value pricing: 8 pitfalls and how to avoid them - isbm

3/18/20

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VALUE PRICING: 8 PITFALLS AND HOW TO AVOID THEM

WEBINAR SERIES 2020

Presented by: Joanne M. Smith, President, Price to Profits Consulting, LLC

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WHO ARE WE

We were founded in 1982 at Penn State as an Institute of leading Academics and B2B companies for the purpose of advancing the Science of B2B Marketing.

We exist to accelerate the development and adoption of innovation and marketing best practices for the growth and sustainability of B2B Companies.

Our mission: Be the premier organization for dynamically and intimately connecting B2B Marketing professionals with thought leaders, educators and academic researchers advancing the science of B2B Marketing for the benefit of the growth of our Member Companies.

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3/12/2020

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Price to ProfitsB2B Consulting

Joanne M. Smith

Former DuPont Corporate Marketing and Pricing Director

President, Price to Profits Consulting, LLC

www.price2profits.com

Value Pricing: 8 Pitfalls and How to Avoid them

Joanne M Smith

• President, Price to Profits Consulting

• Former DuPont Corporate Head of Marketing, Pricing and Customer loyalty

• Author of The Pricing and Profit Playbook and The Price Negotiation Playbook

• Professional Pricing Society (PPS) & Institute for the Study of Business Markets (ISBM) Faculty

©P2P Cannot be re-produced or transmitted in any form without the permission of Price to Profits Consulting

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Value-pricing through selling delivers big profits.

©P2P Confidential 3Specialty Source: LeveragePoint CRM client data comparing product prices with and without use of VIU tool.

Commodity Source: DuPont & P2P client experience

5-15% higher close rate(with best practices)

5-25% higher price (with best practices)

5-20% premiums for

select markets

Sp

ecia

lty

Co

mm

od

ity

Higher share &

retention

PRICE VOLUME

Case Study 1:(Modified for teaching purposes)

©P2P Confidential 4

Situation Background Challenge

Tough

Times

Ahead

• Existing product

• $5 Million Account

• Product enables better mixing & higher purity.

• Had supply issues. Issues resolved.

• Raise Price 25%!

How successful do you think sales will be given these facts?

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Our Feature Customer Benefit(Detractor)

Value Driver Value $/Year

(Profits)

Higher purity Enables your product to be

superior thus 3 – 5% higher sales

Higher revenue $3MM – 5MM

Better mixing 7% Less rework Reduced costs $ 200M

Better mixing 9% Faster processing time Reduced costs $ 400M

Better mixing 10% Less product needed Reduced costs $ 500M

Case Study 1: Our Benefits.(Modified for teaching purposes)

Case Study 1: Our Value


3.00

0.200.40

0.50

5.00

9.10

0.00

4.80

1.42

2.88

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Price of NBA Higher Growth Less Rework Faster Processing Less Ingredients Indifference price Value for customer New target price

Unit Price6.22

5.00

9.10

6.22

Higher Purity

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The Value of “Quantifying Value”

• Builds sales confidence

• Stimulates a value discussion

• Builds customer trust / fairness

• Enables the buyer to sell it internally


RIGHT DECISION

Value price, value market & value sell.


Value/Price Options

Value Marketing & Selling

Value Negotiating

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Many companies struggle to get the big dollars.


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Few people are using the methodology

This is too hard to quantify

The customer won’t accept the price

The 8 Common Pitfalls


Value/Price Setting


Value Negotiating

1. Business Approach

2. Value Articulation

3. Calculation

4. Validation

5. Share Capture

6. Influencing Perception of

Value7. Skills & Confidence to Win

8. Sustainability / Leverage

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Value/Price Setting


Value Negotiating

8. Sustainability /Leverage



3. Calculation

4. Validation

5. Share Capture



Market ValidationDays to Weeks

Pitfall 1: Value Pricing Approach

P2P Confidential 12

Hypothesis WorkshopFew Hours - 1

Day

Refinement Workshop

<< 1 Day

Cross-Functional Team Cross-Functional Team

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Hypothesize with a cross-functional team.


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Market/Product

Manager*

SalesTechnology:Application / Service

Facilitator: Pricing?

Designated Leader:?

Pitfall 2: Articulating your ValueSupplier-Centric

P2P Confidential 14

Your Features

Financial Value

Enables Better Mixing

$0.50/lb. Savings

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Articulating your value must be customer-centric.

