financial impact of value based pricing v4

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COMPANY CONFIDENTIAL

Financial Impact of Value-based Pricing

Monthly Webinar Series – February 26, 2014

Sponsored by LeveragePoint the Software Solution for Value-based Pricing

www.leveragepoint.com

Today’s Presenter Dr. Stephan Liozu

Dr. Stephan Liozu is a Pricing Evangelist and Thought-Leader as well as the Founder of Value Innoruption Advisors. He specializes in the design of innovative and differentiated business strategies for B2B firms, and the implementation of value-based pricing strategies. His acclaimed Customer Value Modeler (CVM®) certification program trains professionals in value modelling best practices.

Stephan is co-editor of The ROI of Pricing, Innovation in Pricing and A User's Guide to Value Modeling as well as numerous academic papers. He holds a PhD in Management from The Weatherhead School of Management at Case Western Reserve University where he is an Adjunct Professor and a Visiting Scholar. Stephan sits on the board of Advisors of PPS.


The Financial Impact ofValue-based Pricing

Learning Objectives

What is the ROI of Value-based Pricing?

What are the difficulties in executing a Value-based Pricing strategy?

How to measure the ROI of Value-based Pricing?

Examples for best-in-class B2B enterprises

Value-based Pricing’s Impact on the Bottom Line

70% of respondents reported a 3% or greater increase in price, profit margin, and gross margin when using value-based pricing

-6% -2% 1% 4% 7% 10% 14% Greater Than 16%

0%

5%

10%

15%

20%

25%

30%

35%

Sales ImpactProfit Margin ImpactGross Margin Impact

Respondent

%

Value-based Pricing’s Impact on Sales, Profit Margin, and Gross Margin

Source: 2013 State of Value-based Pricing Survey; n=144

Likelihood of Investing in Value-based Pricing

25%

26%26%

12%

4%5%2%

Likelihood to Invest in Value-based Pricing (n=144)

Very Likely

Likely

Somewhat Likely

Neither Likely Nor Unlikely

Somewhat Unlikely

Unlikely

Very Unlikely

Value-based pricing is seen as a major initiative for respondents

Majority of respondents will be investing in value-based pricing initiatives in 2014

Value Management Delivers Results

0.93

0.91

0.8 1.0 1.2

Value Masters (top 5%)

Value Managers (top 25%)

Well-Intentioned

Directionally Challenged

Runaway Trains

The most profitable firms were those that combined value-based pricing with strong execution capabilities

Operating Profit 1.0 = Industry Average

1.24 X

1.11 X

1.04 X

Source: Monitor Pricing Capability Study; n=204

Learning Objectives





• What do you include?• How do you account for

uncertainty?• How do you define the scope?

Difficulty in Making the

Business Case

• Who gets credit for results?• Who measures what?• When & what do you measure?• How do you communicate results?

Difficulty in Measuring the

Impact

Value-Based Pricing and ROI


Defining the scope of pricing initiatives

Defining all relevant costs for specific pricing initiatives

Evaluating specific incremental pricing gains

Calculating the actual return on investment (ROI)

Estimating the specific pricing effect of initiatives

Agreeing on a definition of Pricing ROI for initiatives

Setting up the proper reporting process for ROI

Defining overall incremental pricing effect for initiatives

3.00 3.20 3.40 3.60 3.80 4.00 4.20 4.40 4.60 4.80 5.00

3.83

3.83

4.16

4.21

4.25

4.27

4.28

4.29

Difficulties in Measuring The ROI of Specific Pricing Activities (1 to 7 scale) (n=204)


Quantifying differential value for intangible drivers

Quantifying differential value for drivers

Estimating total economic value

Designing the formula for each value driver

Communicating value messages to customers

Sharing of the value pool with customers

Identifying competitive reference value

Finding competitive pricing levels

Segmenting the market & customers

Identifying value drivers

2.00 2.50 3.00 3.50 4.00 4.50 5.00

2.37

3.11

3.16

3.25

3.34

3.48

3.60

3.67

4.02

4.23

Declared Difficulties in Value-based Pricing Activities (1 to 7 Scale - n=144)

Learning Objectives






None of these

Hiring of new pricing professionals

Impact of overall pricing team

Pricing and value training programs

Deployment of value-based pricing strategies

Pricing-related consulting projects

Divisional pricing programs

Investments in pricing software

Customer-specific pricing programs

Comprehensive corporate pricing program

Pilot projects for pricing programs

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

18%

11%

15%

18%

24%

27%

29%

29%

29%

32%

39%

What Do You Measure ROI For? (n=204)

Starting Tomorrow: Design ExperimentsDesigning a Controlled “Before/After”Experiment for an Innovative Product.

Key Learning:Measure carefully the before and after.Track scientifically the contribution in Pricing & Innovation Councils.Communicate the quick win up/down & sideways (top management!).Celebrate the win & repeat to gain confidence (from sales & product devpt).

Cost-based Pricing• $61K

in incremental GP$ over 12 months

Value-based Pricing• $250K

in incremental GP$ over 12 months

Learning Objectives





What Do They Have in Common?

Value-focused Companies

Source: Publically available Annual Reports

Available On Amazon: The ROI of Pricing

Get Your Copy Today

Value-based Pricing Chapters

Value-based Pricing ROI (by Roger Best)

Making the Business Case for Value-based Pricing (by Dr. Stephan Liozu)

Making the Case for Value-based Pricing Software (by Ed Arnold)

ROI of a Cloud Solution for Value-based Pricing

Source: Arnold, E (2014) Making the case for organizational collaboration, The ROI of

Pricing, New York, NY: Routledge

Confidential

March Webinar

Winning with the New Buyer: Smart Strategies to Sell and Defend Your Value

March 19, 2014

Presented by: Chris Provines CEO, Value Vantage Partners Author, Healthcare Value Selling

To Register visit:www.leveragepoint.com/resources/webinars

Thanks for Watching!

[email protected]


(617) 945-7075

Dr. Stephan M. Liozu, Ph.D.Value Innoruption [email protected]@StephanLiozu

Let us know your thoughts and enter to win a copy of The ROI of Pricing: Please complete our two question survey

which will appear when you leave the webinar.

mailto:[email protected]

http://www.leveragepoint.com/

mailto:[email protected]

http://www.stephanliozu.com/

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financial impact of value based pricing v4

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