On November 30 we gave our final webinar for 2011, Capturing Value – The Road Ahead. To view On-Demand check out our Resource Center.
The difficult economic environment in 2011 lead many companies to consider a value-based pricing strategy. Volatile commodity prices, uncertain financial markets, natural disaster disrupting supply chains and continued global competition put many companies margins under pressure. Understanding how one creates value for customers and capturing part of that value in prices is a powerful competitive response. The only way to do this at scale, and to respond rapidly to changing conditions, is to do this with a software platform that supports both building and executing a value-based strategy. In 2011 LeveragePoint found that people were adopting our platform for three main reasons. Companies bringing innovative new products to market used our software to establish the differentiated value of their innovation and sell to both new and existing customers. Other companies applied the value-based approach to existing products in existing markets and were able to win additional market share by demonstrating superior value.
Selling new products to new customers is how many large companies begin to use LeveragePoint. In this example our customer had developed a new product that radically reduces the volume of material needed to coat an OEMs product in an industry where they had not previously entered.
The problem: They sold the product by the gallon. How do you price 1 ¼ X as much, per gallon, against the next best alternative?
The customer used LeveragePoint to win an important competitive bid and establish its presence in the market. Value modeling was used to define the value of the new product and demonstrate that they truly understood the OEMs business.The value model showed clear material cost savings and in manufacturing Q/A, inventory, and waste the new product provided quantifiably better results for the OEM customer’s customers.
The same approach can be used to sell an innovative new product to existing customers. In this case, the customer was introducing a new higher quality/priced product to their customers.
The Problem: At the same time they were was experience threats from competitors with “me-too” priced lower, and if the customer was going to change their processes, shouldn’t they consider alternatives?
Using the LeveragePoint software allowed them to demonstrate to their customers that the new product was designed to improve revenue and quality. The result was an enormously successful new product introduction.
Value-based pricing is well established as the best way to launch new products. But our customers were not satisfied to stop there. Some of them found ways to use value-based pricing to get an edge with existing products in very mature markets.
This customer had been selling this product into this customer for over 50 years. Their competitor had been doing the same. The manufacturing process had not significantly changed in the past 20 years. Our customer was receiving about 60% of the volume.
The Problem: How do you increase the volume from this customer, when the value is so “well understood”?
The customer used LeveragePoint to change the nature of their annual renegotiation. The LeveragePoint solution allowed them to link the price to the value proposition. The terms being negotiated are a significant improvement over last year’s terms.
The rapid uptake of the LeveragePoint SaaS platform for value-based pricing was in part the result of pent-up demand. Companies have been using consultants and internal systems for years in their attempt to scale value-based pricing. But it was our rapid and responsive development that led companies to commit to LeveragePoint and once committed to expand their use. At LeveragePoint we use agile development to bring new functionality to market each month. Sales, product management and engineering all work closely with customers to understand current, emerging and future needs and then build these into the platform.
We will accelerate development in 2012. The initial focus will be on sales and on making it easier for marketing and sales to work together to sell on value and thereby capture higher prices or a larger market share. We will also be deepening our ability to handle the large amounts of customer, competitor, economic environment and product information used in value-based pricing (see Big Data for Pricing). Our customers have also been finding new and creative ways to apply value models, and we will be supporting these by making it possible to combine value models and to partially automate model building.
A value model puts value and price in the context of a specific customer and competitor. This makes it the ideal way to provide the most relevant marketing collateral to a sales force. Something that we also plan to support in 2012.Value-based pricing is critical to winning in B2B markets. Join us in 2012 and make sure that your customers understand and are paying for the value you create with them.