How Your Value Proposition Can Affect a Customer’s Willingness to Pay

You can describe any business as an exchange of value (described by the value proposition) for money. When customers do business with a company, they exchange their money for the value the company has to offer. Such is the case from the smallest company to the largest corporation.

For this exchange of value to be meaningful, the customer must feel the value they are getting is equivalent to or more than the money they are willing to pay.

For example, a hungry customer may be willing to pay $20 for a meal but may not be willing to pay $100 for the same meal, especially if they feel the value that they are getting is not equivalent to what they are paying.

In this article, we explore the connection between value (value proposition) and a customer’s willingness to pay for that value.

What is a Value Proposition?

Venn diagram illustrating the meaning of value proposition.
Value Proposition definition. Image via Hubspot.

A value proposition or VP is a promise or value statement that tells your customers what you have to offer. It is also a commitment to meeting a customer’s specific needs. For example, if you run a bakery, your value proposition could be something as simple as:

“Get freshly baked donuts and freshly brewed coffee on your morning commute to work. Every weekday.”

What this tells your customers (working-class commuters) is that when they come into your store (on their way to work), they know what to expect (fresh donuts and coffee), come rain or shine.

In this sense, your value proposition offers clarity on what value you are providing.

What a Value Proposition Isn’t

On the flip side, there are certain things a value proposition isn’t.

These are:

  • An incentive: Discounts, sales, member rewards, and the like are incentives, but a value proposition isn’t. The primary purpose of a value proposition is to inform, not influence, a buyer’s behavior.
  • A slogan or catchphrase: Although you can distill a value proposition into a catchphrase, it is not a catchphrase/slogan, which primarily identifies a company and not the value it offers.
  • A positioning statement: Positioning statements describe how a product or service fits into a given market or consumer need relative to the competition. While a positioning statement is an aspect of a value proposition, it cannot stand as the value proposition (mostly because your customers will not understand the marketing speak such statements often use).

Four Ways Your Value Proposition Affects a Customer’s Willingness to Pay

Now that we have a clear picture of what a VP is, how does it affect a customer’s willingness to pay?

1. Value Exchange

When a customer lands on your website, they come looking for a solution to their needs. In other words, they come looking for value. Your VP, which is often visible on your homepage, tells them whether they are in the right place or not. However, most customers, once they see you have value to offer, will compare this value to what you are charging. If your VP communicates low value relative to your pricing, a customer will be unwilling to pay. What you want to go for is a VP that demonstrates higher value than what you are charging, making a customer more willing to pay.

2. Price Sensitivity

Price sensitivity is the relative amount of money a customer is willing to pay for goods or services. Multiple factors influence price sensitivity, including the cost of living, income level, perceived value, social pressures, among others. A strong VP considers all these factors to address the customer’s price sensitivity. For example, if a SaaS product only offers a handful of features but costs hundreds of dollars, the VP must clearly show the customer that even with few features, the product is worth the premium price.

3. Competitive Comparison

It is no secret that your business has competitors and that your customers most likely know about them and are comparing you against them. Your VP comes as a strong determinant of how this comparison goes. Remember, your competition may be charging as much or even less than you. If your VP does not make a strong case for your product and pricing, your competition may win. In this way, a sharp VP ties pricing to value, helping your customers know you are a better bet, whether your prices are higher or lower than the competition.

4. Product/Market Fit

Lastly, your VP demonstrates your product/market fit or PMF. PMF is a valuable indicator that shows whether your product is satisfactorily meeting the needs of a large enough market. For a customer, your product’s PMF translates into an “AHA!” moment that tells them they have found the right solution. However, that “AHA!” moment will never come if you do not have a strong VP. Similarly, if your VP does not match your pricing, that “AHA!” may quickly turn into an “AHEM!” as customers abandon your conversion funnel.

How to Craft a Strong Value Proposition that Converts

A strong value proposition is the foundation of your business. Here are a few ways you can ensure yours succeeds:

  • Explain what you offer in a customer-centric approach: Using simple, concise and effective writing, explain to your target audience what you have to offer. When doing so, avoid focusing inwards. For example, don’t say, “We sell great coffee,” say instead, “Enjoy our fresh coffee.”
  • Know who you are addressing: Most value propositions fail because they address everyone and anyone (and no one). Effective VPs address a specific market demographic, using language and wording that resonates with them.  
  • Emphasize your differentiating factors: VPs are sometimes called unique selling points or USPs and for a good reason. Your customers want to know what makes you better than the competition – use your VP to tell them.
  • Use your VP to cause dissatisfaction: A strong VP clearly identifies a customer’s need, creates strong discontent, and then offers a solution. This approach creates a strong link between the customer’s needs and your product’s value.

Benefits of A Strong Value Proposition

When you craft a strong VP, here are some of the benefits you can expect:

  • Clear and quick understanding of what you are offering: Nothing is more frustrating than landing on a website and struggling to understand what the company has to offer. Crafting a strong VP will ensure potential customers get that “AHA!” moment immediately they land on your website.
  • More willingness to pay: If a potential customer quickly understands what you have to offer, it makes it easier for them to pay. Of course, you will need to match your pricing to your value, but a strong VP will increase your chances of converting.
  • Filter out low-quality leads: A strong VP makes it clear from the very start who your target market is and who isn’t. For potential customers, clearly understanding your VP will help them self-select, saving you the time and resources of qualifying every lead or dealing with customers who are continually complaining about your pricing.

Last Words

Most SaaS founders poorly understand the link between a VP and a customer’s willingness to pay. Most feel features speak for themselves, and hence tools like free trials and freemium models abound. However, without a strong VP, even a well-built SaaS product may underperform in conversions.

Here at PayKickstart, we understand this connection and strive to ensure we are offering great value for what you pay. To find out more about our VP and how easy we make it for you to pay, click here.