Impact Pricing Podcast

Ep116: Value-Based Pricing: Valuing and Monetizing Products and Services with Jon Manning

 

Jon Manning is the Head of Pricing / Chief Economist at MYOB and Author of “Overcoming Floccinaucinihilipilification: Valuing and Monetizing Products and Services”. His career has been a journey through the most commonly used pricing methodologies: the cryptic world of oil industry pricing, cost-plus pricing in catering & consumer packaged goods, revenue/yield management in aviation, travel & tourism, and dynamic pricing in internet cafes on the High Streets of the EU and USA. 

In this episode, Jon shares that more than relying on Twitter and Facebook likes, especially with startup companies, it’s essential to have a pricing model at the start, so you provide and create value at the onset. He talks about the book and how it tackles the end-to-end journey in the world of value creation, understanding, monetization, and communication of value. 

Why you have to check out today’s podcast:

  • Discover and understand the value-based pricing canvas so you can provide value even at the start of your business 
  • Learn to identify the sources of value in your product and services to define your value proposition clearly 
  • Find out how you can be focused on value creation but making it more powerful with behavioral economics in consideration 

 

It’s all about value, really. So, just make sure you understand the value. And if you’re monetizing value you just can’t go wrong.

Jon Manning

 

Topics Covered:

01:25 – Talking about Jon’s book: Overcoming Floccinaucinihilipilification 

03:40 – How does a crowdsourcing website work for Pricing Prophets? 

06:35 – What is a value-based pricing canvas as the main gist of Jon’s book 

08:30 – How each cell in a canvas work 

10:34 – Talking about the internal pricing processes and customer-facing processes in the pricing canvas 

13:18 – Where creating value appears in the book 

15:28 – Talking about the second half of the book about customer value analysis 

16:43 – Why Jon put behavioral economics at the last part of the book 

20:24 – Sharing an exciting experience where behavioral economics is concerned 

21:36 – What got Jon started in Pricing 

22:38 – The best pricing advice Jon shares that can have a significant impact in your business 

 

Key Takeaways:

“What’s really been interesting is that sort of six, seven years down the track, when I go into those workshops now, nine out of 10 businesses do have a pricing model when they start. They realize they provide value from day one.” – Jon Manning 

“The first part of the book is to make use of the canvas to identify the sources of value in your product or service. And that’s a collection of approximately about 15 quadrants which will help you be able to clearly define your value proposition, the economic value you provide, how you stack up against the competition and things like that.” – Jon Manning 

“The second half of the book then says, okay, let’s take your understanding of value now. And let’s actually strike a price point for you based on one of four value-based pricing methodologies. So, it’s a sort of end-to-end journey.” – Jon Manning 

“One of the methodologies I walked through in the second half of the book is customer value analysis. And I only talk about a very basic version of customer value analysis, but just through that exercise, and other methodologies that other authors have written about, you can quickly identify features that should be included or excluded from a package if you’re asking the right questions to customers.” – Jon Manning 

“I like behavioral economics, it is useful. I agree that it should be value first, behavioral economics second, but it can also be powerful at the same time.” – Jon Manning 

 

People/ Resources mentioned:

 

Connect with Jon Manning:

 

Connect with Mark Stiving: 

  • Email: mark@impactpricing.com
  • LinkedIn

 

Full Interview Transcript

(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)

Jon Manning

It’s all about value, really. So, just make sure you understand the value. And if you’re monetizing value, you just can’t go wrong.

[Intro]

Mark Stiving 

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the structured relationship between them. I’m Mark Stiving. Today, our guest is Jon Manning. And here are three things you want to know about Jon before we start; he is the founder of Pricing Profits, which is a group I was proud to be part of for a couple of years a long, long time ago. He’s in charge of pricing at MYOB, and he’s the author of a brand-new book Overcoming Floccinaucinihilipilification. I’m going to try that one more time Floccinaucinihilipilification. Yes, Valuing and Monetizing Products and Services. Welcome, Jon.

Jon Manning  

Good afternoon, Mark. Good morning, wherever you’re listening.

Mark Stiving 

Okay, say that word.

