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What is ValueBased Pricing?And some other concepts…
DefinitionValue Based Pricing Point in price that captures the value delivered by the benefits of an offering to a customer compared to the next best alternativeComponents Value What do I get from buying you? Offering What delivers the value? Customer Who receives the value? Next Best Alternative Why buy you, instead of someone else’s? Price is an intrinsic measure of value or utility
What is value?Features that translate into benefits to thecustomer which in turn have a monetary impactto their operationValue is always: Customer specific Measured in currency Relative to the Next Best Alternative (NBA) Value exists in the context of competition
Why is important to understandvalue?Proper segmentation. Learn to differentiate customer’s needs, what drives them and group them.Target segment where offering has advantage. Are you going to compete against Coca-Cola? Don’t set yourself up for failure before starting.How can we develop a product if we don’t knowsomeone is willing to buy it? Understand how you stack up against your competition.
Value PerceptionCustomer Supplier What is the problem to - How does my offering be solved with the compare to the Next offering? Best Alternative? OUR OFFERING Value Ceiling (what customer segment is willing to pay) Value potentialNEXT BEST ALTERNATIVE Best available solution to customer today WHAT CUSTOMER Baseline Value HAS TODAYValue is always relative to the Next Best Alternative
Value Equation YOUR OFFERING NEXT BEST ALTERNATIVE YOUR NBA “CANDY” > “CANDY”YOUR YOUR NBA NBAVALUE PRICE PRICE VALUE PRICE YOUR < PRICENBA + (VALUEYOUR – VALUENBA) Your price has to leave some margin to the customer Price is what you pay, value is what you get
Willingness to PaySimple example: How much are you willing to pay for a bottle of water right now? Chances are little to not even a penny, you might have one on your side right now. You just finished a your workout routine, how much are you willing to pay for a bottle of water? Probably a couple of bucks but nothing beyond what you know you’d have to pay outside the gym. You are stranded on the dessert… you get the ideaWillingness to Pay is driven by the sense of loss on acustomer if they don’t get their need resolved Customers / new deals / certification Intellectual property / Uninterrupted operation Freedom
What is next?Once value is defined and quantifiedIf a segment is willing to pay for that valueAnd we have interest & the means to target suchsegmentOnly then: We design offerings to deliver such value Value drives the offering, not the other way around
So, in a nutshell Value Based Pricing Customer need driven Always relative to next best alternative Willingness to pay Drives your price ceiling Never break the price ceiling Always push the price ceiling with more value Next Best Alternative Key mistake: a lot of people forget that DO NOTHING is a perfectly acceptable Next Best Alternative
Q&A and thanks Pepe Paez is a technologist with a deep enthusiasm for marketing strategy. He likes to spend his time between finding new things, spend time with his family and trying to actually enjoy a yoga class. firstname.lastname@example.org CONTA CT linkedin.com/in/josepa ez