Value Pricing - Getting the Price you Deserve


Published on

This webinar covers the fundamentals of Value Pricing so that participants can:

Understand the relationship of pricing with the other elements of the marketing mix.
Achieve the value you deserve through optimal pricing strategies that maximize profits.
Ensure that marketing is more proactive to optimize value for new products and maintaining value over different life cycles.

Published in: Business
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • What is Value Pricing and Why So Important? Why Customer Perceptions are CriticalHow to Build Optimal Value Pricing Strategy Value based approaches to positioning & pricingDetermine your company's “Price Value”
  • What is Value Pricing and Why So Important? Why Customer Perceptions are CriticalHow to Build Optimal Value Pricing Strategy Value based approaches to positioning & pricingDetermine your company's “Price Value”
  • The Benefit offered by a company/product (e.g. the solution and/or quality) is vital for setting the valueThe Price must reflect the perception of this benefit or solution, and make the offer at least “worthwhile”The actual and/or perceived value is the most critical determinant for purchase decisions today. Shaping the optimal benefit/solution and price requires research, creativity and smart business approaches.
  • The following methodologies for measuring value to customers are worthy of note:G1 Expert interviews. Company experts (such as senior representative from the marketing, and Focus group assessment of valueG2 Conjoint (or trade-off) analysisG3 Importance ratings (KANO)
  • A Fortune 500 industrial manufacturing company was experiencing declines in market share and margins inone of its divisions. Pricing Solutions identified the customers’ key value drivers and how much they werewilling to pay for various services. This led to the identification of three key customer segments. PricingSolutions developed customized programs for each segment.
  • Gathering Competitive Positioning Data for Your Key Product LinesTo assess and manage a product’s competitive positioning in the marketplace your value-based marketing strategy system should• Identify the key benefit attributes (buying factors) that customers value when selecting aproduct or choosing a brand• Measure your performance and the performance of competing products as perceived bycustomers• Estimate the relative importance or weight of each key buying factor• Measure how customers perceive your price versus competition and measure actualmonetary prices versus competition• Track market-share trends
  • Value Pricing - Getting the Price you Deserve

