This is the third article on strategic pricing. In the first, I discussed cost pricing and competitive pricing for medical devices. In the second, I examined skimming and penetration pricing. Today, I will cover value-based pricing.
Value-based pricing strategy
In value-based pricing, you price your product according to the value generated and perceived by the customer.
I have already examined the concept of value for medical technologies; please refer to this post.
Basically, the perceived value to the customer primarily depends on three dimensions: clinical, economic, and psychological.
The use of value pricing brings some complexity related to the various stakeholders involved in the buying process of medical devices, such as the user, the payor, and the provider, who can have divergent value perspectives.
To apply value pricing, first, you must identify comparable solutions to the problems your product solves and their prices.
Then you should determine the differences between your product and the other solutions. The differences must be related to value creation and positive outcomes for the customer.
Finally, you should estimate the financial value of the differences adding the positives about your product and subtracting the negatives.
Value pricing means that the differences in price between two products reflect the value generated by the customer. For this reason, value creation is the foundation of value pricing reversing the perspective of cost pricing.
The value pricing strategy should start early in product development when a target price is defined estimating the value of the product, not the full cost. The predicted target price drives decisions about product development, rather than the other way around.
The best pricing strategy
Which is the best pricing strategy? Well, the answer is… it depends.
Several factors influence the pricing strategy and a one size fits all strategy is not applicable.
Normally the pricing strategy will evolve according to the product lifecycle. For example, you may want to initially price your product using a value-based strategy, then switch to skimming pricing as competition increases and finally move to penetration pricing.
As pricing is one of the most important elements of your market mix, your pricing strategy should be consistent with your overall marketing strategy. If you want a premium price your product must be premium with consistent promotional messages, clinical evidence, service, clinical support, etc.
It is worth noting that all pricing approaches are two-sided. What one customer may find appealing, another may not. You cannot please everyone. Remind yourself that your goal is to influence the customer to buy your product. This requires using a strategy that is suitable for your target market.
Probably a combination of the pricing strategies is the solution: The general pricing strategy is value or cost-based. Then you determine how high your price will be for skimming or penetration and how to respond to competition with competitive pricing.
Conclusion
Price is one of the most effective tools in determining the profits of enterprises.
Therefore, medical device companies that do not have a well-planned price strategy are less likely to be successful in the market.
In my opinion, it is almost impossible to succeed by adhering to a single-price strategy.
An appropriate combination of the discussed strategies and having enough alternatives for this combination will create an advantage for companies to react to market changes.
Finally, pricing is only one of the key, the marketing activities and marketing mix elements, should be aligned with other activities and marketing mix elements. Otherwise, the resulting contradiction will negatively affect the customer’s perception and the business’s image and may cause market loss.
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