‘Value Pricing’ Key to Boosting Profits

Dell Computer has it. So do Amazon.com and eBay. Oracle has it, and even some traditional manufacturing companies like Toyota and Volkswagen have it.

What these companies have in common, according to a new research report, is the ability to move away from traditional methods of setting prices such as the cost-plus model or benchmarking of competitor’s prices, and begin to use the power of “value pricing.”

The research from San Diego-based customer value research firm Miller-Williams defines value pricing as a model that determines prices based on “a set of value drivers that varies from industry to industry.”

Each driver has a set of expectations attached to it. The company that can identify a customer’s set of drivers and meet expectations wins pricing power over competitors, says the report, entitled “Pricing Power 2003.”

The study looked at the PC industry (leaders were Dell and Apple ); the e-commerce industry (leaders were eBay and Amazon ) and software (leaders were Intuit and Oracle ).

Other industries examined were automotive (leaders were Toyota and Volkswagen), media (leaders were HBO and Fox ), and telecoms, where the leaders were Cingular Wireless and Nextel .

The study says these companies understand customer value the best and are currently enjoying the most pricing power.

The study was based on responses from12,277 customers from November 2001 to November 2002. Respondents were asked to rate the importance of 30 company attributes when making a purchasing decision – things such as a company’s financial stability, industry alliances, senior management credibility and perceived customer satisfaction.

Respondents then described how closely each market-leading company met their ideal. More successful companies had the smallest gap between the customer ideal and their company’s performance in that industry.