Ep74: Value-based Pricing: How to Get Started and How to Succeed with Stephan Liozu
Stephan Liozu is the Founder of Value Innoruption Advisors, a boutique consulting firm specializing in disruptive approaches in value, pricing, and strategic management. He helps leaders in organizations who want to get started in pricing by conducting assessments and building road maps.
In this episode, you’ll learn all about value pricing, and how to use the right pricing toolbox to come up with a price based on how much a customer believes a product is worth.
Why you have to check out today’s podcast:
- Discover why value-based pricing is the most neglected step in understanding pricing
- Learn how to have better pricing by communicating value through value conversations with customers before products are made
- Find out the importance of having a pricing strategy to determine a product’s value
“Critical problems are around value. Pricing comes later.”
– Stephan Liozu
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01:01 – How Stephan got into Pricing: having been named ACP deployment officer for Owens Corning Europe, taking care of the pricing module in SAP.
02:37 – The role of a chief value officer: Being the chief conductor of all the value and pricing activity in an organization.
05:50 – The whole process of measuring value, creating, and capturing it using the dollarization methodology
07:39 – Going through value creation: looking at the customer problem, do a better job of understanding the customer problem, uncovering it through market research, insights, and ethnographic research
09:14 – “99% of businesses are there to create value, but oftentimes they don’t know what value really means.” Stephan’s thoughts on this.
13:40 – Conversations put your customers at ease. Stephan’s perspective about value conversations and the challenge that goes with it.
16:30 – Why don’t companies understand what product value is? Stephan states three reasons why.
17:58 – Why is it important to ask the right questions?
19:18 – Customer segmentation is an often neglected part of a value conversation; another reason why companies don’t think about value.
19:54 – What Stephan is up to these days: leveraging technology in his work, focusing on monetization of software and data.
21:03 – Hardware product companies are giving away the software as a way to sell their hardware. We hear Stephan’s idea about it.
22:32 – Talking about cost and value in SaaS companies. The challenge of communicating the value of a product.
24:49 – He couldn’t care less about focusing more on the value of a product – his one piece of pricing advice that could impact your business.
“Our competitors are also looking at the customer problem. So we have to do a better job at understanding the customer problem, uncovering it through market research, insights, ethnographic research.” – Stephan Liozu
“I wanted not to be a CPO (chief pricing officer), I wanted to be a CVO (chief value officer), because our critical problems are around value, you know, pricing comes later.” – Stephan Liozu
“Psychologically it puts your customers at ease when you have a conversation, whether it’s in creation mode, in quantification, validation, or communication.” – Stephan Liozu
“To be doing the work in value, you have to have value conversations.” – Stephan Liozu
“If we have to continue doing everything in finance around the product, then we’re not going to achieve our goal to show the value of everything else we do.” – Stephan Liozu
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Full Interview Transcript
(Note: This transcript was created using Temi, an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)
Stephan Liozu: Even if you continue to do a little bit of cost-plus for a while because you’re transitioning, but at some point, know the value that you deliver. That will be a transformational exercise in your organization.
Mark Stiving: Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the intentional relationship between them. I’m Mark Stiving, today’s guest is Stephan Liozu. Here are three things you want to know about Stephan before we start, he is the chief value officer at Thales. He’s got a Ph.D. in management, but it’s more like a Ph.D. in pricing. And he is extremely prolific having written, what, nine books now on pricing, something like that. Welcome, Stephan.
Stephan Liozu: Thank you. Thanks for having me today.
Mark Stiving: It’s gonna be a great conversation. So how did you get into the pricing in the first place?
Stephan Liozu: Well, that’s interesting, I fell into the pricing in 1998, I was named ACP deployment officer for Owens Corning in Europe as a second job and, I took care of the pricing module in SAP and I quickly realized that no one wanted to do it. And then I became enemy number one in six months with all the salesforce and I’m like, what’s going on? You know, what’s going on? And I got very intrigued. And then from there, 1998 to today, you know, I’m still intrigued, but I’m doing quite a bit of work in it.
