Value-based marketing strategy has two distinct roles in the company. It represents a change from pricing based on costs to pricing that reflects the value customers perceive. The strategy also relates to shareholder value. What value does marketing add to the company and how does that affect the value shareholders put on a company?
The combination of information on the Internet and the growing use of feedback and reviews on social networking sites enable customers to gain a greater understanding of the range of products and services available to them. That means customers now have an improved ability to articulate their value expectations, according to Robert Harmon and Greg Laird. “Knowing what customers value and how the solutions a company provides meet those values is key to developing a viable marketing strategy,” states the authors.
By monitoring customer feedback and reviews, companies can identify the factors that customers value most. Those factors form the basis for value-based pricing. Bradley Gale and Donald Swire of Customer Value, Inc., argue that the change in pricing strategy enables companies to focus on factors that differentiate products from competitors and calculate the price premium they can charge.
By understanding the factors that customers value, companies can position their products and communicate messages that underpin the premium pricing. A product that reduces a customer’s maintenance costs demonstrates value over the lifetime of a product. Services that help customers run their business more efficiently or develop new products demonstrate strategic value. Both factors are strong differentiators and justify premium pricing based on customer value.
Gale and Sire also recommend basing product development strategy on value-based marketing: “What improvements to your product would add the most value from the customer’s perspective?” As well as generic product developments, companies also should consider customizing products for individual customers where there is an opportunity to add specific value.
The subtitle of Peter Doyle’s book on value-based marketing -- “Marketing Strategies for Corporate Growth and Shareholder Value” – highlights the impact that the right strategy can have on a company as well as customers. Doyle claims that there are strong links between marketing performance and shareholder value. When marketing operates highly targeted programs that improve revenue and profitability, the results will create greater shareholder value over time. Value-based pricing and value-based marketing help to deliver the required results.