Understanding value drivers
Value drivers are the attributes that cause firms to choose your products and pay a premium. They are the dimensions that separate a product from the cost-leaders, where customers only choose the items because of their low prices. Value drivers are critical to differentiation strategy, where firms push up the willingness to pay, and in turn, charge a higher price for the products.
Examples of value drivers
Example 1: Brand
One value driver is the brand of the good. People can have a strong preference for a particular brand – willing to pay a higher price than they would for a non-branded generic equivalent. The brand for example may be a status symbol, or it may be a signal of the quality of the underlying item.
Example 2: Unique features
Unique product features may be another value driver. If your product has features that other products do not have, then customers may be willing to pay a premium specifically to get those features.
Example 3: Integration with other products
Another value can be the integration between that product and other products that you have. Having everything working well together may be worth a premium – each product brining more value the more that you have from that company.
Example 4: Reliability
High reliability can also be a value driver. Particularly if product reliability is commonly an issue in the industry, having products that are more reliable than others can be a reason for customers to specifically choose your products or to pay a premium for them.
Example 5: Support and updates
A final value driver is aftersales support and updates. If you are able to provide a better level of support and updates than other companies are able to provide, then customers may again choose your firm over others.
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