Mark Stiving: I don’t think I’ve ever met a pricing person who didn’t fall into it.
Stephan Liozu: Yeah, it’s one of these things, Mark where you’re, it’s in your mindset, you’re courageous, you go in and you say, ‘Hey, I’m gonna do that stuff. You know, I think I can do it.’ And then you realize that ‘Oh my god, it’s much more complicated than I thought.’ But you know, if you have more of a growth mindset and you take challenging projects and you do it, you fell into it, you fall into it, rather.
Mark Stiving: And the other thing about it, which I find so fascinating is it has such a huge impact on a company, that after you fall into it and you solve a problem, you say, ‘Wow, that was really impactful.’ Now you want to go do it again and again and again.
Stephan Liozu: Yeah. And then you become an evangelist because you say, you know, “guys, look at the ROI that we’re delivering, why aren’t we doing more of this?” And this is what I’ve been doing for 10 years – evangelizing C suites. And let’s do it.
Mark Stiving: Yeah, exactly. Okay, so let’s get into this. First off, how in the world did you get the title of Chief value officer? What do you do?
Stephan Liozu: It is interesting, because, you know, my very first book in 2012, I co-wrote with Ron Baker, you know, Ron Baker, a chapter on the emerging role of Chief value officer, and he had been publishing quite a bit of stuff on the field. And I was like, well, we need to promote that title. And at the time, we actually wrote a chapter on the job description: what it means, pretty much, it means being the chief conductor of all the value and pricing activity in an organization, and when you think of a multi-dimensional role where, you know, you have all the functions, you know, like from the go-to-market functions, innovation, marketing, pricing, and sales. So you manage the value component in all of these functions. And then on top of it, you have value creation, value quantification, value extraction, or value capture through pricing. So, I’m managing these two sequences, I would say, and it’s, you know, it’s fascinating because value is everywhere. So I’m everywhere, from the supply chain to everything that we do, is to create value for customers. So, the customer value management process is a real process.
Mark Stiving: Yeah, so it’s funny. First of all, let me stop and ask the question. You said three things on the C’s you said create, something, and capture, what’s the middle one that you used?
Stephan Liozu: It’s a customer quantification.
Mark Stiving: Customer quantification.
Stephan Liozu: The assessment, the quantification – what I would call dollarization – you know, so okay, you’re creating value, how much of that is in financial terms?
Mark Stiving: Okay. I often write, preach and teach, create, communicate, capture value. That is the role of pricing in companies. Now what you said that I found fascinating and I think this is awesome, is a company spends what 99% of their effort trying to create value? And then 1% is that pricing piece, which says, how do we go capture all that value you just created? Yeah, and yet I find it fascinating that most companies have no idea what value even means.
Stephan Liozu: Yeah, so it’s a very complex area because you know, there is first of all an issue of definition, right? And then you know, for some people value is cheaper, other people it’s customer value or business value, financial value, shareholder value. So, I mean, as just everybody uses these terms, and in essence, I’m focusing on customer value, right. And then there is another issue in the marketing literature. A lot of people write about co-creation or creation of value. And they think that creation includes the entire spectrum of what value is. And I actually wrote an academic paper on that saying that creation is creation, you still need to go capture it. And we’re doing a disservice to the area by just calling it creation. If you don’t intentionally measure it, and then go capture it with strategic intention, then you call it all you want if you have willing customers, they’ll say, ‘Hey, I’ll take whatever you create and that’s it.’ So you really have to add the three components that I mentioned before.
Mark Stiving: Yeah, absolutely. So how do you do this inside Thales? Or how do you do this as you teach people how to go measure value, create value, and capture value?
Stephan Liozu: Well, obviously on the upfront I would say, innovation and marketing and R&D and the technology. Everything that we do has to bring value which means I help them with anything, the business model design, the value prop design, I go into the lean canvas with the pains and the customer problems. And you know, you got to pay a lot of attention there, on what you create, why you’re creating all this innovation in the marketing programs, and that to be better than the competition to create a competitive advantage, to delight the customer and then to, give them either a savings or incremental revenues.