P2P Confidential 15

Your Features

Customer Benefits

Value Drivers

Financial Value

Enables Better Mixing

10% Less Product Needed

Reduced Cost

$500,000/yr.Savings

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$0.50/lb5

Our

Feature

Customer Benefit(Detractor)

Value

Driver

Calculation Value $

(Profits)

Value

$/unit

Better

mixing

10% Less product

needed

Reduced

costs

= 10% less * $5M of product $ 500M $0.50/lb.

Pitfall 3: The Calculation

Does math follow the

benefit / value driver?

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Pitfall 3: The Calculation

The Problems…

• Assumptions not clear

• Units not clear/consistent

• Bad format to modify/leverage


Assumptions Units Amount ValueOur volume lb 100,000

Rework Improvement % 10%

Customer Volume lb 1,000,000

Cost of rework $/lb 0.25

Customer Benefit $ 25,000$

Value / unit of our product $/lb 0.25

Calculation: =C4*C3*C5

= 1,000,000 lbs Fin. goods X 10% Improvement X 0.25 $/lb

Pitfall 4: Market Validation


• Ineffective validation process

• Reluctance to validate• Fear or uncomfortable• Belief customers will not tell them anything

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Validation Tips


Benefit Focused

- not Price

Hypothesis Driven – not open ended only

Beyond Buyer / Loyal

Customers

- not price buyers

Technical/Marketing

– not sales only

Comfortable with

Tension

- not defusing tension

Key Data / Ballpark – not all assumptions

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Pitfall 5: Sharing the Value


3.00

0.200.40

0.50

5.00

9.10

0.00

4.80

1.42

2.88

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Price of NBA Higher Growth Less Rework Faster Processing Less Ingredients Indifference price Value for customer New target price

Unit Price6.22

5.00

9.10

6.22

Higher Purity

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% share capture depends on customer sensitivities

©P2P Confidential21

Unfavorable (<50% Share) Favorable (50% or more)

Certainty

Speed

Risk

Switching Cost

Fairness

High

Fast

Low

Low

Perceived Fair

Questionable

Multiyear

High

High

Perceived unfair

Default: 50/50



Value/Price Setting


Value Negotiating

8. Sustainability / Leverage



3. Calculation

4. Validation

5. Share Capture



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Pitfall 6. Influencing Perception of Value To often I see…


Market or

Product

ManagementSales

Example: Better but not good enough!Supplier centric & not quantified

Customer-Centric & Quantified

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Users highly influence decision makers.

Decision Maker / Procurement

Users / Influencers

1. Widespread Support

…Help them Win 2. Benefits / value to them3. Helps navigate alternatives4. Teaches me valuable insights

Source: The Challenger Seller by Brent Adamson

Pitfall 7. Negotiating with Confidence & Skill


80% of

Companies…75% of Sales…

…believe they’re more expensive.

…believe the buyer has more power.

“I only care about price! You’re higher priced! Your value is no different!

I will switch suppliers for price!”

Smart Professional Buyers

Sources: Simon Kucher & Bay Group

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Strong price negotiation skills are critical.


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Confidence, Courage

& Conviction

95% of Sales…

…self-rate their skills as mediocre / weak.

Price Negotiation

Skills

Sources: P2P 2019 Survey

Case Study 2: OEM Customer(Modified for teaching purposes)


Situation Background Action

• $2 Million Account

• Customer threatens to

switch suppliers

• Product is superior

• Sole supplier for years

• New price $1.05/lb.

What’s the unintentional consequence of their pricing action?

NBCA$1/lb.

Added Value$2/lb.

New Price

$1.05/lb.

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Your pricing power is often higher than you think.

©P2P Confidential

Pricing Power

Pricing Power

Pricing Power

…

Smart discount decisions give up the least price and do so with minimal impact to market price.


Pricing Power

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Pitfall 8: Sustaining the Change

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MAKE IT LAST

SYSTEMS & STRUCTURES

RESOURCE FOR SUCCESS

LEADING THE CHANGE

Change Management Profile: Success versus Failure

Success FailureSource: Modified/simplified from Six Sigma Academy with P2P input

Unwilling to Risk

Volume

Dedicated Pricing

Resource

Lack of System

Courage, Skills &

Incentives

Interested in learning more.


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Thank You!

Joanne M Smith

Price to Profits Consulting

Author: The Pricing and Profit Playbook

Author: The Price Negotiation Playbookwww.price2profits.com

[email protected]

[email protected]

LinkedIn: smithjoannem

484-459-0166

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http://www.price2profits.com/

mailto:[email protected]

mailto:[email protected]

value pricing: 8 pitfalls and how to avoid them - isbm

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