For the final installment of our three-part Pricing Strategy posts, we’ll discuss Value-pricing: the least straight-forward of the three strategies, but potentially the most rewarding. Value-pricing allows you to realize and capture “high-margin revenue” – revenue that requires no additional inputs of labor or materials, and just puts extra money in your pocket.
Value-pricing works by determining the value of your products to your consumers and pricing accordingly.
Now, the most straight-forward way to assess this would be to ask your customers what they would be willing to pay, but that seems a little too aggressive. A more subtle approach is to measure your sales performance or velocity.
For example, if the people in your community love, LOVE ground cherries and no one else grows them, how should you price them? Without peers for comparison, a competitive pricing strategy is unavailable; they cost $2.25/pint to grow and distribute, so you charge $3/pint, but quickly realize that you’re selling out every week.
A value-pricing strategy, and what Cabbige automates for farmers, measures how quickly you sell through your inventory, which indicates how much pricing leverage you have and how much more you can fairly and profitably charge. You may find that you can actually get $4.25, which puts an extra $1.25/pint directly into your pockets with no additional work. If you have a CSA, it helps you arrive at that invisible threshold where consumers feel they’ve gotten the “value” out of the CSA with less product, effort, and cost.
In short, measuring sales performance or velocity, helps determine how much people are willing to pay for your products at a given time, which may be much higher than you would charge with a simple cost-plus strategy.
Pros: Potential for realizing high-margin, low-input revenue.
Cons: Requires measuring sales performance of individual crops, which can be time-consuming, but Cabbige works to make it much easier.
We hope you found this pricing series useful and got you thinking about your strategies for the upcoming growing season. If you have any questions on what we've posted, or just want more information on setting pricing, don't hesitate to contact us here.