So a lot of work there, as you can imagine dealing with a lot of engineers and R&D and technology, and we get into AI and cyber and product, physical products, and complex systems, but then it’s not done because then, you know, on the marketing and pricing side, I have to measure that. And the way we do this is through the dollarization methodology, the EVE value exchange, there are different names for it.
And we have a software, a value-based pricing software we use to do EVEs, and we do hackathons, which is imagine 20 teams of 120 people in a room, dollarising, what we’ve created and seen how much of that value is in dollars and cents, euros and cents, and then eventually it’s got to be moved on to value selling, and equipping the salaries and the BD guys with value props that are quantified so that we can negotiate for value, right?
Mark Stiving: Yeah, and so the second two steps, I think you and I might do them a little bit differently but I think in general in concept they’re just spot on. And so it’s what you have to go do as the first step you were describing – the value creation – it almost sounded like you were saying I’ve got a blank slate I’m going to go in and talk about business canvases and how to create a business model, and I find that so rare that you get to go change that much inside a company.
Stephan Liozu: Well, yeah, I mean, it’s slowly but surely. I’ve done this for four years and I love the methodology that is out there, whether it’s a lean canvas or a business model canvas or value-prop canvas, as people like to rally around these, and then it’s really showing an entire picture of, you know, what you need to do externally to be attractive. What you need to do internally to make sure we deliver, and then the margin that you’re creating, so a cost and revenue model.
So I design my proper canvas on the pricing model innovation canvas to help teams work on innovation in pricing – how do you move from product pricing to subscription pricing? How do you measure the value and all that stuff? So, the canvas is a good framework for people to converge and to work in – it’s a good summary, a high-level vision of this. And then you got to make sure that there’s meat in the canvas when we’re talking about customer profit.
So I tell my team, for example, our competitors are also looking at the customer problem. So we got to do a better job at understanding the customer problem, uncovering it through market research, insights, ethnographic research. So it’s not like, I do one and it’s done. Did you get to get out of the building and talk to your customers, right?
Mark Stiving: Yeah, we have to go listen to our customers. So we address the following because almost every company I talked to, if I were to ask them the question, how much does your customer value your product? They have no idea what the answer is. They don’t even know how to think about the answer. Why is it that, in most businesses, we think 99% of their businesses there to create value? And yet they don’t even know what that means?
Stephan Liozu: Well, I think because the management of customer value is a process, and you got to deploy it fully. And this is why, back to your question about the title, I wanted not to be a CPO (chief pricing officer), I wanted to be a CVO (chief value officer), because our critical problems are around value, you know, pricing comes later. So you really have to apply the methodology all the way.
So a lot of companies stop in the middle of their queries, value props that are maybe so somewhat dollarized with percentages like 3% improvement, 5%, yield reduction, whatever it is. They don’t know, what does it mean? It doesn’t make sense, so especially in front of the economic buyer. So in B2B and B2C, you want to have numbers. Now some of these things are just plain experiential benefits. Right?
So at the end, assuming we convinced the economic buyer and the buying center to buy from us, we never go the extra mile of actually verifying and documenting the realized value. So this is an extremely rare, and I will tell you, it’s extremely difficult to do, how do you go and actually make sure you deliver the value you promised? Right? Because the next time around, you have a bid, you want to make sure you put that in the face of the buying center, saying we delivered you a million dollars, and here’s a proof and you agreed on it. Work with me on the next bit.
Mark Stiving: Right? Do we actually have the metrics upfront? Define those metrics to figure out what is it that we expect to deliver? And did we actually deliver that and not from a product perspective, but from a results perspective.
Stephan Liozu: Correct, the outcome and the impact. So you know, in my previous writing, formal writing, various things you can do and recently, I’ve come across the metadata technology, that you can use to actually quantify the realized value in agreement with the customer. And that’s essential, the customer has to agree with you that your value was realized. Because then there is no discussion.