Jon Manning 

Floccinaucinihilipilification.

Mark Stiving 

Okay, I got to tell you that I listened to it 20 times before this, just so I could try to pronounce it.

Jon Manning 

I’m surprised with either knowledge or lack of knowledge of the word because it is a fantastic word. If you’re in the world of pricing, it means the habit of estimating as something as valueless. So, it’s a perfect world for pricing. And it surprises me sometimes when I’ve shown people the cover of my book, and they’ve straightaway said, Floccinaucinihilipilification. They probably know it, because it’s one letter longer than antidisestablishmentarianism, which makes it the longest word in the English language. But the evolution of the book, from that perspective, it’s a really applicable title for the book, because I was doing pricing workshops for accelerators. And every year or every six months, I’d go into a classroom and ask people what their pricing model was for their startup. And they said, pricing model? Nah, we’re going to get YouTube subscribers and Facebook followers and Twitter likes and stuff like that, and will monetize later. And sure enough, if you ask them to get out their business model canvas, which they’d all done as part of their accelerator course, the revenue box on the business model canvas was empty. Now, you and I both work with product people. And we know that there’s a problem to be solved. My thinking was, the way to solve this is to actually build a dedicated value-based pricing canvas. And if they don’t fill out that box on the business model canvas, have a crack at filling out this canvas. And there we have it. And what’s really been interesting is that sort of six, seven years down the track, when I go into those workshops now, nine out of ten businesses do have a pricing model when they start. They realize they provide value from day one. And there’s one person in the room that is still Facebook likes, Twitter followers.

Mark Stiving  

Yeah, someday, maybe you can monetize those. But you got to start out knowing how you’re going to; that’ll make a huge, huge difference. Before we jump to talk too much about the book, I want to ask you about Pricing Prophets. How’s that going? How’s it changed since I was involved in and go ahead and describe what it was like when I was involved, as well, A, my memory is not that good. And B, people might want to know.

Jon Manning 

Sure, I guess it was launched in 2011. And the business model, when I launched it back then when you were involved, was, I noticed an opportunity in the marketplace where there was no such thing as a pricing crowdsource website. And the crowdsourcing movement was astronomical at that time; there were guys like 99 designs, crowdsourcing designs, and other sites doing this and so forth. And I was at a crowdsourcing event one night, and someone said to me, why don’t you do a crowdsourcing website for pricing? So, the first version of Pricing Prophets was a site where I had pre-registered pricing experts on the site like yourself, and people would come on and want to know the price of a particular product or service. And they would answer a series of questions that I devised. The responses to those questions would then go out to experts like yourself, who would be asked three questions. What price should this company charge for this product and service? What’s your rationale for that price? And any other advice that you want to provide? And that was it? It was $600. And, thank people got the answer to that ultimate question: what price do I charge for something? When I went back and spoke to all those customers after they’ve done this project, I said, ‘What do you think?’ ‘Oh, I love it, really got some useful feedback and so forth.’ And sometimes they accept the price that they were provided either by one expert or that their collective average. And other times, they would do something completely different. But that was their decision. Everyone I spoke to always had more questions than just what price do I charge and why. And that led me to pivot the business model to one of the prepaid telephone conversations with pricing experts, which is that chapter of Pricing Prophets that I guess you haven’t been so much involved in. So, now people can just book a prepaid telephone conversation with one of the experts and get answers to three, six, or nine questions. Now, that in itself is interesting because I didn’t want to charge for time because time is an input. It’s something that customers don’t care about; the value that I was providing is providing answers to the questions that they had. So, I built three products, if you’d like, based on the number of questions they had and answering those questions.

Mark Stiving  

That’s pretty fascinating. And so, it’s going well?

Jon Manning 

It’s going well; it actually tends to generate more little consulting projects than the telephone conversations at the moment, but you know, that’s okay, too.

Mark Stiving 

Exactly. Okay, well, let’s jump into talking about the book for a second, if that’s okay.

Jon Manning 

Sure.

Mark Stiving 

The main gist of the book is a value-based pricing canvas. So, when you hear the word canvas, what does that mean to you? What’s the gist of this?