    1. 1. Value Pricing:Getting the Price you DeservePresented by Global Partners Inc. Cambridge MA USA April 17th 2012
    2. 2. Welcome!Global Partners Inc. is an international consulting, training and managementdevelopment firm.We help Global 1000 companies to build their sales, marketing and customermanagement capabilities in order to grow their businesses worldwide. David Sanderson Dave is a Principal at Global Partners, who focuses in areas at the intersection of technology, consumer products, and healthcare. Dave has international management experience with Global consumer product leaders, technology leaders, and healthcare leaders. Jay Gronlund Jay is a Principal at Global Partners, who focuses on re-positioning companies/brands, ideation sessions and business development in emerging markets abroad. Jay has also been teaching a course on “Positioning and Brand Development” at NYU since 1999.
    3. 3. Value Pricing Overview What is it? Whatapproaches are Value Why important? there? Pricing How do you Why customer optimize it? perceptions?
    4. 4. What approaches are there?Cost-based pricing Competition-based pricing Customer value-based pricing• Definition: Cost • Definition: Competition- based-pricing based pricing approaches • Definition: Customer value-based approaches use anticipated or pricing approaches use the value a determine prices observed price levels of product or service delivers to a primarily with data competitors as primary predefined segment of customers as from cost accounting source for setting prices• Examples: Cost- • Examples: Parallel the main factor for setting prices plus pricing, mark-up pricing, umbrella • Examples: Perceived value pricing, target-return pricing, penetration/skim pricing, performance pricing pricing pricing, pricing according • Main strength: Does take customer• Main strength: Data to average market prices readily available • Main strength: Data perspective into account• Main weaknesses: readily available • Main weaknesses: • Does not take • Main Weakness: Does • Data are difficult to obtain and competition not take customers (and to interpret into account customer willingness to • Does not take pay) into account • Customer value-driven pricing customers • Overall evaluation: Sub- approach may lead to relatively (and optimal approach for high prices – need to take customer setting prices; long-term profitability into willingness to appropriate for pay) into commodities (if – and account account only if – • Customer value is not a• Overall evaluation: products/services in given, but needs to be Overall weakest question cannot be communicated approach differentiated) • Overall evaluation: Overall best approach, direct link to customer needs PAGE 42 JOURNAL OF BUSINESS STRATEGY VOL. 29 NO. 4 2008
    5. 5. Determine your companys optimal “Price Value”
    6. 6. Simon * Kucher StudyThe better pricing know-how, thenot theya46% of companies still think what able 65% of the only get half are higherin Companies companies of theyre the pricing power,(theythey the profits toprice warthey higher deserve charge the didnt start) expect when whattry to raise prices Pricing power untapped Inflation threat under-estimated Four key measures Price wars continue Inflation Pricing Price wars threat Four key power continue under- measures untapped estimated Source: Global Pricing Study 2011: "Weak pricing cuts profits by 25%". Simon – Kucher. August 2011.
    7. 7. Reputable Companies that Recognize Importance of Value PricingSource: Team Top+ Customer Focus
    8. 8. Greatest Impact on the P&L and Profit Improvement1% Improvement of… Causes profits to increase by… Price 10.4% COGS 9.2% Volume 1.7% SG&A 0.3%Baseline data (yearly basis): # of units sold / yr = 1k, unit price = 0’25, Variable cost / unit = 0’21, Fixed cost = 10’, SG&A = 6’COGS = Cost of Goods soldSource: SMC 2010
    9. 9. What is Value Pricing and Why Important Benefit Value = PricePerceived Value Actual Value
    10. 10. Value Pricing The true Test of Marketing…The true test of a successful marketing strategy is its ability to create value profitably.As one marketing expert aptly stated: For marketing strategists, pricing is the moment oftruth - all of marketing comes to focus in the pricing decision.(acc. to Nagle/Hogan 2006)
    11. 11. Shaping Customer Value Perception 0,4 0,3 6,6 0,2 0,2 5,5 1,1 Competitors Higher quality ISO More flexible Less technical Own market price raw materials certification financing support price  Product quality  Financing options  Value of used material  Product features  Service network  Customization options  Duration of guarantee  Brand  Marketing support  Certification  Packaging  …Source: Arthur D. Little, Active Pricing
    12. 12. The Strategic Pyramid for Value Pricing Optimal Price Level Negotiating tactics formultiple different price levels layers Value Communications – marketing of & selling to maximize customer value Pricing Strategy & Tactics – structured for keypricing Pricing Strategy & Tactics – structured for key objectives, objectives, customer customer segments, benefit/solution, competitive segments, benefit/solution, competitive advantage, situation, product life advantage, situation, product life Value Assessment: Customer segmentation, needs, perceptions of Value Assessment: Customer segmentation, needs, perceptions of benefit /solution, insights, options benefit/solution, insights, options
    13. 13. Steps for a value-based Approach to Value Pricing Define and study the key customer segments + needs/perceptions and new Step 1 insights for each Isolate and assess the most significant drivers of value for customers’ business Step 2 and purchase decisions Quantify the impact of your product/service solution for each value driver in customers’ business Step 3 Estimate the value and incremental benefit/impact created by your product/service, particularly for those features that are different from Step 4 competitors’ offerings Develop new benefit/offer and value pricing strategy Step 5Source: Hutt/Speh - Business Marketing Management
    14. 14. 1. Value Assessment: Key Factors that Determine the “optimal” Price NEW FOCUS: Customer User Segments – Ascertaining competitive value what they need, value, etc. – what Customer User Segments Cost calculation Cost calculation perceptions & prices Ascertaining competitive value they need, value, etc. perceptions & prices Determination of perceived Identification of the buyers‘the buyers‘ Determination of perceived Identification of attitudes, Determination ofmark-up benefit/value, price surcharges benefit/value, price surcharges usage, decision drivers, insights on values Determination of a a mark-up and discounts based on and discounts based on attitudes, usage, decision drivers, competitive advantages competitive advantages insights on values Competition-orientedCost-oriented price suggestion Competition-oriented price suggestion Distinct Value Value Offer Distinct OfferCost-oriented price suggestion price suggestion price suggestion price suggestionGreater Customer Focus – Key for The “optimal price”
    15. 15. Creating Satisfied CustomersThe purpose of a business is not to make money;it is to create a customer and satisfy that customer.- Peter Drucker
    16. 16. Identifying and assessing customer needs and value driversConjoint analysis KANO analysis Delight Delighters Customer Satisfaction More Is Better Neutral Must Be there A “basic” need Dissatisfaction Expert Interviews Absent Fulfilled Presence of the Characteristic
    17. 17. Quantifying Impact – B2B Example
    18. 18. Value Pricing Objectives - Examples• Maximize Current Revenue• Maximize Current Profit• Build Market Share• Combined – Revenue + Market Share• Strengthen Customer Relationships• Maximize Initial Trial (e.g. new product/service)• Defend against New Competition
    19. 19. Factors to Consider for Value Pricing Strategy • Product Quality – Perceived and Real • Market/Customer Characteristics and Key Value Drivers • Competition • Demand Elasticity in Target Categories • Product Life Cycle • Cost – Manufacturing and Marketing/Selling • Positioning – To Be More Distinct and Relevant
    20. 20. Example: Opportunity to PositionProduct/Service with a Premium Price Advantage Premium High strategy strategy Quality Me Too! Medium strategy Low-price Economy Low leader strategy Low Medium High Price
    21. 21. Pricing Strategies in the Product Life CycleSource: Deloitte Consulting
    22. 22. Pricing Strategies in the Product Life Cycle Example: GPS PricingSource: Market Reporter,
    23. 23. Apple vs. DellValue Pricing at Premium Levels
    24. 24. GPI Recommended Approaches To Improve Your Value Pricing*• Advanced, Deeper Customer Research – to identify new insights, beyond traditional methods (e.g. using new digital applications)• New creative, innovative ideas – use ideation to develop better, more distinct benefits/solutions that will enhance perceived value• Strengthen Customer Relationships – improve brand image of company and product/service, plus new customized services to leverage insights• Credibility , Prove Your Value with Metrics – Marketing to quantify positive impact (ROI) of solution and added value for customers* Approaches consistent with “most important areas for improvement” fromrecent IBM survey among CMOs , highlighted in new e-book from GPI
    25. 25. Are You Ready to Explore New Value Pricing Opportunities?Summary Webinar>Majority of companies do not charge the prices they deserve>Value pricing Analysis effective way to improve profitability of products> Value Assessment is key to determine customer segments and needs> Establish Objectives and Strategies for defined markets> Communicate values to sales team and customer to achieve optimal priceStart by Asking:• Do we understand the Benefit/Value offered to our customers?• Do our customers recognize and understand this value? Different by segment? In priority?• Are we really getting the true value we deserve?
    26. 26. Thanks for attendingGlobal Partners Inc. is an international consulting, training and managementdevelopment firm.We help Global 1000 companies to build their sales, marketing and customermanagement capabilities in order to grow their businesses worldwide.Our highly customized programs in Value Selling, Global AccountManagement, Customer Focus and Strategic Marketing are designed to achievemaximum impact on clients’ revenue and market share growth and to create lastingchange and tangible benefits. One Broadway - Cambridge, MA 02142 Office: 1 (781) 352 2460 Fax: 1 (617) 401 3604