Product Pricing Is One Of The Most Important Business Management Processes That Requires The Analysis Of Many Components And Factors.

When customers evaluate a product or service in terms of value or price, they are actually comparing the perceived value of it to the price stated by the seller. Marketers and managers have devoted a large part of their effort and time to managing the price sector and neglecting the value sector.

However, they are naturally looking for more revenue, which is achieved by increasing prices. Also, price management can be considered a simple part of the job; Because it involves the management of limited numbers, and price analysis processes today are performed with good quality and structure.

What consumers see as value is a complex concept that cannot be easily understood psychologically.

Leadership teams, meanwhile, face a serious value management problem and ways to deliver it better; Value that can be imagined and analyzed in various functional categories (saving time and reducing costs) or emotional (reducing anxiety and providing entertainment).

Unique selection analysis that examines the demand for different combinations of capabilities and price and other product components and similar analytical methods are powerful and useful tools.

They are also designed to test the consumer’s reaction to predefined value concepts. Predetermined concepts are the ones that managers choose and are generally influenced by the judgment of the same managers.

To understand new concepts of value and find more components, we need to look at what other people value.

The nature and value of each product are always seen in the eyes of its owner.

Of course, general value estimation contracts help companies increase their productivity in existing markets or enter new ones. Professional modeling of consumer value allows the company to create a new combination of values ​​offered with goods and services. The right combination leads to more customer loyalty.

Also, the desire of customers to try out a new brand depends on the right combination of values, and ultimately, a steady and appropriate revenue growth.

Product value is important in evolving with pricing strategy

Researchers at Harvard Business School have identified 30 important components of value in one of their studies. The components are presented in four categories: functional, emotional, profound impact on life, and social impact. Some components are user-centric and target personal needs.

For example, “motivation,” categorized as having a profound impact on life, is the core value of Fitbit health tracking products. Other components are focused on the outside of the customer and help him interact with and move with the world around him.

In this regard, the functional component of “regulation” can be considered the core value of personal tax management software such as TurboTax from Intuit; Tools allow the user to better communicate with the world’s complexities.

Harvard’s research does not at first glance examine the customer’s perception of the product; Rather, the subsurface structures of comment are important to them.

For example, when users describe their banking services as “convenient,” they refer to the functional components of saving time, avoiding problems, simplifying the process, and reducing effort.

In contrast, when a photographer addresses a thousand-dollar Leica camera with quality, other factors are considered.

The qualitative component influencing life called “self-realization” has been one of the basic factors in shaping his definition; A component that may arise from a sense of pride in owning a professional camera that has been in the hands of professional photographers for over a century.

 

The 30 components of Product Value Assessment cover three decades of Harvard Business School researchers’ work, combining customer research and corporate customer study.

Studies have also analyzed customer feedback in both quantitative and qualitative categories. Most studies have also been done using the ladder interview technique.

The research model is rooted in Maslow’s basic needs pyramid model, first published in 1943.

In summary, Maslow claims in his theory that human activities have an inner desire to meet various needs, from fundamental needs such as security. And food and the rest range from complex types such as self-esteem and altruism.

Today, almost all marketers are familiar with the Maslow pyramid. The value components approach also presents the same perspective by focusing on people as consumers. The new classification describes human behavior about products and goods.

Comparing the Maslow pyramid with the 30 components of product valuation is not without merit. He presented his theory in textual form, But commentators later designed the pyramid for him.

At the bottom of the pyramid, we see the security and physiological needs; On top of that, the needs become more complex, and we get to needs like self-realization and self-improvement.

The basic premise is that people will not meet the higher needs until the needs at the bottom of the pyramid are met.

Of course, Maslow’s own view differed slightly from the current interpretation.

He believed that there are various patterns to meet the needs of each step. Rock climbers, for example, eliminate the need for self-realization in climbing difficult peaks without the use of ropes; While ignoring basic needs such as security.

The pyramid of product valuation components also has a hierarchical structure; However, it does not necessarily claim to be perfect in theory.

In this pyramid, the strongest value components are at the top; As a result, a company that tends to offer high-quality components to its product must also have several common performance values ​​in categorizing its product into the lower layers.

Of course, in the end, various components can be found in today’s successful products and services.

Many components of product value have existed for centuries and even earlier; However, their appearance and expression have definitely changed over time.

For example, the value of “connecting” was provided by messengers who moved messages on foot in the past.

Then, all kinds of mail, telegraph, telephone, internet, email, and messenger applications became symbols of this value.

