New product development has been identified by industry leaders as the most important opportunity for embedding value-based strategy to maximize customer value and profit. However, leading companies continue to face key challenges, including the commoditization of products, intense price competition, rising input costs, and relentless pressure from powerful procurement groups.
To deal with these challenges, product development must adopt an approach that: a) incorporates a value-based pricing mindset; b) taps into the enterprise’s expertise across functional silos; c) validates differential value using customer input; and d) uses dynamic models to fine-tune unique customer value propositions.
One case example we used to illustrate these best practices in action involved a chemical materials manufacturer that sold to large OEMs. As you’d expect, this manufacturer faced relentless pressure when dealing with B2B procurement department buyers. This is an extremely challenging environment to execute a value-based pricing strategy because of the laser-beam focus of procurement to reduce per unit costs. For them, the logic is brutally simple: “Reduce the cost of your material inputs, year after year. Or else.”
This challenge was evident when one of the largest of the manufacturer’s OEM customers recently issued a major request for proposal (RFP). Here was a significant multi-year revenue opportunity. The manufacturer then faced a common dilemma – how much value would they need to give away in order to win this important business?
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