Q&A: Effectively Implementing Value Based Pricing Companywide
Question: Mark, for companies moving to value pricing, what advice do you have re. ensuring the whole company moves together? I worry that we spend much time promoting/explaining value pricing to sales and even to customers yet ignore all of the other groups who are communicating both internally and externally. Value pricing is focused on “why” customers should buy yet traditionally the emphasis has been on “what” customers are buying – both messages may be required yet how should companies go about ensuring that these messages are aligned? Wilson.
Answer: Wilson, that is a powerful and insightful question.
When companies think about VBP (Value Based Pricing) they first think about changing the price levels to capture more value. This is good and important but barely scratches the surface.
Then they typically move on to working with sales to make sure they can communicate and capture that value. This is a crucial step that most companies are HORRIBLE at. As you pointed out, we so often focus way too much on the “what”, meaning the features, and not enough on the “why”, meaning the value.
To truly help sales be successful, marketing needs to pick up the mantle. The marketing messages need to be about value, not products. They need to create tools to help salespeople succeed more quickly and more often. A tool I strongly recommend is called a PSRV table. Problem, Solution, Result, Value. I’ll write more about that one day.
Now that we’re talking value, the product team, the people who define what features the products will have, they need to understand value in order to build products that buyers want. The product team must understand value as well as everyone else.
I think of Value Based Pricing as having three HUGE components: Creating value, communicating value, capturing value. Those roughly align with product teams, marketing, and sales.
Now to the actual question on advice, “ensuring the whole team moves together.” This is hard. Whether or not there is an executive mandate to move to VBP (it’s easier when there is a mandate) you ideally need a pricing champion. This person goes from department to department, coaching, cheering, explaining the huge increase in profit that comes from shifting to VBP. I can’t imagine this being done any other way.
A big problem is very few people know what value means. It has to do with the Will I and Which one decisions I talk about often. It is about buyers’ WTP (Willingness to Pay). It’s the V in the PSRV table. For B2B businesses, it’s a dollar amount. A pricing champion educates the entire company about what value is and how each department can help create, communicate and capture more of it.
Without a pricing champion, departments may try to move to VBP, but they fail. They fall back into the old habits that worked in the past and are comfortable. Departments need a coach, cheerleader, and scorekeeper.
I haven’t seen, nor could I imagine, VBP being effectively implemented companywide any other way. Have you?
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.