Can Value-Based Pricing Work in Consumer Markets?

Can Value-Based Pricing Work in Consumer Markets?:
This $50 Light Bulb Could Save You A Small Fortune
BusinessInsider.com, March 13, 2012
Would you pay $50 for a light bulb?  Manufacturers of new energy-efficient, long-life LED bulbs are betting that you will.  In response to regulations that mandate the phase-out of the majority incandescent bulbs by 2014, lighting manufacturers have been experimenting with an array of replacement technologies.  Because they have the best combination of energy efficiency and low environmental impact, new LED bulbs that screw into traditional sockets are seen as the most promising.  The challenge is that like many new technologies, LED bulbs are expensive – roughly 25 to 50 times the price of an incandescent bulb.
I give leading manufacturers like Philips Electronics a lot of credit for how they have been introducing, this very pricey new technology.  They have relied on simple, quantifiable value messages aimed at the needs of specific segments.  The value story is simple.  A replacement for a traditional 90 watt bulb, uses 18 watts energy to generate the same level of light.  Under similar use, the traditional bulb will last about a year.  The new halogen has an average life of 22 years.  This results in savings of around $200 over the life of bulb.
Value calculations are not the be-all and end-all that pricing professionals sometimes make them about to be.  To be used effectively, you have to follow the golden rule of value-based pricing:  sell value where it’s valued.  This is perhaps where Philips is doing their best work.  The first segment that they attacked, owners and managers of large facilities, is very value sensitive.  And the technology has been well-received.
Now they are bringing this same message to consumer markets.  Will it work?  Yes, but only to a point.  Again, this is where segmentation comes into play.  Some early adopters in the consumer market will buy based on value but consumer markets are different.  Purchase decisions and price perceptions are often based on more qualitative, attitudinal drivers.  This means that there is a significant portion of the market that won’t switch until prices come more into line with a frame of reference that is built on prices for the old technology.  This is where the magic of cost curves comes in.  As volumes build, costs will come down and prices will become low enough to capture the mainstream market.  Until then, consumers that see the economic benefits even at $30 – $50 per bulb* are a good place to start.
*Yes, I have started buying the new bulbs.  The only thing that I hate more than changing light bulbs is taking out the trash.  If anyone has new system for getting rid of trash that is supported by a good value story, I am your target customer…