In the age of greater focus on innovation and customer value, one of the questions that remains unanswered is how much collaboration is required between the innovation and the pricing teams to achieve greater pricing power for innovative products and services. Recently I teamed with LeveragePoint to answer that question.
The results from the 144 pricing and value professionals we surveyed were eye opening and deserving of a wakeup call! We asked these pricing professionals to rank from 1 (we do rarely) to 7 (we do frequently) their level of cooperation with their innovation colleagues on seven key activities. The table below shows the summary results for all seven items.
The mean scores are not very encouraging. In fact, we can conclude with some confidence that pricing and innovation teams do not collaborate much on these seven activities. Most troublesome is the fact that pricing and innovation teams do not collaborate in the Stage-Gate® review process (43% of rarely scores) and in the deployment of value-in-use analysis (49% of rarely scores).
Should innovators learn about pricing? And should pricing professionals learn about innovation? You bet they do. If your company manages customer value with intention, these two groups of professionals should collaborate, integrate their activities, and learn about each other’s processes. In fact the Pricing Council should include members of the Innovation Council and vice versa.
Managing customer value in the innovation process requires integration of innovation and pricing activities in both the front-end and back-end of the innovation process. Pricing components and deliverables should be included in the NPD and Stage-Gate® processes. Concepts of segmentation, willingness-to-pay, customer value modeling, value-based pricing strategies, and cost-to-serve analysis should be widely discussed in the Innovation Council. The innovation pipeline, pricing strategies for innovations, and value activities for innovation should be discussed in the Pricing Council.
To get there, innovators should start learning about the science and art of value-based pricing.
Dr. Stephan Liozu is a Pricing Evangelist and Thought-Leader as well as the Founder of Value Innoruption Advisors. He specializes in the design of innovative and differentiated business strategies for B2B firms, and the implementation of value-based pricing strategies. His acclaimed Customer Value Modeler (CVM®) certification program trains professionals in value modeling best practices. Stephan is co-author of Innovation in Pricing, A User’s Guide to Value Modeling, and The ROI of Pricing, as well as numerous academic papers. He holds a PhD in Management from The Weatherhead School of Management at Case Western Reserve University where he is an Adjunct Professor and a Visiting Scholar. Stephan sits on the board of Advisors of PPS. Stephan can be reached at firstname.lastname@example.org.
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