Value Pricing

Let your price and value proposition play ball

It is most likely true when sales reps report that customers only want to discuss price. But this is in fact only because your value proposition is vague, or that the customer plays his game.

The average buyer is negotiating with more sales reps every day than vice versa. It should, therefore, come as no surprise that buyers are more skilled as negotiators. And they know that most sales reps are not well prepared for the price game. So they obviously quickly try to bring the conversation to their own courtyard by referring to the competitor who visited them earlier today, by stating that your product is no more than a commodity, etc.

The only strategy that combats this is to get into the value discussion and very importantly prove your value statements. General claims are simply inadequate, as they do not represent any differentiation from competitors, who themselves using the same general statements. A well-documented value proposition is needed. And yes, this takes some efforts, but it will pay off, because it builds confidence in the organization and among sales reps who can now demonstrate the value and thus win the ball.

Reinvent your value proposition

Most value propositions are, to the extent they exist, vague and dating back many years. These need reinvention and should optimally be designed so that they can be adjusted to different price and value segments.

A strong value proposition rely on three pillars. First is the customer key decision criteria. Many assumptions and generalizations surround these decision criteria around the organization, but few facts, which makes it paramount to have them analyzed.

Following such an analysis, it may be tempting to jump to deciding on your strengths in relation to the criteria. But that’s too early. A proper value propostion is not only based on the customer’s decision criteria, but very importantly on your relative strengths against the best competing alternatives.

Finally, it is important to keep the economically measurable benefits (if they exist) strictly separate from the intangible benefits, and obviously, let the economically ones be the key to the value proposition and value-based pricing, as these can be documented and proved.

Segment customers based on willingness to pay

Customers have different willingness to pay which however usually match their needs. Forget about other segmentation principles and develop your offerings based on the price segments.

In its most simple form a standard product is offered at a price, which offers a total revenue potential as illustrated by the blue rectangle in the diagram. This leaves an untapped revenue potential equivalent to the remaining area below the demand curve. This opportunity consists of customers with needs beyond what the standard products fulfills as shown by the green or brown rectangles, or customers with much more basic needs searching for a value offering.

Price Segmentation

To exploit the revenue potential fully while at the same time fencing off competitors it is necessary to understand the size and needs of the various price segments, and then structure your offering and price structure to meet these needs while at the same time ensuring alignment of the cost base. Designing your market offerings based on willingness to pay segmentation is much stronger than any other segmentation alternatives.

By | 2018-06-25T10:47:24+00:00 November 17th, 2014|Blog|Comments Off on Value Pricing