Profitable Products Sell Value: Why Value-Based Pricing Wins
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The document highlights the importance of value-based pricing in maximizing product profitability, as a 1% improvement in pricing yields a greater impact than equivalent cost or volume improvements. It discusses various pricing strategies such as cost-based, competition-based, and value-based, emphasizing the need for effective communication and perception shaping to justify pricing. Additionally, challenges to implementing value-based pricing include resistance from sales teams, difficulty in quantifying subjective value, and traditional cost-plus pricing habits.
Profitable Products Sell Value: Why Value-Based Pricing Wins
- 1. Profitable Products Sell Value: Why Value-Based Pricing Wins Tom Evans CompellingPM @compellingpm Copyright 2013 - 2015. The Lûcrum Group, Inc. 1
- 2. DFW Product Group • DFW Product Group is the premier product management and marketing association in the Dallas/Fort Worth metroplex • 300+ active members • 2013 - 2015 roadmap includes webinar series, networking mixers, and ProductCamp DFW • Website: http://dfwproductgroup.org/ • LinkedIn: https://www.linkedin.com/groups?gid=2796125 • Twitter: @DFWProductGroup • Email: info@dfwproductgroup.org • Actively seeking new members, volunteers, and sponsors Copyright 2013 - 2015. The Lûcrum Group, Inc. 2
- 3. Special offer from CompellingPM at the end of the webinar. Copyright 2013 - 2015. The Lûcrum Group, Inc. 3
- 4. Profitable Products Sell Value: Why Value-Based Pricing Wins Tom Evans CompellingPM @compellingpm Copyright 2013 - 2015. The Lûcrum Group, Inc. 4
- 5. PM2 Levers of Control™ Copyright 2013 - 2015. The Lûcrum Group, Inc. 5 Executional Levers Product •Define Whole Product •Effective Requirements Price •Value-Based Pricing Place (Channel) •Sales Tools •Sales Enablement •Channel Programs Promotions •Product Marketing Tools & Content •Product Marketing Programs Go-to-Market Strategy Target Markets Positioning Competitive Strategies Messaging Platform Alignment to Business Drivers Market Analysis VOC Competitive Analysis Ecosystem Analysis
- 6. Critical Importance of Pricing A 1% improvement in pricing has a much greater impact on profitability than a 1% improvement in cost or volume. 6Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 7. How Too Many Companies Price • Price to match the competition • Evaluate the cost of delivering the product and add a markup for target margin • Price based upon gut feeling Copyright 2013 - 2015. The Lûcrum Group, Inc. 7
- 8. Poll Question 1 Which pricing challenge do you see most often in your company? a) Price to match competition b) Cost plus pricing c) Price based upon gut feeling Copyright 2013 - 2015. The Lûcrum Group, Inc. 8
- 9. Pricing Definition What a customer is willing to pay in compensation to receive the benefits of a product (good or service) 9Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 10. Approaches to Pricing • Cost-Based – Based upon your Cost to Deliver the product with some margin added on. • Competition-Based – Match and follow the competition’s price. • Value-Based – Price based upon market’s perceived value. – Based upon the value you want the market to perceive. 10Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 11. Framing the Price • Cost to produce + target margin sets minimum target • Competition & substitutes set points of reference • Customer perceived value sets maximum target 11 © 2012-2015, Tom Evans & The Lûcrum Group, Inc. Cost+ Margin CustomerPerceivedValue Competition ProductPrice RealValue(orTargetedPerceivedValue) Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 12. Value Pricing Principles • Per target market segment • Relative to Perceived Benefit – What is the expected payback period or return for your customers? • Relative to Competitors – In which ways does you product deliver greater or lesser perceived value 12 © 2012-2015, Tom Evans & The Lûcrum Group, Inc. Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 13. Determining Perceived Value • What buyers say they are willing to pay – Can’t get honest assessment – Don’t understand true value • True value of product based upon received benefits • Can you influence or shape the perception of value? 13 © 2012-2015, Tom Evans & The Lûcrum Group, Inc. Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 14. Perceived Benefits Objective (Quantifiable) • Save time • Reduce cost • Increase revenue • Better asset utilization • Improve customer satisfaction • Etc. Subjective • Prestige • Be part of the crowd • Healthy • Safer • Lower risk • Etc. 14Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 15. Determining Perceived Value Copyright 2013 - 2015. The Lûcrum Group, Inc. 15 Executional Levers Product •Define Whole Product •Effective Requirements Price •Value-Based Pricing Place (Channel) •Sales Tools •Sales Enablement •Channel Programs Promotions •Product Marketing Tools & Content •Product Marketing Programs Go-to-Market Strategy Target Markets Positioning Competitive Strategies Messaging Platform Alignment to Business Drivers Market Analysis VOC Competitive Analysis Ecosystem Analysis
