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How to overcome floccinaucinihilipilification

FLOCCINAUCINIHILIPILIFICATION is the habit of estimating something as valueless.
Jon Manning helps us understand this common mistake made when valuing, pricing and monetizing your products and services.
The slides cover:
- pricing myths
- a 15 step value-based pricing canvas
- value-based pricing methodologies to ensure you get the price you deserve for your products & services

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How to overcome floccinaucinihilipilification

  1. 1. How to Overcome Floccinaucinihilipilification [pronounced: FLOX-in-OX-in-ai-hil-i-pil-i-fic-ay-shun]
  2. 2. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 Slide 2 How to Overcome Floccinaucinihilipilification Today’s Agenda q Ten Pricing Myths q Pricing Models, Pricing Methodologies & the Importance of Pricing q The Value-based Pricing Canvas q Four Value-based Pricing Methodologies
  3. 3. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 Slide 3 1. The myth of the perfect price 2. The myth of full price 3. The myth of stealth price increases 4. The myth of a world first pricing model 5. The myth of ‘markets’, and ‘the invisible hand’ How to Overcome Floccinaucinihilipilification Pricing Myths 6. The myths of traditional economic theory 7. The myth that pricing models are for life 8. The myth of the spreadsheet 9. The myth of procurement 10.The myth of cost-plus pricing
  4. 4. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2019 Slide 4 How to Overcome Floccinaucinihilipilification No More Stealth Price Increases BUSINESS MODEL
  5. 5. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification Pricing Models are not for Life Slide 5
  6. 6. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2019 Slide 6 How to Overcome Floccinaucinihilipilification Business Model vs. Pricing Model BUSINESS MODEL
  7. 7. © Sans Prix Pty Ltd, 2015 How to Overcome Floccinaucinihilipilification Pricing Methodologies Dynamic Variable Fixed
  8. 8. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2019 How to Overcome Floccinaucinihilipilification Why is Pricing so important? 2.3% 3.3% 7.8% 11.1% Fixed Costs Volume Variable Costs Price Slide 8 Impact on Operating Profit of a 1% improvement in…
  9. 9. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 50.0% 40.0% 32.0% 28.0% 26.0% 18.0% 8.0% 2.0% Packard Other Compaq HP IBM Gateway Dell Apple Source: Docters, R et al (2004) Winning the Profit Game: Smarter Branding, Smarter Pricing, McGraw-Hill, p40 The Importance of Price As the Primary Selection Criteria, by brand – PC Industry How to Overcome Floccinaucinihilipilification Who’s a fan…of this Brand? Slide 9
  10. 10. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification The Myth of Cost-Plus Pricing Slide 10
  11. 11. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2019 Slide 11 Percentage of Australian companies that have changed workforce arrangements How to Overcome Floccinaucinihilipilification Why Value-Based Pricing? 50% 38% 38% 29% 24% Percentage of Australian companies that have changed methods of delivery Percentage of Australian companies that have, or are in the process of, renegotiating rent/lease arrangements Percentage of Australian companies reporting difficulties sourcing raw materials Percentage of Australian companies that have deferred a loan repayment
  12. 12. © Sans Prix Pty Ltd, 2015 How to Overcome Floccinaucinihilipilification The Business Model Canvas
  13. 13. © Sans Prix Pty Ltd, 2015 How to Overcome Floccinaucinihilipilification The Value-Based Pricing Canvas
  14. 14. © Sans Prix Pty Ltd, 2015 How to Overcome Floccinaucinihilipilification The Value-Based Pricing Canvas
  15. 15. Value-Based Pricing Methodologies
  16. 16. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 q Four questions Ø At what price does the product look cheap? Ø At what price does the product look expensive? Ø At what price does the product look too expensive? Ø At what price does the product look too cheap q Likelihood of buying? Ø Definitely, Probably, Maybe, Probably Not, Definitely Not? ► Advantages q Cheap q Simple q Easy ► Disadvantages q Identifies a range of prices q No propensity to buy q Results can vary q Misleading answers q Doesn’t consider competitive products q Sequencing of the questions and the inclusion or exclusion of price points has not been ‘validated’ How to Overcome Floccinaucinihilipilification The Price Sensitivity Meter Slide 16
  17. 17. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 Point of Marginal Expensiveness │Point of Marginal Cheapness │Indifference Price Point │ Optimal Price Point Also note the slope of the curve: Steep: greater risk of the wrong price and losing customers │ Shallow: more scope to increase price without losing sales How to Overcome Floccinaucinihilipilification The Price Sensitivity Meter 0% 25% 50% 75% 100% $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 PSM Output Cheap Expensive Too Cheap Too Expensive Slide 17
  18. 18. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification The Price Sensitivity Meter 0% 25% 50% 75% $100 $200 $300 $400 $500 $600 $700 Modified PSM Output Acceptable Expensive Too Expensive -50% -25% 0% 25% 50% 75% $100 $200 $300 $400 $500 $600 $700 Net Acceptability PSM Output Acceptable Net Acceptable Slide 18
