3 ways to tie product value to pricing

As discussed previously, the price of your product must be communicated in terms of the value the product provides to the customer. If the customer does not fully understand how the price of the product ties into the value it provides, or if the user thinks the price of the product is much higher than the value she perceives it to provide, the product will not do so well in the market even if it caters to an underserved need.

So then, what are the types of values a product can be expressed as?

Both, for the purposes of deciding how to price the product as well as the crucial step of effectively communicating it to the user, the following categorizations of the types of value your product can provide are a good starting point.

Economic value

This consists of the economic benefits, such as monetary savings or time savings, that factor into the price. For instance, when buying a car, the perceived economic value to a customer may be fuel savings because of good mileage or the elimination of an expensive mode of alternative transport that provided the same level of comfort. In a B2B issue-triage tool such as Datadog, this could be expressed as the person-hours this tool could save the company per week for debugging issues, or the cost of an outage that could be prevented using the tool.

Utility value

The perceived utility value of a product is the set of functional benefits it provides to a customer. In the case of an enterprise communication tool like Slack, video chat via the application might be perceived as having utility value since employees of the customer can effectively communicate over video when that is preferred over text-based chat. In our Datadog example, this value could be expressed in terms of the seamlessness with which employees can monitor the applications running or the integration capabilities the tool has with other tools in the ecosystem.

Emotional value

In B2C, emotional value plays a much larger role than in B2B. This refers to the inner feeling a customer attains when she purchases a product. These may be feelings of pride or social superiority (for example, buying an Audi or a Rolex), or feelings of safety (for example, buying a home security system). It is intangible, yet can be a big factor in a pricing decision. In the B2B world, this often weighs less than the other values, since there is most probably a committee or a team that collectively makes the purchase decision, and since the product is being purchased on behalf of a company (and most of the time one’s job is a at risk while making decisions on behalf of one’s company). Going back to the Datadog example, this is much less prevalent than the economic and utility value the tool provides the company, but digging deeper one might observe that the IT manager, who has a say in the buying decision, feels a sense of “smartness” when using a sophisticated tool like Datadog since it can help answer all his questions about the IT he owns. It is for this reason that companies like Datadog often times target their marketing efforts towards developer communities since an internal champion on the customer side can increase the perceived value of the product tremendously.

It is important not only to consider these types of values when setting the price for your product, but also while communicating them to prospective customers. If the customer doesn’t perceive the value the same as you do, this may well be the reason why they choose not to buy.

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