If you look at a well-known company like Apple, for example, you’ll notice that the iPhone alone generates a significant portion of the company’s profits. This was up to a staggering two thirds back in 2013.
And this case isn’t an exception. All businesses have products that are more important than others. That’s the case whether you’re a local hardware store or a tech giant like Apple. What differentiates one from another is how the key value items contribute to their overall sales.
Sometimes, the key value item contributes to the sales volume by being the most sold product. In the case of the iPhone, it’s just the most popular product that Apple makes. That’s what makes it their key value item.
In other cases, the key value items are important because they help the store sell other products. For example, in most hardware stores, lumber helps the business sell numerous other related goods and services. The profits from these things combined can be more than the profit from the lumber itself. However, the lumber would be the key value item for this store because it’s what drive most sales.
The following are the most important considerations that you should keep in mind when choosing your key value items and pricing other products accordingly. By doing so, you’ll be able to make the most out of your key value items and choose a pricing strategy that’s right for your business.
Different key value item types
As we’ve already mentioned, there are different types of KVI’s. How a specific key value item will affect your business model and pricing strategy depends on the type of the item and the industry that you’re in.
There are four distinct types of key value items. These are: perceived value drivers, traffic drivers, basket drivers and drivers of assortment perception. Each type of these key value items is important for a different reason. Understanding the effect that each of them has will help you make better business decisions and set more effective prices.
Key value items need to be updated
While some businesses might have the same key value item for years, others might have them change more often. There is no fixed rule for when you need to update your key value items. That’s why you should keep checking frequently.
It might seem like lots of work but keeping your key value items updated will help you maximize your profits and make your business more competitive. Basing your pricing strategy on a wrong key value item will do your business more harm than good, so make sure to keep it updated as often as you can.
Key value items: Advantages and Disadvantages
The following are the main advantages and disadvantages that are associated with the key value items when pricing your products. Knowing these will help you evaluate whether this technique is right for your business.
Makes your pricing more effective
Taking the key value items into consideration is one of the most effective things that you can do when setting your pricing strategy. By doing so, you’ll be able to price your products in a way that increases your sales and your customer delight.
The reason for this is that you’ll be setting your prices while you know what your customers like most. By creating your deal that appeals to your customers and is profitable to your business at the same time.
Requires constant modifications
Having your key value items guide your pricing strategy is always great. In some industries, however, your key value items can change rapidly. It’s easy to know your key value item when you’re selling five different products. When you’re selling 500 products, that’s a different story.
When this is the case, keeping track of your key value items will require lots of work. Being in an industry in a which your key value items change regularly will make this process even more difficult. That’s why you should use an automated way to keep track of these items, which will make the process more feasible.
How can Sniffie help?
Knowing the KVI’s is essential for the success of any business. As these products make up a significant share of your business profits, knowing them will help you price your products more efficiently. You also need to stay updated on what your competitors are doing to better position your business and to make sure your prices are relevant. And that’s where Sniffie can help.
Instead of doing all extensive research manually, you can use a tool like Sniffie to save lots of time and effort. Check out our services page and our features to find out how it can make this process easier.
How to use Key Value Items
- Identify your key value items
- Analyze your market and similar products being offered by your competitors.
- Set the prices for your key value items.
- Choose a pricing strategy that works best with your key value items.
- Set by businesses to distinguish their major products that drive sales from the other products they are offering.
- Your key value items will affect the prices of other products and your overall pricing strategy.
- Make sure to analyze your key value items and understand the reasons behind their success.
- Consider the perceived brand value when pricing your key value items to maximize your profits.