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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.

Published in: Business

Sage-Value Pricing Boot Camp

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