining the customer’s needs, developing solutions that fulfil those needs, and then implementing pricing strategies that will benefit both customer and company. To achieve value-based marketing, companies should:

• Ensure that the customer’s needs and wants are being met.

• Identify potential customer pain points and develop solutions to alleviate them.

• Invest in creating a positive customer experience.

• Identify competitive advantages and market them effectively.

• Develop a pricing strategy that rewards customers for the value provided.

• Use product, pricing and positioning to stay ahead of the competition.