How do you sell value? Show them!

Say you have a product that costs the customer almost twice as much as the alternative. How do you convince them to buy your product over the alternative?

Pricing starts with customer segmentation – the needs of different customer segments are different and the value they assign to products and solutions that address these needs are different.

If you treat all your customers as just one mega segment you will end up pricing your product based on the cheapest alternative available to most vs. value delivered to different segments.

Knowing the segment helps you not only price the product but show them the value.

Here is a case study done by US Department of Energy for LED bulbs. The initial price is almost twice as much as traditional lighting systems. While consumer segments most likely are not willing to pay twice the price for LED, business segments are. That is if you show them the value.

For instance, you and I may not mind changing light-bulbs every year because our opportunity cost is $0. But for businesses there are real costs associated with maintenance. Every bulb change avoided is not only savings in bulb cost but savings in maintenance costs.  If you add these all up, despite the high initial cost, the LED systems  deliver 9% in total cost savings over the lifetime.

That is how you sell value!

3 thoughts on “How do you sell value? Show them!

  1. Wim
    It is worse. It is NPV ( without time value of money) over 10 years. But the incremental cost is only 70k over traditional system. You are right about switching costs to. Likely this is a better candidate for newer store openings ( which Walmart seems to be doing frequently) or at refresh time.
    Thanks for pointing out. I should have added the caveats.
    – rags

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  2. The only problem is that this is just a 25K annual saving on an initial investment of 150K.. And then I’m not taking into account the initial swapping costs.. It thus takes 6 years or more to earn all back.

    In my experience that’s too long a window for most companies. Unfortunately I may add.

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