The reason why many companies fail to capture superior profitability, even after buying price management software and implementing tight pricing over 12 months, is because they fail to implement a value-based pricing strategy that centers on customer value.
To be successful a value-based pricing strategy must include the following five components:
- Value Creation: Are you developing products with benefits that align with what customers are willing to pay for?
- Value Communication: Are you communicating how your differentiating features and services impact your customer’s bottom line?
- Price Structure: Do you have a way of charging customers that tracks the value you deliver across customers and applications?
- Pricing Policy: Do your discounting policies tell your customer that price is determined by value, rather than aggressive negotiation?
- Price Management: Are you ensuring that pricing is implemented as intended, and that price level changes reflect true market conditions?
The first two value-based pricing components are considered value management activities while the bottom three components are considered price management activities. By combining the activates using a value-based pricing strategy, enterprises increase the potential for profitable pricing that price management enables them to realize.