Every product has a price tag, but you never see a “value tag.” A value tag tells the customer “what’s it worth for me?” to buy the product. Economic theory says that customers are willing to pay more for products that deliver them higher value. If every product in the world had a value tag, then buying and selling products would be much more simple than it is today. But few if any do, and that’s because most sellers and buyers think that calculating value is too difficult to do. Actually, calculating the economic value of your product is easier than you than think. All you need to do is build an Economic Value Estimation (EVE®) model.
EVE is a value modelling framework described in the classic book, The Strategy and Tactics of Pricing (by Thomas T. Nagle et al. 2013). An EVE model quantifies the amount of monetary value that is created by an offering for a particular customer versus their next best alternative. The amount of value created by an offering is contextual to the customer’s business model; some customers get more value from the offering than others. Likewise, the amount of value varies relative to what the offering is being compared to; some competitors are more economically compelling to customers than others. EVE provides a structured framework that makes it easier for B2B enterprises to compare multiple customer and competitor scenarios.
EVE models are used in various areas within a B2B enterprise:
- Pricing professionals use EVE to build visual models to aid them in strategic analysis in support of making pricing decisions for their product/service offerings
- Product Development/Management processionals use EVE for customer segmentation and product development decisions
- Sales and Marketing professionals use EVE models as an effective tool for communicating value to customers.
EVE outputs can also be converted into other financial metrics like ROI, NPV and TCO.
Want to learn more about EVE models? Stay tuned for my next post which will provide insights on the 5 components of an EVE model.
About the Author:
Ed Arnold is VP, Products at LeveragePoint. Previously, he held senior positions at Communispace, Diamond Management & Technology Consultants, and OmniTech Consulting Group. He directs product design and development and drives the go-to-market strategy for LeveragePoint. Mr. Arnold holds an MBA in Marketing from New York University and MA and BA degrees in Political Science from Boston University.
Editor’s Note: Excerpted and adapted from the book,”The ROI of Pricing, Measuring the Impact and Making the Business Case” (publisher: Routledge).