The relationship of the components varies depending on the industry, location, culture, gender, and age classification of customers.

For example, the value of “nostalgia” or “completion” is unlikely to have much meaning for farmers working in developing countries; While “risk reduction” and “revenue generation” will be vital for them.

Similarly, the form and symbol of “self-realization” has changed throughout history and was generally out of reach of most consumers who focused on “survival.” After all, any product or service that saves time and reduces hassle and cost has always been popular.

Increase revenue

Harvard researchers worked with Research Now to examine the relationship and impact of value components on corporate performance, particularly customer relationship and revenue growth, to more than 10,000 U.S. customers receiving and understanding them from about 50 companies based in that country.

Do research. Each person in the survey surveyed the company they bought the product with, with a score between zero and ten for each component.

Finally, the scores obtained were compared with the important factors of customer relationship and company revenue to discover their relationship.

^{Maslow Pyramid}

The initial idea was that companies with good performance in various components would have more loyal customers than others, and the survey and its preliminary results partially confirmed this idea.

NPS (One of the Important Factors in Customer Relationships) Companies that scored high (eight or more) in four components or more than 50% of participants were three times more likely than companies that scored in just one component.

In addition, the NPS of these companies (companies such as Apple, Samsung, USAA, TOMS, and Amazon) was four times higher than companies that did not score high on any component.

Certainly, the higher the scores on the components, the better the company’s performance; But no company can offer all 30 components in its product and service. Even Apple, one of the most successful companies in the consumer market, had only 11 of the 30 components.

There are exceptions to the Maslow pyramid and its interpretation of human needs.

Researchers in other backgrounds thought that companies with good performance in several value components would have better revenue growth rates than others. Certainly, any company’s strong and appropriate performance in several components is accompanied by more revenue and faster financial growth.

Companies that scored four points experienced four times the growth rate of other companies with a high score. Market-winning companies compete more creatively with other actors in selecting new components; However, they did not necessarily follow the components of the value pyramid.

Another point explored in the study was the impact of value components on the rapid growth of digital companies’ market share. This theory was also well confirmed in the poll.

Amazon, for example, scored the most points in a poll that showed the power to add value to a core concept.

They have implemented capabilities in their products that are close to the components of the value pyramid.

For example, at Amazon Prime, introduced in 2005, the company focused on two important components: “cost reduction” and “time-saving.”

Users received a two-day delivery guarantee of $ 79 per year. They then added features such as content streaming to Prime that offered “access” and “enjoyment/entertainment” values.

Other features include the infinite photo storage service on Amazon servers, which has the value of “risk reduction.” Each new component attracted a large group of customers to the company and improved services.

Prime now accounts for more than 40 percent of the US market and is known as a retail giant. These successes allowed the company to increase the price of its service to $ 119.

Value patterns

Researchers analyzed how components affect business productivity to help companies manage the value of the product equation. Were some components more important than others?

Do companies have to compete at the top of the pyramid to be more successful? Can they grow by focusing on functional components? What values ​​do consumers see in comparing digital products with traditional ones?

By combining the data collected from the survey, three main models for creating value were developed.

Some components are more important than others.

Of all the industries involved in HBR analysis, the product’s perceived quality had the greatest impact on customer loyalty. Every company’s products and services must have a minimum of this component, and no other component at any level can compensate for the lack of quality.

The critical component after quality is highly dependent on the target business of the business. And in the food and beverage industry, “sensory appeal” is certainly significant.

In consumer banking, “providing access” and “inheritance (appropriate investment for future generations)” are important.

“inheritance” can be considered a vital component of all financial services that benefit from the direct relationship between money and inheritance.

In the mobile phone industry, a combination of various components is important, among which we can “reduce difficulties,” “save time,” “connect,” “complete,” “diversity,” “entertainment,” “provide access, And “regulation.”

The top manufacturers in the industry received the highest customer value scores in surveys.

Consumers know more about the value of digital companies

Online businesses with great design and structuring make many customer interactions easier and more accessible. In fact, most digital businesses are successful in values ​​such as “save time” and “avoid problems.”

Netflix, for example, scored three times as much in polls as it did on traditional TVs, in values ​​such as cost-cutting and health-value and nostalgia, and as a value in terms of diversity compared to other media companies.

Traditional companies can still win on some components

Retailers and activists who still use a (traditional sales) channel to engage with customers perform better in some emotional and life-affecting components.