Jon Manning 

The book is divided into two parts; the first part is to make use of the canvas to identify the sources of value in your product or service. And that’s a collection of approximately about 15 quadrants so that we can call them quadrants on a 15-cell, but it’s 15 building blocks, if you like, which will help you be able to clearly define your value proposition, the economic value you provide, how you stack up against the competition and things like that. The second half of the book then says, okay, let’s take your understanding of value now. And let’s actually strike a price point for you based on one of four value-based pricing methodologies. So, it’s a sort of end-to-end journey. It’s the audience… it’s written for, is for startups, side hustlers, entrepreneurs, people in big corporates might find it interesting, but that’s primarily the target market. And they’re the target, the people that don’t necessarily stop to think about these things. But they’ve heard about this thing called pricing. Rewinding to your interview with Zen Ore, they know pricing is a thing. And yeah, how do you get on top of it and charge the right price? That’s like the end-to-end overview of the book.

Mark Stiving 

Well, let me say about the canvas, one of the things I loved about it, as I read through it, and I read a bunch of the different pieces, is when I think about the different questions you ask, or the different boxes that you have there. A lot of those are things that I do intuitively, or I have in a slide in a class, but I’ve never laid it out and said, Okay, you’ve got to go answer these questions. I thought that was really nice, because it helps people say, yeah, have you touched this box? Have you thought about it? Maybe it’s not the most important, but have you at least thought about it?

Jon Manning

Yeah, exactly. And they’re not… you don’t have to spend time in each cell in the canvas. It’s okay to just take the box and say, yeah, I’ve got an appetite for change. And I’ve got an appetite for risk. But while I really need to drill into the economic value that my product provides, or I need to understand exactly who my customers are going to be, that’s exactly how it is, it’s pick and choose. It’s not definitive; it’s not compulsory. You can’t do it before you do want to—anything like that.

Mark Stiving 

Yeah, I agree. And so, when you think through the whole pricing canvas, which of those do you think is, if you get to pick one and say this is the most important one? Which one is it? It’s like choosing your favorite child?

Jon Manning 

That is a really good question. I think probably it’s building block 9, 10, or 11, which is your product value hierarchy, your economic value, or your value proposition. I mean, I think you need; I read an interesting article the other day about how to recognize a marketing dinosaur, it’s somebody who is still referring to the four P’s, and you shouldn’t really refer to the P of price anymore. Actually, value is what it’s all about. For me, any other quadrants that have value in their title. So what the product value hierarchy I talk about is the old features, benefits, and value, pyramid, if you like. The economic value, how you increase your customers, revenue, reduce their cost or minimize their risk, or just nailing a really powerful value proposition. You can’t pick out your favorite child, but, and those three that include the word value, I think are probably the cornerstones of it for me.

Mark Stiving 

So first off, I’m going to agree with you 100%. And the key reason that I would agree with you is, almost every other box is more of an internal thing. And those three are the three that are truly about how your customer perceives your product?

Jon Manning 

Yeah, that’s interesting. And there’s a fair bit of discussion on that in one of the boxes around pricing processes. You can have purely internal pricing processes, you can have a process that says every six months, I’m going to scan the competitive environment, or I’m going to review the value and the prices that I’m charging, and so forth. But you can also have processes that are company-faced customer-facing, and that there are messages that you need to get across to customers about that. So yes, a lot of them are internal, but some of them can be customer-facing at the same time.

Mark Stiving

Okay, I’ll buy that. And I don’t think pricing processes are a… it doesn’t exclude external by any means. And I think if you’re doing your job well, you’re constantly talking to customers, talking to buyers, learning what they value, what they like and putting that as part of the pricing process. I think that makes a ton of sense, prompt check, process per year.

Jon Manning 

Absolutely. And you know, with the change the world’s gone through in the last 12 months, you would be silly just to stand still and think the status quo still applies.

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Mark Stiving  

One of the things I thought was missing, and I’m going to let you tell me where it is. I often, when I talk about pricing and the most important things, I say, pricing is to create, communicate and capture value. And when I didn’t really see appears creating value, where would you put that? Or would you put it in here?

