As a part of the 4 primary marketing mix components (Product, Price, Place, and Promotion) Price plays a very interesting role as the communicator of VALUE.  We buy things or experiences not for what they are alone, but rather for the value that they hold for us.  A high price communicates that the price setter places a high value on the product (or thinks that it holds a high value for the buyer).  The decision to purchase (and the purchase transaction) happens when the buyer’s estimation of value is equal to or above this value indication of price.  The development of your product offering to the point that “they would pay more” (while including a profit for you) is a good place to be.  This makes the buying moment “YES” feel right for the buyer.

You can base your pricing on your costs + a margin, a market analysis and competitor benchmarking (perhaps requiring you to cut costs to be profitable), or based upon the value that your product creates for your buyer.  A knowledge of all 3 is important to maintain profitability and competitiveness.  The elements that build value for your customers are NOT necessarily connected to the cost of producing that value.  Knowing costs are important to avoid loosing money. Your costs are not related to the value that you are creating.  (Think of the costs of a child’s artwork made especially for you…)

UNDERSTANDING which elements create VALUE for your customers allows you to differentiate and focus your offering.  The challenge is that when it comes to wine, the complexity of the product and the customer combined make it difficult to identify these elements of value.  Our task is to identify groupings of customers that are large enough to be profitable to serve.  With our groupings (based upon what they value) assembled, we can develop a product and pricing strategy that best serves this segmentation.  With your insights into the elements that create value, your offering provides high value and the price can be set at that magic “they would pay more” point and you have created a WIN-WIN.  Mission accomplished.