You know, once you go back in negotiation, and if we agree on that, I would say, probably two years ago, you would do the value audit, you would do dashboards, you would do some basic surveys, and then you will reconstruct, even if the customer doesn’t agree with your own, through the customer value, file your own impact, and then you would send that to the customer. The issue with that is you don’t get them to agree and acknowledge the value was delivered.
I love teaching pricing and value, but I get a little frustrated. It’s hard to implement what you’ve learned after just one class. There are always nuances to what you learn in a classroom that just aren’t easy to recall when you’re trying to imitate them in your own real-world project. To most pricing feels so risky. To solve this, we’ve come up with our part-time pricing expert programs. In each program, I learned enough about your business to guide you as you explore and implement new pricing capabilities and new value discovery approaches.
We put together three distinct programs to assist with a range of scenarios from a single project or to help a team within your company improve their decisions to developing your own in-house pricing expertise. I think pricing is fun, and you might too if it wasn’t so scary. If a little guidance expert counsel and sound advice would be a benefit on your next pricing initiative, please reach out to me at firstname.lastname@example.org. We only have room for a few more companies.
Mark Stiving: So you mentioned Ron Baker’s name, I listened to his podcast on a regular basis, and they started talking about something called value conversations. And I don’t know if you’ve heard their perspective on that, or as they talk about it, but it’s pretty interesting. They do it mostly for professional service-type firms, where every deal is different. And what they’re expecting is a salesperson to go out and figure out, what are the big problems we’re going to solve? And what’s the value if we actually solve those problems for that customer. And I find that fascinating, and I thought if we take that exact same concept, move it back into the product world, we could have product managers doing value conversations before we ever build products, to know, is there real value in having this capability in our products?
Stephan Liozu: Yeah, and I agree with that term here because a lot of the time, especially in B2B industrial, we create these cutting edge value propositions, but they are not very pretty and not poetic. So, if you don’t enter into a conversation with the customer – and this is where typically the sales guy can sit in the stands, then they would go in and have more conversations. And you have great sales enablement tools now, value selling tools that will help you transform your current dry technology-focused value props into conversations.
And it’s kind of, psychologically it puts your customers at ease when you have a conversation, whether it’s in creation mode, in quantification, validation, or communication. And it’s software, you can still get the same outcome or you get the nuggets that you want, the validation points but you can go with an engineer showing all kinds of different charts in the value props. And especially when you have customers who don’t speak your language, some of the buying centers, we don’t speak with technology.
Mark Stiving: I like to think of the whole value conversation as, our customer doesn’t know our product that well, so there’s no way they know how much value they’re going to get from our product. And we don’t know our customer that well, so there’s no way we know how much value the customer’s going to get from our product. So it really takes a conversation between us and our customer to quantify what that value is for both, before the sale. And then, as you point out, even after the implementation, are we delivering on that value?
Stephan Liozu: That’s correct. And one of them, I would say one of the critical barriers that we see is, internally a lot of the time, our product managers and our sales guys are not fully trained on the product and the customer benefits of the product. So we go in and kind of, wing it, or have these plain vanilla discussions. And so it makes it very complicated when you don’t know your own programs very well.
And now put yourself in a digital transformation mindset now, where digital is so fuzzy, and all that stuff is very theoretical, it’s even worse because we don’t know the value and we don’t know fully the solution that we’re going to offer to our customers when we go out there. So we unfortunately need that you have to go in and forge real conversations with them. And they have to trust you in what you’re saying. And they have to believe that you’re in there for their interest – now obviously you have to be in front of the right customer, the value buyers, the partnership seekers and not price buyers, because they need a vast experience.
Mark Stiving: Yeah. So let me go back to the question. I don’t know if I asked it exactly this way, but let me ask it, why don’t companies understand value? Why is this such a rare thing that you and I get, and you know, all of our colleagues get, but most companies, it’s like, pounding them on the head with a hammer. They’ve got to go figure out what their value is.
