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8 Pitfalls of Value Based Pricing: Part 1 Q&A

May 10, 2019

Posted by Nick Welter

Posted in Pricing

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For our April Webinar, Joanne Smith, President of Price to Profits Consulting, discussed the 8 common pitfalls that she sees numerous B2B companies fall into as they begin their Value Based pricing journeys. To conclude the webinar, she answered some questions from the audience. Here are her live answers:

What is the first thing you would say to a CEO that asks you how to reduce discounting?

I would say that there are three things that have to happen. From a CEO perspective, the most impactful thing is the culture the leadership sets around whether they are willing to risk volume versus making sure that they pick up every bit of share. More powerful than understanding whether you have a fair price, or having the negotiation skills in your salespeople, is what leaders do to set the stage that says this is not about buying share, this is about truly getting fair price, and I’m willing to risk losing volume to get that fair price.

I’m a premium supplier. What are some good ways to gain support from buyer executives?

The most important thing is to make sure you are selling your value case within the organization before you get to the buyer. In writing, not verbally. We need to have our value case quantified as best we can, and as clearly as we can, so we can talk in customer terms, not our own internal terms. That is the key.

Are there attributes that identify certain types of offers as good (or poor) candidates for Value Based pricing?  For example, offers that have a high variability in the value achieved by different customers using the same offer, or offers that are sold in high volume with minimal direct sales engagement.

Clearly, in Value Based Pricing, you’re going to get the best results when you have a unique product offering. When you talk about cases where there is a very different value to different segments or different customers, that is an ideal case where you absolutely want to bring in Value Pricing, and bring in not only the basics of Value Based Pricing, but some strategy and some segmentation around how you do it. When you are selling the exact same product, that can certainly get you into trouble if you are selling it at different price points without some sort of fences or variance in the services you provide or the features in that offer, especially if they are potentially going to customers that are going to hear about each other and can buy from different sources. Great opportunity, but this takes a little more in depth skill to handle.

When you get to large volume buys, and if you’re working with large buys that are indirect, does that mean we can’t have Value Based Selling? I would say no. We can still do Value Based Selling if we go back to customer segmentation, if we realize that there is a group that’s very price sensitive, perhaps, and there others that like certain value. Ideally, there might be three different offer choices, one might be stripped down with no services, and one might be a slightly lower-featured product than the highest priced product.

We see this every day, whether you are buying different paint for your house, or a washing machine. You can look online and often you will see slight variances in the offers you can get, low priced to high-priced, where the low priced product has slightly less value than the higher priced product. This is a great way adopting value based price concepts in what you do.

What type of pricing impact from value based pricing are you seeing from your clients?

You mentioned earlier that LeveragePoint customers see 5-25% higher prices, but I see that at least 10% of the time, that Value Pricing results in more than a 25% difference. At times, when its higher than 25%, sometimes the client (for good reason), elects not to go for that 45% increase in one fell swoop. At times they absolutely can, but other times they might split it, so it might take two price cycles to see the full value.

When I’m doing training courses, we always do role play, and I set up the “seller” with a Value Based case, with the full Value Based setting and background, and set the “buyers” up separately (in another room). I tell the “buyers” that they have a competitor that they haven’t used yet, that is 10% cheaper and claims to have identical value, and to not accept the higher price unless the “sellers” can convince you that they truly have extra value that you care about.

What I’ve found across hundreds of data points, is that 90% of the time, the seller is successful getting the higher price with the value case. And about 10% of the time, they don’t get it, and the buyer switches to the lower-priced product. When I ask both groups why the buyers moved to the cheaper option, almost 100% of the time, the salesperson never showed them the value based charts I gave them. Sometimes they verbalized it, but never showed them in writing. Any time they showed the value case in writing, the seller has been successful in getting the higher price. It’s interesting how dramatically, and how statistically strong, this plays out in a classroom setting.

Watch the Full Webinar or Download the Slides

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