- 16. Value Comparison 16 © 2012-2015, Tom Evans & The Lûcrum Group, Inc. Reference Value Price of Alternative(s) Your Potential Pricing Positive Differentiation Value Negative Differentiation Value Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 17. GOOD PRICING BEGINS WITH STRATEGY 17Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 18. Strategy Drives Pricing Copyright 2013 - 2015. The Lûcrum Group, Inc. 18 Executional Levers Product •Define Whole Product •Effective Requirements Price •Value-Based Pricing Place (Channel) •Sales Tools •Sales Enablement •Channel Programs Promotions •Product Marketing Tools & Content •Product Marketing Programs Go-to-Market Strategy Target Markets Positioning Competitive Strategies Messaging Platform Alignment to Business Drivers Market Analysis VOC Competitive Analysis Ecosystem Analysis
- 19. Strategy v. Pricing – Case Study 19Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 20. • At $2.79 for all regular garments dry cleaned you'll receive great quality at the absolute best price. 20Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 21. • Make your life simpler and more convenient, and though we aren’t the cheapest in town, we are the best, and we give our customers the best value for their money. • Jack Brown Cleaners saves you precious time so you can move on to more interesting things than cleaning your clothes. Things that are important to your family, like spending time together. 21Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 22. • A Healthier Way - Most dry cleaners are still using industrial solvents to clean your clothes. Yikes! EcoClean’s non-toxic method cleans dry-clean-only garments using biodegradable soaps, conditioners, and pure, clean water. • Better For Austin & The Planet - EcoClean is Austin’s most environmentally sustainable choice for cleaning dry-clean-only garments. EcoClean is the best choice for the environment, your clothes and most importantly, you and your family. 22Copyright 2013 - 2015. The Lûcrum Group, Inc.
- 23. Challenges to Value-Based Pricing • Sales people claim that price is too high • Being able to quantify subjective value • This is the way we have always done it (cost- plus) • It’s not fair pricing Copyright 2013 - 2015. The Lûcrum Group, Inc. 23
- 24. Summary • Value-based pricing will deliver best profitability • Strategy drives pricing • Communicate & sell the value Copyright 2013 - 2015. The Lûcrum Group, Inc. 24
- 25. Go-to-Market Webinar Series http://compellingpm.com/go-to-market-webinar-series-with-dfw-product-group/ Webinar Title Date The Strategic Role of Product Management & Product Marketing in Driving Product Revenue & Success Apr 23 Developing a Deep Understanding of Your Target Markets – The Starting Point for Great Product Marketing June 11 Define a Powerful Go-to-Market Strategy That Sets Your Product Apart June 25 Great Requirements Form the Foundation for Successful Products July 16 Profitable Products Sell Value: Why Value-Based Pricing Wins August 13 From Messaging Nightmare to Messaging Delight: How to Create a Powerful Messaging Platform Sept 17 Create Effective Sales & Marketing Tools That Actually Get Used By Sales & Prospects Oct Nothing Happens Until Someone Sells Something: Enabling Your Sales Channel to Success Nov Driving the Marketing and Sales Funnel to Close Deals: What Product Marketers Must Know and Do Dec Copyright 2013 - 2015. The Lûcrum Group, Inc. 25
- 26. Next Webinar From Messaging Nightmare to Messaging Delight: How to Create a Powerful Messaging Platform September 17, 2015 Copyright 2013 - 2015. The Lûcrum Group, Inc. 26 http://compellingpm.com/go-to-market-webinar-series-with-dfw-product-group/
- 27. Upcoming Austin PM2 Training • Optimal Product Management & Product Marketing – Sep 21 – 23 – Dec 7- 9 • AIPMM Certifications – Certified Product Manager (CPM) – Feb 16 – 17 More dates/locations - www.280group.com Copyright 2013 - 2015. The Lûcrum Group, Inc. 27
- 28. Free 1 Hour PM/PMM Consult • First ten to submit information on form • http://compellingpm.com/freeonehour/ • Please include background on topic or issue • Must include company info (no Gmail) Copyright 2013 - 2015. The Lûcrum Group, Inc. 28
- 29. Thank You! Tom Evans CompellingPM tevans@compellingpm.com @compellingpm www.compellingpm.com Copyright 2013 - 2015. The Lûcrum Group, Inc. 29