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Sage-Value Pricing Boot Camp

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These are the slides from the Value Pricing Boot Camp delivered by Ed Kless and Ron Baker for Sage business partners from 2005 to the present.

These are the slides from the Value Pricing Boot Camp delivered by Ed Kless and Ron Baker for Sage business partners from 2005 to the present.

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  • Transcript

    • 1. Value Pricing Boot Camp Presented by Ed Kless and Ron Baker
    • 2. A Better Model
      • Firm/customer first defines scope of value (McKinsey approach)
      • Firm then determines scope of work
      • Capacity/project management approach
      • Firm uses price-led costing, offer options
      • After Action Review
    • 3. Firms that Value Price…
      • Have a clear purpose, strategy and ideology
      • Have turned pricing into a core competency
      • Have excellent project management skills
      • Understand they sell intellectual capital, not time
      • Only work with clients who value them
      • Routinely fire low-value clients
      • Maintain minimum prices
      • Price EVERYTHING up-front and use Change Orders
      • Don’t treat all clients equally
      • Have replaced timesheets with KPIs and AARs
      • Have appointed a pricing cartel and/or a CVO
    • 4. How Are Hourly Rates Determined?
      • Overhead + D.N.I.
      • Expected Hours
      • = AHR
    • 5. The Role of Pricing in Product/Service Development
      • Cost-Based Pricing
        • Product > Cost > Price > Value > Customers
      • Value-Based Pricing
        • Customers >Value > Price > Cost > Product
    • 6. McKinsey: 1% Improvement
    • 7. Value creation and retention Scope of Benefits Costs Value captured Value created $
    • 8. Baker’s Law
      • Bad customers drive out good customers
    • 9.  
    • 10. Factors Affecting Price Sensitivity
      • Perceived substitutes effect –Woolite, new customers (inexperienced)
      • Unique value effect –Heinz 27% > 48%; Volvo; “Positional” or “Expressive” goods
      • Switching cost effect –Boeing vs. Airbus, CPAs, Vets, Amazon.com
      • Difficult comparison effect –cell phones, stockbrokers, IBM
      • Price quality effect –Rolls Royce, Rolex, car wax ($5 > $25)
    • 11. Factors Affecting Price Sensitivity
      • Expenditure effect –paper clips; bus at total purchase, households % income
      • End-benefit effect –steel GM vs. Coach Luggage; “AOG”; Michelin; 2 for 1 coupon
      • Shared-cost effect –4 ways to spend money; tax deductible
      • Fairness effect –gas discount cash, or premium for credit card; rental car gas; coke vending mach
      • Inventory effect –pantry; perishability
    • 12. Seven Purchase Risks
      • Performance Risk –Will not perform function purchased for
      • Financial Risk –Monetary loss if product fails (services higher risk than products)
      • Time and Loss Risk –Customer’s time due to failure (AOG)
      • Opportunity Risk –Risk of choosing one product over another (IBM)
    • 13. Seven Purchase Risks
      • Psychological/Social Risk –Purchase will not fit customer’s self-concept. Restaurants, cars, movies, hairstylists, cosmetic surgery, etc.
      • Physical Risk –Chance the purchase will cause physical harm (medical care, Michelin tire ads)
    • 14. Three Internal Prices
      • Reservation Price – Walk-away price; normal profit (Must)
      • Hope For Price – Supernormal profit (Should)
      • Pump Fist Price – Windfall Profit (Aspiration)
    • 15. Advantages vs. Disadvantages
      • More profit/higher revenue
      • Less price disputes
      • Fewer, better clients
      • Attract, retain talent
      • Better client relationships
      • Less admin cost
      • Better focus on value
      • Match value w/ expectations at start of engagements
      • Competitive differentiation
      • Better team relations
      • Difficult paradigm change
      • Determine value difficult
      • No confidence in our skills
      • Communicating value
      • Clients hard to change (could lose)
      • Creates risk–can we tolerate?
      • S/T profits may fall
      • More time up-front required
      • Lose team who are confused
    • 16. Disadvantages (cont.)
      • 10. New processes
      • 11. Lots of education required
      • 12. Those not good will fail
      • 13. Won’t know profitability of project
      • 14. Must quit doing some work
      • 15. Change Orders slow project
      • 16. Price may be lower than current
      • Hard to price commodity services
      • Lose accountability
      • RFP work hard to do
    • 17. Where do profits come from?
      • Land
      • Labor
      • Capital
      •  Profits?
    • 18. Thank You for Attending!!
      • Ron Baker
      • VeraSage Institute
      • E-Mail: [email_address]
      • Web site: www.verasage.com