​The most common mistake in pricing involves setting prices by marking up costs ("We must have a 40% margin"). While easy to implement, these cost-plus prices have no relation to the amount that costumers are willing to pay. Value based pricing focuses on setting prices by understanding the differential value that your solutions deliver to customers vs. competitive alternatives. Customer value becomes the foundation for not only setting prices but also for guiding commercial teams on how to communicate and deliver value.  The end result is a go-to-market strategy where price is aligned with the value of your differentiation.
  • What to Expect
  • Case Study
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Objectives

Outcomes
  • Determine how much to charge for a new product, service or bundled solution
  • Design offerings that are aligned with the value you deliver
  • Build value based pricing capabilities and setup pricing structure and policy to maximize profits
  • Ability to capture a fair share of customer value through price
  • Higher confidence in offering structure and price levels
  • Marketing and Sales team alignment with clear direction on how to sell and capture value
  • Ability to measure and demonstrate value to customers

ROI

Watch Outs
  • The impact of a well executed value based pricing is significant, especially when over 70% of product launches fail to meet revenue and profit objectives according to multiple studies.    We estimate that the returns on investment ranges from 10x - 20x. 
  • In addition, studies show that product pricing can have a two to four-times greater impact on revenue over acquisition and retention.
  • There are various techniques for establishing prices that align with value ranging from conjoint analysis to economic value analysis  
  • Measuring value requires knowledge of your customer's needs and competitive alternatives
  • Customer value often changes based on customer segment or competitive alternatives therefore,  expect to build and test multiple pricing models to determine the optimal price levels for your customers
New Product Line Expected to Support Double Digit Growth for $8 Billion Software Business
Challenge
Solution
Results
  • Years of investments in new software and asset connectivity focused on improving performance of industrial assets by leveraging Internet of Things (IoT) technolgoy
  • The new capabilities delivered substantial value to customers through maintenance cost reductions, increased productivity and asset life extension
  • It was time to determine the right offering and price for their target market in the power generation industry
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  • Developed detailed value models by quantifying customer value vs. comeptitive alternatives
  • Determined different levels of functionality that appealed to specific segments and budgets
  • Packaged the solution with a 4-tier offering and price structure that delivered different levels of customer value 
  • Set price levels that captured between 15%-25% of the value that the solution delivered
  • Developed and tested the value proposition and price with industry experts and prospects
  • Finalized price levels & offering
  • The company introduced the solution to the market and quickly established itself as a leader in the asset performance management space
  • With the offering, price and value prop in place the sales team was able to close deals with major power producers resulting in revenue and profit growth that exceeded initial expectations
  • The price levels enabled the company to begin to monetize the high value they delivered and paved the way to committing additional investment and resources to capitalize on the early momentum

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