Guest Post by Stephan Liozu
Nothing in business is static. Things change quickly, suddenly, and frequently. The same goes for value models. A value model will quickly be outdated, irrelevant, and obsolete. This is due to the dynamic nature of the critical elements used to model value. Value models need refreshing, need reworking, and need to reflect the dynamic change happening in the market place. I therefore conjecture that organizations using value-based pricing and building value models should do these activities dynamically. I introduce to you the concept of dynamic value modeling.
Let us focus on three critical elements ones:
- Reference Value: as competitors change price levels, the reference value included in the model will change on a daily or weekly basis. Sometimes customers will also switch reference value, especially when switching costs are low. Being able to quickly adapt an existing value model by substituting a reference value is a requirement of any value-based pricing process.
- Differential Value: value-in-use analysis will be performed at customers’ locations and will derive cost savings based on the current customer processes. These processes might change as customers invest in productivity gains, increase operational performance, and conduct lean manufacturing programs for example. That needs to be taken into account dynamically in value models.
- Pricing “Moderators”: once the value pool to be shared is clearly identified, many factors enter in the price setting process. These typically refer to price elasticity levels, competitive intensity, industry recipe, fairness effect, etc. These factors are also not static. Their intensity and importance in the price setting process will depend on the organizational and exogenous context.
Dynamic value modeling is not a nice-to-do activity. It is a must-do activity that can only be done by using the proper technology platform. Forget pen and paper. Forget spreadsheets and manual building of value models in Excel. LeveragePoint is the perfect tool to perform dynamic value modeling. Models can be dynamically changed in front of customers or after receiving customer feedback. They can be modified and adapted to various segments, audiences, and circumstances without having to start from scratch. Dynamically modeling value in the cloud also shows professionalism and delivers tremendous efficiency gains.
Be bold. Model value dynamically! Join the value-based pricing revolution!
Stephan Liozu (www.stephanliozu.com) is the Founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned his PhD in Management from Case Western Reserve University and can be reached at firstname.lastname@example.org.