Jon Manning  

Well, there’s an interesting Venn diagram towards the start of the book around on just looking around a definition of a business model. And on the left-hand side, circled the Venn diagram, there’s value creation, and that’s around the product offering that’s genuinely what product people do talk to their customers, jobs to be done, stuff like that. On the right-hand side of the Venn diagram, the other circle is value capture. And that’s the monetization of the value created. When you have both whether the two circles overlap in the Venn diagram, and you’ve got both new products, creating new value and a requirement for a new monetization model, that’s where you have a business model change. I don’t spend a lot of time talking about the value creation, I think, in my world, and probably listening to so many of your podcasts in your world, too; it’s predominantly done by product people. And pricing people’s role is to capture the value in that value that’s created. I don’t talk too much in the book about value creation. It’s, I guess, an assumption that it’s been done. And as a startup, a side hustle, or an entrepreneur, you’ve done your homework, and you’ve created a product that customers value and want.

Mark Stiving 

Yeah, so although I understand that viewpoint, what I always think about and I talked to a lot of product managers, entrepreneurs, etc., and that is, as you go out to do pricing, you learn what’s valuable. You learn how you should have configured your products, or you know what features you should put in which packages. And so there really is this nonstop cycle of creating value, telling my customers what value I have, and then trying to find a way to capture that in monetization techniques. I think of that as important. But I don’t think a pricing person cares so much about value or creating value other than can they coach product people, could they help product people know what it is that we need to do to get more money.

Jon Manning 

Yeah. And I guess I totally agree with you, it’s probably, in my experience, that happens more in the corporate world than in the audience I’m targeting in the book, and so forth. But certainly when one of the methodologies I walked through in the second half of the book is customer value analysis. And I only talk about a very basic version of customer value analysis, but just through that exercise, and other methodologies that other authors have written about, you can quickly identify features that should be included or excluded from a package if you’re asking the right questions to customers.

Mark Stiving 

I think the customer value analysis and the economic value analysis, both of those are key things that most companies don’t do. And they really need to. It’s like, how can you price or even be in a business if you don’t know what your buyers value?

Jon Manning 

Yeah, absolutely.

Mark Stiving 

Now, I don’t know if you’re going to join me on this one or not. But I absolutely love that you put behavioral economics last, and you think of it as an afterthought? Before I give you my opinion on that, tell me why you did that?

Jon Manning  

It wasn’t so much an afterthought. It’s probably more leaving the best till last.

Mark Stiving 

The pain!

Jon Manning 

Well, I think it’s… to give you an example. Do you actually start off building a product with behavioral economics in mind? And in the case of perhaps a decoy product? Yes, you might. But in terms of other aspects of behavioral economics, like the choice of colors on your website, and the layout. Do you put the most expensive on the left, the most expensive on the right, they can become front of mind? Or they can be, saving the best till last?

Mark Stiving 

Okay, I’ll share my opinion, and then you feel free to critique it. I don’t mind. My opinion is behavioral economics has an impact; there’s absolutely no doubt. We’ve proven that a million times, the question becomes, what’s more important? And I personally think that we as companies spend way too much time thinking about behavioral economics and not enough time understanding value, creating, communicating, and capturing value. I love the other 14 boxes so much more because they’re all about value. And it’s not about tricking customers.

Jon Manning 

Yeah, so I certainly don’t go down the route of dark patterns. And behavioral economics, heuristics that benefit the company only at the disadvantage of the customer. I think that the customers in the world are too smart to get away with that sort of stuff. And it really annoys me when I see shaming of customers using behavioral economics, heuristics, and stuff like that. I think you and I have both been around pricing for a while, and we’ve probably seen this body of knowledge grow during our careers. We were probably early adopters of it; it’s all of a sudden, it’s gone from pricing psychology into this full-blown behavioral economics type stuff. And generally, it works. But you also have to be aware of its limitations. I was recently talking to a legal tech company that we’re about to launch in Japan, and I said, ‘How much do you know about the psyche of the Japanese customers up there?’ And they said, not a lot. But one thing we do know is that they don’t want three options because they will always pick the cheapest option; that is just the thing Japanese do. And that is one of the limitations of behavioral economics, in my opinion, cross-culturally, the boundaries have not been explored. We don’t know for certain whether all these behaviors, heuristics, the psychological findings we have apply in every single culture around the world. So, I like behavioral economics, it is useful, and so forth. And yeah, I agree with you that it should be value first, behavioral economics second, but it can also be powerful at the same time. For me, it was worth having on the canvas. But as we said, at the top of the talk. They’re not all compulsory; you can briefly skip over some of them.

