For a value-based pricing (VBP) strategy to be successful two elements are essential:
1. there needs to be a company-wide focus on customer value creation
2. the processes necessary for the introduction and successful implementation of a VBP strategy need to be in place
The initial focus must be much more than mere lip-service. Everyone involved must be committed to the creation of real value for the customer – not just in the short term but as a long term initiative This is a real leadership challenge. Top and senior management need to be actively engaged and supportive and be seen to be driving it. Delegating it down to the ranks simply will not work and, if that is your intention, you may as well not bother. You would be better off just carrying on using cost-based or competition-based approaches, with all of their flaws!
In our research we approached over 100 companies who we knew had either implemented VBP or were considering doing so. These companies included those who had sent delegates to VBP training events, supplemented by companies that, for various reasons, we believed were likely to have implemented VBP – or were at least considering it seriously. The spread of our initial contacts included automotive suppliers, automotive manufacturers, energy consultants, logistics companies, biotechnology, legal services, engineering, mobile telecommunications, chemicals, medical devices, telecoms network providers, power generation and travel consultants.
In our interviews we consistently identified six factors which influenced successful VBP implementation – Change Drivers, Dissatisfaction with Current Pricing Methods, Customer Value, Changes Required, Apprehension and Implementation. These differed quite markedly between those starting off on the journey (or had walked some of the road previously) and those who had implemented VBP successfully.
Harry MacDivitt is a specialist in Value Based Pricing. He has delivered consultancy and training events for major companies across the globe including Philips, Michelin, Nokia, Xerox, Alstom Power, Borealis, Huntsman, Pall Scientific, Invitrogen and Dynea. He has business interests in medical devices and specialist training and consultancy. He is a frequent speaker at meetings and a regular contributor to magazines and journals on value based pricing and strategic marketing. He is co-author of The Challenge of Value with his co-director in Axia Value Solution, Mike Wilkinson. Mike and Harry are currently completing a new title in Value Based Pricing to be published mid 2011.