Why will some people pay $5.00 for a watch while others will pay almost $20,000 for a top of the line Apple Watch? Many people may think the expensive watch is unfairly priced but to the purchaser and the vendor it is not. This concept can be mind-boggling because, assuming that both watches tell accurate time, both watches have the same function: to tell time. This is an example of price vs value.
While price is the monetary value of goods, service or assets, there are several factors to consider when pricing your product. Here are two important factors to consider when pricing, including value.
1) Consider Your Objectives
Decide where your break-even point is and decide how much profit you would like to obtain. This also depends on your product. Lower pricing can help you gain market share and discourage competition, however your customer should realize that lower pricing usually means limited features and limited or no service. In addition, when you low cost price you may not have the luxury of customer loyalty. When you engage in low cost pricing it is important that you are always aware of your competitors price, so that you do not lose market share. Customers who buy at low cost usually do so because of price not relationship.
2) Consider The Value
Sometime your product can cost a lot to produce, but if people do not see the value in the product they will not pay the price. The value of your product is the price that the consumer is willing to pay and the level of market demand. High-priced products can be sold because of real and perceived values. The real value is the actual cost to create the product. A plastic watch with plastic parts will be less expensive to produce than a platinum watch with platinum parts. The perceived value goes beyond the actual costs. High-priced products are usually associated with prestige, image, and high quality. They are usually unique, have many features and are commonly backed by a lifetime warranty. When people value a product, price is usually not a factor.
Most products are priced with price and value in mind. You have to choose the combination that works best for you and your customers.