  19. 19. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 q Identify the value attributes /features of the products Ø From the customers perspective q Get customers to weight the product value attributes / features Ø For weightings, S = 100% q Get customers to assess product value attributes / features Ø One a scale of 0 – 10 or 0 – 100 q Benchmark one product against another, or one company against another Ø Price relativity between two products on a ladder may be inappropriate Ø A competitor may offer more value at a cheaper price q Plot findings on a Value Map What does Customer Value Analysis look like? How to Overcome Floccinaucinihilipilification Customer Value Analysis (CVA) Slide 19
  20. 20. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification Customer Value Analysis (CVA) Slide 20
  21. 21. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification Customer Value Analysis (CVA) Slide 21
  22. 22. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification Customer Value Analysis (CVA) Slide 22
  23. 23. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 Category Benefit Quantification Improves Revenue ►Increase volumes | Product sold at higher prices/yield | Create new revenue streams | Open up new channels | Open up new markets ► Measure Incremental Revenue attributable to the product ► Measure Total Revenue attributable to the product ► Estimate the size of new revenue streams ► Are the benefits one-off or on-going? Reduces Costs ►Reductions in one or more categories of expenditure ► Reductions in Cost of Goods Sold: Savings in opening or closing stock, raw material purchases, ordering/lead time (JIT) ► Reductions in Other categories of expenses Minimises Risk ►Time to market | Improved safety & quality | Environmental benefits | Legal compliance | On- time deliveries | Improved productivity | Innovation, R&D | Wastage & Replacement | Life of the product ► Measure ‘First-Mover’ or ‘First-to-Market’ benefit ► Costs avoided (e.g. litigation, carbon emissions) ► Costs reduced (wastage & spoilage, replacements) ► Provisions for future acquisitions or replacements How to Overcome Floccinaucinihilipilification Economic Value Analysis (EVA) Slide 23
  24. 24. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 Rockwell Automation q Value Word Equation for Power Reduction Cost Savings: Ø = [kW spent x number of operating hours per year x $ per kW x number of years solution in operation] Competitor Solution Ø - [kW spent x number of operating hours per year x $ per kW x number of years solution in operation] Rockwell Automation Solution How to Overcome Floccinaucinihilipilification Economic Value Analysis (EVA) Slide 24
  25. 25. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification Subscriptions | SaaS Step Description Step 1: Architecture Number of product offerings | Use of a value metric | Duration Step 2: Operative Product Features Stuff the product does Step 3: Non-operative Product Features T&C’s , talent & people, technology, customisation, timing, education & training, support, content Step 4: Optional Extras Stuff that can be purchased now or later, must be consumed with the core product offering (no use on its own) & can be added to more than one product Step 5: Segmentation, Value & WTP • Anticipated differences in customers (is segmentation required?) • Estimates of economic value • Any indications around willingness to pay Slide 26
  26. 26. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2019 Operative (Core, Tangible, Quantitative) Features Something you want to specifically charge for, or bundle in a specific charge, and three versions of it can be created Ø Set-Up Fee Ø Subscription Ø Data or Storage Ø Users Non-Operative (Core, Intangible, Qualitative) Features Things that add differentiation to the options created Ø Payment Terms Ø Forms of Payment Ø Cancellation Fees Add-Ons or Optional Extras Ø Can buy it now or later Ø Consumers with a core product / not useful on its own Ø Can be added to more than one product Create versions via Ø Inclusion or Exclusion Ø Talent or People Ø Technology Ø Customisation Ø Timing Ø Terms & Conditions Ø Education & Training Ø Support Ø Content How to Overcome Floccinaucinihilipilification Subscriptions | SaaS Slide 27
  27. 27. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 Product Feature Differentiation Best Better Good Users Number Unlimited 50 (Max) 10 (max) Feature 1 - Included Included Included Feature 2 - Included Included Included Feature 3 - Included Included Included Feature 4 Inclusion / Duration Yes (Unrestricted) Yes (Restricted) Not Available Support Time 24 hours (max.) 48 hrs (max.) 72 hrs (max.) Content Modules 7 modules 4 modules 1 module Cancellation Penalty % of Investment 20% of Investment 30% of Investment 50% of Investment Deposit % of Investment 0% of Investment 25% of Investment 40% of Investment Option A Included Included Included Option B Included Included $$$ Option C Included $$$ $$$ Investment per month $A X,XXX $A X,XXX $A X,XXX How to Overcome Floccinaucinihilipilification Subscriptions | SaaS 1. Architecture 2. Operative Features 3. Non-Operative Features 4. Optional Extras 5. Segmentation, Value & WTP Slide 28
  28. 28. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2021 How to Overcome Floccinaucinihilipilification Any Questions…? Slide 30
  29. 29. © Sans Prix Pty Ltd, 2015 © PricingProphets.com, 2019 CONTACT & CONNECT: Jon Manning +61 (0)405 629-141 (AU) +1 (408) 520-9450. (the)PricingProphets

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