For example, they are twice as likely as retailers to operate online to win components such as “brand value,” “attractiveness,” and “affiliation

.” Consumers who get help from retailers in stores give more rankings to retailers. Eventually, these same emotional components made some physical sales-focused retailers survive in business.

Businesses with more emotional value components are more successful in increasing the NPS factor than competitors who are more focused on product performance.

There has been a previous study that partially confirms this result.

In this study, it was claimed that digital technologies are transforming physical businesses instead of obliterating them; As a result, combining physical and digital channels will be much more practical than just focusing on one area.

For this reason, we see a variety of businesses with physical roots gradually choosing digital channels to communicate and attract customers.

In contrast, numerous online and digital businesses have moved on to launching physical channels. So again, this would mean that you have to spend on these processes.

Utilizing valuation components

After understanding the value components of products and services and the impact of their various patterns on business development, it is time to implement them.

However, the components must help solve the fundamental problems of the business, such as increasing revenue, and have the least need to change existing products and services fundamentally.

Many companies working with Harvard Business School researchers have gradually implemented their 30 values ​​into their structure.

 They have even developed a value-seeking mentality among employees.

Although many successful entrepreneurs have inherently discovered value-added strategies for their innovation, their work becomes more difficult as their company grows.

In large companies, leaders spend little time communicating with customers; As a result, the speed of innovation in the company decreases over time. Value components help these leaders identify new values.

After understanding the basic and practical values ​​of the product, some businesses turn them into a deliverable structure in their business model. In contrast, others start research again and find important values ​​for the industry in which they operate.

Then, by investing in those values, they increase their influence and income.

 Companies that lack core industry values ​​need to address weaknesses before adding new components to the business model.

Adding value to the current components of the business is very important in increasing the value of the whole product. This part becomes more important when adding a new component by maintaining the status quo, investing more, and paying more attention.

For example, software companies in recent years have added “risk reduction” value to their products and services by adding cloud storage and processing capabilities, which in turn has the value of “providing access.”

The process of finding a new value component for products and adding it to the current structure requires in-depth research by managers. For example, the following path can be used as a suggestion to explore and find new value for the company.

Extensive research and listening to potential and actual customers’ opinions can be considered the first step in identifying a new value component.

At this stage, the customer’s preferences for product selection in their target category should be found, and then issues such as dissatisfaction should be considered.

After examining and recognizing these components, new ideas should be identified by connecting them to the main and influential components in the pyramid. In the next steps, you need to start the prototypes exactly like the design of the new product.

After designing the initial and conceptual models, you will have to go through feedback processes and even face-to-face interviews to analyze new ideas.

Product value components will be useful and effective when the organization’s leaders realize their importance in creating growth opportunities for the company, especially revenue generation.

In such a situation, adding new value to the products or redesigning them to improve the value mix will definitely become the organization’s priority.

Minimal value management and product redesign for optimal combination should prioritize cost management and product pricing and increase customer loyalty.

The main goals of businesses that should have a mission to improve values ​​can be summarized as follows:

• New product development: The model we introduced is fundamental and efficient in designing a new product or adding value to the current product. For example, managers to develop a new value component can ask such questions as: Can we develop a new way of communicating with consumers? Do our customers benefit from integrating the service with other applications and software? Can we add medical value to our service?
• Pricing:  Managers generally see product and service price as the most important leverage for demand management. When demand is stable, higher prices mean higher profits. Also, the higher price changes the equation of value for the consumer to some extent. As a result, any discussion of price changes should include the addition of new value components. Recall that Amazon gradually gained the ability to add prices by adding a vital value component.

• Customer Classification: Most companies commonly categorize customers into gender, age, and behavioral groups. They then analyze the values ​​of each group and offer products and services to provide those values.

Whenever there is an opportunity to improve values, managers should conduct a survey and review of current and potential customers to see the company’s current state in providing opportunities.

The survey should also examine the brand along with the products. Testing the level of value components in each of these two may have different results.

For example, the product itself may be of great value, but customers cannot receive proper customer service and support, which leads to a decrease in value.

The concept of value has deep roots in psychology; Of course, by studying and understanding the components of value, the ambiguity of the problem is slightly reduced, and value can be understood as an intuitive concept.

Maslow demonstrated the potential for psychology by intuition his findings on human needs.

Value components now help managers understand and increase the value of their products, brands, and services by understanding this psychological concept; The path ultimately leads to greater customer satisfaction, the main judges of the product’s value and service.