profitable products sell value: why value-based pricing wins

Profitable Products Sell Value: Why Value-Based Pricing Wins

Tom Evans

CompellingPM

@compellingpm

Copyright 2013 - 2015. The Lûcrum Group, Inc. 1

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: [email protected]

• Actively seeking new members, volunteers, and sponsors


Special offer from CompellingPM at the end of the webinar.


Profitable Products Sell Value: Why Value-Based Pricing Wins

Tom Evans

CompellingPM

@compellingpm


PM2 Levers of Control™


Executional LeversProduct

•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 PositioningCompetitive

StrategiesMessaging Platform

Alignment to Business Drivers

Market Analysis

VOC Competitive Analysis Ecosystem Analysis

Critical Importance of Pricing

A 1% improvement inpricing has a much greaterimpact on profitabilitythan a 1% improvement incost or volume.

6Copyright 2013 - 2015. The Lûcrum Group, Inc.

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


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


Pricing Definition

What a customer is willing to pay incompensation to receive the benefits of aproduct (good or service)


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.


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,

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Copyright 2013 - 2015. The Lûcrum Group, Inc.

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


Inc.Copyright 2013 - 2015. The Lûcrum Group, Inc.

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


Inc.Copyright 2013 - 2015. The Lûcrum Group, Inc.

Perceived BenefitsObjective (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.


Determining Perceived Value





Price


Place (Channel)

•Sales Tools

•Sales Enablement

•Channel Programs

Promotions







Market Analysis


Value Comparison

16


Inc.

Reference

Value

Price of

Alternative(s)

Your Potential Pricing

Positive

Differentiation

Value

Negative

Differentiation

Value

Copyright 2013 - 2015. The Lûcrum Group, Inc.

GOOD PRICING BEGINS WITH STRATEGY


Strategy Drives Pricing





Price


Place (Channel)

•Sales Tools

•Sales Enablement

•Channel Programs

Promotions







Market Analysis


Strategy v. Pricing – Case Study


• At $2.79 for all regular garments dry cleaned you'll receive great quality at the absolute best price.


• 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.


• 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.


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


Summary

• Value-based pricing will deliver best profitability

• Strategy drives pricing

• Communicate & sell the value


Go-to-Market Webinar Serieshttp://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


Next Webinar

From Messaging Nightmare to Messaging Delight: How to Create a

Powerful Messaging Platform

September 17, 2015


http://compellingpm.com/go-to-market-webinar-series-with-dfw-product-group/

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


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)


http://compellingpm.com/freeonehour/

Thank You!

Tom Evans

CompellingPM

[email protected]

@compellingpm

www.compellingpm.com


mailto:[email protected]

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