Mark Stiving 

And I make fun of behavioral economics quite often to friends of mine. But I do know that there’s value there. I mean, I do work. And we have to think about how we present messages or how we present prices. And they truly have an impact on our buyers’ decisions. It’s not something to ignore, by any means.

Jon Manning 

One of the most interesting experiences that I had with behavioral economics was, I was working somewhere, and I set up five options for customers. And one of them was a decoy. The salespeople that I was getting, trying to get to understand it couldn’t get it. They just didn’t understand why the hell are you offering this product, that product got an extra feature in it for the same price. I don’t get it. And what I realized was that behavioral economics appeals to the irrational person. And salespeople are not irrational salespeople are rational. They will sell whatever makes them the most money. And for them, that decoy was just giving them a headache.

Mark Stiving  

I think it was that they want to, they know that they’re going to get the question, why is that the same price? When it’s got one more feature? And they didn’t have a good answer?

Jon Manning 

Consider it a free product.

Mark Stiving 

Okay, I got to tell you, Jon, we’re almost done. And I haven’t even asked the very first question that I always ask, how did you get into pricing?

Jon Manning 

How did I get into pricing? My first job after finishing at what you’d call High School was in the oil industry, with a company called Mobil Oil, it’s still around, and I was checking invoices in the sales accounting department. And the main thing I was checking on those invoices was the price. And I got to the point where I’m thinking, where are these prices coming from? And I think the oil industry is still trying to figure out where those prices come from because no one seems to really know. And that was it for me. From there, I went into catering at an airline and then pricing airfares at an airline and it just went on and on from there. It was straight out of high school, that typical first accounting job after you get out of the mailroom, and a not so much a graduate program, but school leavers program.

Mark Stiving 

Nice. Well, since we just got the first question. Now, let’s jump to the last question. Because we are running out of time, what’s one piece of pricing advice you’d give our listeners that you think could have a big impact on their business?

Jon Manning

Look, it’s all about value, really. So, just make sure you understand the value. And if you’re monetizing value, you just can’t go wrong.

Mark Stiving 

I think that’s perfect. And I think the other piece of advice that you should have given was, please don’t floccinaucinihilipilification.

Jon Manning 

I don’t know if that’s a derivative of that word. But yes, please avoid floccinaucinihilipilification.

Mark Stiving 

Okay, Jon, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Jon Manning 

LinkedIn is always good. So, you’ll see me, Jon Manning.

Mark Stiving 

Jon Manning, and we’ll have the link in our show notes for sure. Alright, Episode 116 is all done. There’s a new best friend of mine. His name is Pat Meegan. And he’s my best friend now because he left me a five-star review on Apple Podcasts. And he said,

‘It’s like a guided tour of the leaders of the pricing community. The impact pricing podcast is worth listening to because Mark deliberately makes the discussion about value, not about himself. It plays out in a number of ways; he brings on interesting and diverse guests. He challenges the guests and distills several things from each podcast, his takeaways. His guests come from a number of locations, industries, and backgrounds. They often have their own unique spin on how to approach pricing questions. And I appreciate that Mark challenges their thinking and pushes back on ideas he thinks warrants pressure testing.’

It goes on a little bit more, but I’m just going to say thank you, Pat, you are my new best friend. I sent you a signed copy of my not yet released book, ‘Win, Keep, Grow: How to Price and Package your Subscription Business’ to our other listeners. I’ll do the same for you if you’re in the US and leave a written review. And if you’re outside the US, I’ll put your name on a list and send you a digital version once it’s available to me. Besides leaving a review, please tell a friend I’m so grateful for all the help the listeners give. And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me at mark@impactpricing.com. Now, go make an impact!

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