Stephan Liozu: Yeah, that’s interesting. So, you know, there’s multiple reasons for this. The first time what comes to mind is very product oriented. You know, a lot of companies have been around for a long time, especially in the industrial world, right? Even in the software world, you could say they are pushing their functionalities or pushing their technology, and it’s not very good, as far as, you know, getting into conversations and opening up the value discussion. So that’s one thing. The second one is manufacturing, I would say we’re very cost-oriented. Right. As you know, the cost of the competition.
So we do forget a little bit about that side of value and being customer-centric and the intimacy with the customer. So that’s for sure. And the third thing is, again, back to the misunderstanding of what we mean by value. Everybody thinks we know the value of everything, right? But at the end of the day, again, we’ll be talking financial value or something else. So you know, there is definitely a lack of training or education on value, even in the pricing community, a marketer who, frankly, are much more pricing-oriented than value-oriented.
Mark Stiving: I think I’m seeing that shift a little bit. Absolutely. We’re more and more pricing. People are saying let’s go do value discovery conversations or are finding a way to say what’s the value. But I think you’re right that we spend way too much time on pricing, especially when you get to the technology side, right? If we’re going to use AI or data-driven, that’s all pricing and very little value-driven.
Stephan Liozu: Yeah, because exactly for what you said before, to be doing the work in value, you have to have value conversations. And you have to be trained to have conversations. And, you know, I look at my team, who is good and skilled to have value conversations, like you look at the methods for doing interviews and getting under the skin of the customer. And, ask them to give you the information you want to hear without directly asking them, but who’s training the people to ask the right questions, and engage in conversations, right? And I tell you, it’s skills that we don’t train enough.
Mark Stiving: Yes. And so our salespeople need to know those skills. But I think our product managers and our product marketers really need those skills as well. Absolutely. And this is-
Stephan Liozu: That’s why I always recommend, Mark, to include your communications guy in your value activities. They’re pretty good at drafting stories and asking questions and, you know, focusing on the user, so I like to work with the communication folks. And then we move the current aspect in the conversation and focus on the soft stuff, you know.
Mark Stiving: Yeah. Let me toss out one more reason why companies may not think about value. What do you think of the fact that they don’t want to do market segmentation? They want to build a product that goes across all markets, which means that I can’t understand the value to a market segment, I just have to talk about my products and my features and everybody’s going to love it.
Stephan Liozu: Yeah, I think you raise a good point. And, you know, if you look at the value-based pricing process – the six steps – this is probably the most neglected step, is customer segmentation and understanding your true value driver, the customer problems by segment and the psychological profile of these segments. And so right at the end of the day, because we don’t know the value differential between segments, we just do plain vanilla stuff. And then we send it out there and you know, it’s not compelling, I would say, to your customer segments and users.
Mark Stiving: So what are you working on now? That’s fascinating.
Stephan Liozu: Well, you know, a lot – and I’ve been easier in these days than before. And more productive because I don’t have to travel. So I’m leveraging technology for a lot of my work. But I would say, I spent quite a bit of time on the technology side and on the digital side, helping the Thales group become more impactful in their digital transformation, especially focusing on monetization of software and data. As you can imagine, for a product-centric company, it’s quite a challenge in a change of mindset. So that’s been keeping me very busy, especially working with our three digital factories and our innovation group. So quite interesting. Another thing is the subscription. You know, the subscription is very trendy.
Mark Stiving: Can I ask you, I want to go back to the other topic real fast just because I find it fascinating. Every hardware product company I’ve ever worked for, they tend to do cost-plus pricing. And because of that when they come out with software, they tend to think oh, I should give that away because it helps me sell my hardware. How are you getting your company over that hurdle to stop thinking that way?
Stephan Liozu: Well, I think it’s, this is where you put your warrior hat: you’re talking to the digital folks, you’re talking to the finance folks. A piece lately on the blog was saying that doing cost-plus in a crisis is crazy. But also, there’s a lack of excellence in costing, and a lot of the time, everything that’s around the product is folded into the product cost, and it never appears anywhere. And you know a lot of the product teams are focusing on hardware, and as you say, they’re folding everything under the hardware cost.
