This five-part series explores the value-based pricing model’s inner workings and breaks down the model’s most basic elements. The model focuses on competition and cost like other models do but also factors in an often overlooked aspect of your events – the customer. You will also see how this model can maximize your revenues and deliver an experience your customers won’t soon forget. In the first part, we cover the basics of the model. In parts two and three, we look at how the value-based pricing model reveals gaps, increases value, and how the prices should guide the cost. Finally, in parts four and five, we put the value-based pricing model into action and look at determining your ticket types and setting and increasing prices. Our primary goal throughout the series is to break down these various parts to make you comfortable implementing this model into your events.
Last month, we looked at several different pricing strategies. Specifically, we looked at competitive pricing, cost-plus pricing, and value-based pricing. The main benefit of using value-based pricing versus the others is considering the customer. This month, we will explore the value-based pricing model more in-depth and see how it can reveal gaps between perceived value and cost and increase perceived value.
Revealing Gaps
Let’s say we are members of a chapter looking to put on a show like we have done for so many years now. We have a few different ticket types like General Admission, Group Discounts, etc., but after a while, we decide to create a new “Early Access” ticket type. It doesn’t have many extra perks, but it allows attendees to enter the event earlier than the General Admission ticket. No waiting in long lines, no crowd to worry about, etc. You can think about the people who are always the first ones at the door waiting to get into the show. Doors open at 6:30 PM, and they are there as early as 6 PM or 5:30 PM because they don’t like the crowds or lines and want good parking.
This new ticket type that we have introduced allows us to capture more revenue and deliver more value to those customers who care about beating the crowd. Those who see that value are willing to pay more for the benefit, those who don’t pay more in line with their perception of value, and everyone still paid less than what they perceived the event was worth.
Additionally, it cost us little to nothing extra to do this, but this is irrelevant to our attendees. The attendees evaluate the price based on perceived value, not our cost or competitors’ prices. So, we found a way to deliver more value, have our attendees pay for it, and have little to no additional cost.
Increase Perceived Value
Let’s stick with our chapter show from above but do something slightly different. We will charge less for tickets before the event and more for the same tickets the day of the event. There’s nothing revolutionary about this, and it is something many event organizers do. Let’s use some arbitrary numbers like $20 before and $35 the day of, and we make this well known to our attendees when the tickets go on sale. No hiding it or beating around the bush. We communicate to them the exact dollar amount they will pay on-site to make the advantage of purchasing in advance very clear in their minds.
We limit our flexibility because we locked ourselves into that price at the time of the event, but we gain some real advantages in exchange. In this instance, we have shaped the perceived value by increasing the gap between perceived value and actual price. We have essentially pushed the perceived value closer to $35, and in the minds of our attendees, getting a $35 ticket for $20 today is an enticing deal.
The Golden Words – “Sold Out”
Now we will look at another method of raising the perceived value, and this time, let’s use something more real world. When this whole pandemic started, there was this rush to buy, of all things, toilet paper, and there was almost a very sudden onset. One day toilet paper sales were pretty average, and then a few days later, you couldn’t find it anymore. The fact that you couldn’t find it anymore also meant that you wanted or needed it more, or at least you thought you did because the perceived value of goods goes up when there are fewer of them.
We can similarly recreate this kind of mentality in our events because we have a finite number of tickets. The more direct we can be in communicating that to our customers, the more value they will associate with the event. The words “sold out” are gold when it comes to events because it lifts the perceived value. Harnessing this power comes from selling multiple different ticket types, though, which helps show the importance of having multiple ticket types. More on that later.
Thus far, we have looked at several different pricing strategies for events, and we have explored the power of value-based pricing. We’ve seen how it can show us gaps between our perceived value and cost and how we can increase the perceived value to drive sales. Next month, we will examine the interplay between cost and profitability and letting the price guide the cost instead of allowing cost to determine the price.