Wednesday, 27 May 2009

Surprise article on CVM

The psychology and economics of pricing and value allow you to serve your client’s interests and your own by ensuring they perceive the highest possible value in what you offer. Want to have more people upgrade from your £5 to your £9 bottle of wine? Just put a £15 bottle on the same shelf and about half will switch to the £9 option. The best thing about this is that in tests, consumers reported that the same wine actually tasted better when they had spent more money on it.

Behavioural economics research provides a range of around 20 such cognitive biases – ways that people can be guided to perceive more value in the products and services they buy. The big question is how to take advantage of this research to increase sales.

Customer value management

Customer value management (CVM) is the business process of analysing a client, understanding what they value most and designing your offer to match it.

Most professional firms, consultancies and modern service-based businesses base their pricing on an hourly or daily rate, even when they quote a fixed project price. The danger is that the customer and supplier’s interests may not match or that the supplier over-services the client and is not fairly paid for the value they produce. In contrast, structured pricing aligns charges with what customers and clients want most and is a powerful sales technique.

Read more in my full article on behavioural economics and CVM on AccountingWeb: "The psychology of selling". I didn't even know this was going in, but it's getting some attention so please do have a look.

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