So the GUI is the apps, the software, and then because of that, it’s not appearing in the bids, you know, and I’m like, this needs to change, we need to do cost in the 21st century where we need to know our true cost of software, the true cost of the GUI and apps and then we need to kind of de-bundle or re-bundle in the proposals because the value is migrating away from products, as you know. And if we have to continue doing everything in finance around the product, then we’re not going to achieve our goal to show the value of everything else we do in the bundle, right?
Mark Stiving: So I could see how I would be talking about the costs of our software inside my company because I want to get my finance team, I want my sales team to start thinking that way. But when it comes to the bid, that should be about the value, right? What do we think we can win this deal at and how much value are we delivering to the client compared to the competition?
Stephan Liozu: So if you look Mark, a maturity model and software monetization, you know, a lot of the companies are right now talking a lot about the transition to the SaaS, moving away from perpetual (model) to SaaS. Everybody’s focusing on that. But a lot of the up-front work in stage zero maturity, or one, maybe zero and 0.5 is around doing what you do today, better, and sorting your internal challenges and then make sure that when you do whatever you’re doing with your software, it’s costed right and the value is estimated and assessed, right? The value you create is quantified.
You know, that’s the basics. That’s your basics, you know. So when you sell a perpetual license, right, you know exactly what you’re selling – the value of the functionalities of your modules, the value of your upgrades. And then you design a perpetual type of model that is already value-based. Then you worry about your SaaS and your transition to the SaaS. So a lot of the things that I do today are focusing on the product management community and telling them, the software is important, but it cannot be part of the product. It has to be separate, it’s got to be treated separately. and the value of the software could be graded on the value of the product. As you can imagine, it’s a cultural challenge.
Mark Stiving: I have to say in most tech products today, the value of the software is the value of the product
Stephan Liozu: In a lot of them. Yeah.
Mark Stiving: Because if you don’t have the software, the product is pretty darn irrelevant. In most cases.
Stephan Liozu: You could say, and now in some very advanced industries on the data, the software is just, something to treat the data. So the value is in the data. It’s a profound change in product management and technology management. And I think, we have a chief data officer who I was on the phone with, we’re trying to push the value of data because we did a reach in Thales and these are a goldmine for us, but you know, it’s not an easy way to find how much value we create on the data.
Mark Stiving: So it’s back to that market segmentation, who’s gonna value it and what’s the result that they’re gonna get? So nice. Stephan, I have enjoyed this a ton. We’re almost out of time. I gotta ask the final question, though, what’s one piece of pricing advice that you would give our listeners that you think would have a big impact on their business?
Stephan Liozu: Well, number one is focusing more on value, or equally on validating price, pricing with that value is great, but it’s not going to give you the results, that outstanding result that you want. So even if you continue to do a little bit of cost-plus for a while because you’re transitioning, but at some point – know the value that you deliver, and that will be a transformational exercise in your organization.
Mark Stiving: Well, I couldn’t agree with that anymore. That is just awesome. Stephan, thank you so much for your time today. If anybody wants to contact you, how can they do that?
Stephan Liozu: Well, we can look at LinkedIn. I’m quite connected there, StephanLiozu.com, and find all kinds of comics and papers and then my email in there.
Mark Stiving: And I’m sure we’ll have your LinkedIn link in the show notes. So that’ll be easy enough to find. All right, Episode 74 all done. Let’s see what was my favorite part of today? Well, certainly talking about value, I thought was really interesting, because that’s what we talked about the entire time, but maybe why companies don’t go to value. So what was your favorite part?
Please let us know in the comments or wherever you download it and listen, while you’re at it, would you please leave us a five-star review. These are very, very helpful to us, don’t forget you can join us in our free community at community. championsofvalue.com. If you have any questions or comments about the podcast or about pricing in general, feel free to email me email@example.com. Now, go make an impact!
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.