As our customers quantify the value of their products and services they sometimes run into interesting scenarios. We see that this customer’s solution delivers very high levels of economic value relative to the competition., but that it is capturing only a small amount of this into price.
Most of the value falls in the following areas:
- Customers require less material to complete the job relative to the competitor’s product
- Customers can significantly reduce labor costs by eliminating several steps in the application of the product
- Less steps and less material enables customers to reduce production downtime, therefore improving revenue and profits by getting more products to market faster.
So what options does our customer have to capture a higher price? Here are two possibilities.
Switch to a better price metric that is aligned with value received by the customer. A potential price metric would be to charge based on savings delivered. This would require mutual agreement on how much it would cost to do the job with the competitive solution and then agreeing on how any savings generated by using the vendor’s solution will be shared. Although this could seem as a win-win for both the customer and vendor it would require significant changes to how customers and vendors make business decisions.
Since the reference price has already been set by selling this product at a low price relative to value received it could be tough to dramatically increase price without upsetting existing customers. An alternative option would be to launch the same product under a new “premium brand” with a higher price point, while keeping the existing product at its current price point. This premium branded product would be supported by powerful value communication tools and sales incentives that would encourage sales teams to focus on value to justify the premium price. Generally, sales teams are resistant to change, but with the right incentives and the right tools at their disposal they can make the adjustment necessary to achieve success.
There are plenty of opportunities for companies to capture more of the value on their differentiated products through better pricing and value communication efforts. It is gratifying to see how our customers use the Value Modeling capabilities of the LeveragePoint platform to uncover compelling pricing and sales opportunities.
How is your company capturing a fair share of value that customers receive?