“Perceived Value” pricing is pricing for a product or service at a level that reflects the potential savings, the highest satisfaction level, or the maximum use that a client will receive from the purchase and the use of the product or service. Overall, price is set at the highest level that your target market is willing to pay, given these benefits.
This type of pricing reflects a sustainable competitive advantage (SCA) where there is little or no competition. SCA is a description of what is unique about your product or solution that makes you valued in the marketplace. A competitive advantage is sustainable if others can’t copy or deliver the same thing, or if the cost or the time to develop a competing solution is very significant. Micheal Porter, the Harvard Professor who coined the term SCA, suggests that a competitive advantage is achieved when you do different things that are valued by your customer and are not available from the competition.
Pricing with perceived value pricing is niche market heaven. However, be sure that your competitive advantage is real and defensible, or you have got trouble on the way.
How much is too much to charge, when utilizing perceived value based pricing? Look for tear stains on the checks you receive from customers. If it hurts them to write you a check, then you are charging too much. If that is the case, you will need to lower the price.
John Bradley Jackson
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P. S. Greg Jordan has some similar thoughts on his blog Marketing Clique.