Economic Value Estimation – What and Why?
Thomas Nagle, the father of modern pricing, created EVE or Economic Value Estimation.
It’s hard to say exactly what EVE is. It’s a template, a process, an exercise. Most of all, it’s a way of thinking! This is how I think EVERY TIME I think about pricing relative to a competitor.
EVE is a simple mathematical representation of how your buyers decide between buying your product and your competitor’s product.
It considers your competitor’s price and the value of the differentiation between your product and your competitor’s product.
The Power of Economic Value Estimation
Imagine looking into a buyer’s mind to know which features of yours they value most. What could you do if you knew how much each of your differentiators were worth to each buyer? The power of this knowledge would be amazing.
By possessing this power:
- Your salespeople could emphasize the capabilities each individual buyer values.
- You could find buyers with similar preferences and bundle them into market segments.
- Your marketing team can create messages which truly resonate with the chosen market segment because they only talk about what those in the segment value.
- Your product development could know, before you spend millions of dollars creating a new feature, which buyers – if any, would value it.
The power of EVE is incredible.
OK, now back to reality. You will never know precisely how your buyers think. But you can change the way you think, the way your company thinks. Once you start thinking in EVE terms, you will move closer and closer to the nirvana described above. You will make better estimates of which buyers value which features. You will create more impactful market segments. You will learn to price better.
I was not exaggerating in the first paragraph. I really do think this way every time I consider pricing relative to a competitor. EVE is a powerful framework. It has the potential to transform the way your entire company thinks about value, for the better of course. Much better.
Join the Conversation!
Have a question or comment about this blog? Share your opinion in our Champions of Value Community.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.