I was nervous that day in 2003 when I left my secure academic position to join the management team at Strategic Pricing Group — a small consultancy that pioneered the field of value-based pricing. Working at SPG was soon to become one of the most enjoyable experiences of my career. We had a great team of consultants with a shared commitment to helping clients develop value-based pricing strategies.
We also shared a closely held secret. Despite our reputation as a top pricing consultancy, we almost never helped our clients set prices. A typical client would contact us looking for help with a thorny pricing problem that was impacting revenues or margins. Like any project, the first step was to conduct a situation assessment to define the problem and diagnose its root causes.
In the majority of cases we found the price was not the core issue. The client might be getting push back on their pricing, but the root cause of the pricing problem was typically found somewhere upstream in the commercial process. When customers pushed back on prices, it was often because Sales had not communicated the value story in a way that helped customers understand the business case for buying the client’s product instead of the competition. Customer pushback was reduced once the sales force was equipped with the right data, tools and training to sell on value.
In other instances, the pricing problem was traced to Product Managers who developed features that improved performance but did not improve the customer’s bottom line. Once product managers learned how to prioritize development of features based on customer value instead of performance the pricing problems declined.
The root cause of other pricing issues stemmed from the Marketing Group targeting customers that didn’t value the product as much as other customers. Once the Marketers began to understand differences in customer business models and identify value-based segments, go-to-market programs became more effective and the pricing problems began to disappear.
The go-to-market process involves hundreds of choices by managers across the organization. Each choice can leak value and margin from the process that is only felt when the wrong price hits the market. The key insight behind Value Management is that those leaks can be sealed when managers are given the right data and tools to support their strategic and tactical choices. Leading edge companies are beginning to align their entire commercial process to optimize the creation and capture of customer value in response to increasingly challenging market conditions.
This is a big idea that can transform companies. Is your company ready?