LeveragePoint Value Management Blog

LeveragePoint Summer Gathering 2010

The Cambridge Boat Club was the perfect setting for LeveragePoint’s First Annual Summer Gathering.  This small private party of a select group of B2B marketers and pricing professionals afforded a great opportunity to get out of the office and visit with colleagues, users and potential users of LeveragePoint for Value Management.

When there is an assemblage of marketers on the cutting edge of value communication, pricing strategists, PhD’s in economics and CEOs from the chemical and high tech industries, there is inevitably going to be some interesting conversations. I’ve tried to capture some of the discussions and themes that surfaced throughout the night.

The Importance of Accessing Institutional Knowledge

One theme that emerged is the importance of the institutionalizing access to, and knowledge about value. (The W.R. Grace case study discusses this topic in detail) How can the knowledge that sales reps glean from daily conversations with customers be extracted from the individual minds and laptops of the salesforce? Then, how can this knowledge be communicated throughout an organization?  The capacity of LeveragePoint’s Platform to enable the centralization of knowledge and experience is exciting to both product managers and marketing executives.  LeveragePoint’s software enables a product manager to access value drivers that another has already quantified. It also helps sales reps learn one format for value information for one product and then leverage that knowledge to access value models for other products.

Communicating Value;  Again and Again and Again

Pricing analysts and consultants who hold positions within corporations and small companies had variations of the story of how, day after day, they must show their customers the value of their offerings from the customer’s perspective, often in context of intense competitive pricing.   Much of the time these conversations centered around individually crafted, time-consuming spreadsheets. We were excited when they saw the possibilities of how LeveragePoint for Value Management could create a compelling presentation to accurately communicate added value to help justify their price.

Successfully Adding Value Into the Cost of New Products

Another theme was the importance of getting an understanding of value, and the price premium that it could support early in the new product development process. For example, a new improved product that costs too much to make or deliver relative to the revenue it can capture in price could possibly result in a competitive disadvantage if not carefully thought through in the early stages of it’s development .  In this increasingly competitive world, the need to add value cost effectively is very important.

Thanks to everyone who helped make this event a success. It was a great opportunity for members of the value-based selling community to get together in an informal setting and share their experiences and insights.  We look forward to many more memorable events.

 

LeveragePoint Team. Cambridge, MA.

Resources on Value Management for Product Development, Pricing, Marketing and Sales

LeveragePoint is committed to providing the most compelling platform for product development, pricing, marketing and sales to collaborate around value management and to engage in compelling value conversations with customers. We do this with our software platform LeveragePoint for Value Management, by supporting the community through the LinkedIn Value Management Group and by publishing and republishing the best resources and data in the field. Value management is the most effective way for B2B companies to improve margins. If you have a whitepaper, presentation or dataset that you think will contribute to building understanding and adoption of value management please contact us through [email protected].

Resources at LeveragePoint.com.

	A Question of Value by Gerald Smith & Thomas Nagle
	Customer Value-Based Pricing Strategies by Andreas Hinterhuber
	Driving Growth with New Products: Common Pricing Traps to Avoid by John Hogan and Tom Lucke
	How to Manage an Aggressive Competitor by George Cressman, Jr. & Thomas Nagle
	How to Pull It Off - Raising Prices When Others Have Given Their Customer the Power to Set Prices by Thomas Nagle
	Managing Price Competition by Thomas Nagle
	Money-Back Guarantee…and Other Ways You Never Thought to Sell Your Drugs by Thomas Nagle.
	Pricing the Differential by Gerald Smith & Thomas Nagle
	Reaping What You Sow by George Cressman Jr.
	Stop Reacting to Buyers’ Price Expectations; Manage Them by Thomas Nagle, Joseph Zale and John Hogan
	Towards Value-Based Pricing – An Integrative Framework for Decision Making by Andreas Hinterhuber
	What is Strategic Pricing? by John Hogan and Thomas Nagle
	When You’ve Lost the Power to Set Prices by Cameron McClearn

Best Posts on Value Modeling

Value modeling is the foundation of value-based product development, value-based pricing, value-based marketing and value-based selling. At LeveragePoint we use the EVE(tm) (Economic Value Estimation) approach developed by Tom Nagle and John Hogan in their book The Strategy and Tactics of Pricing to build value models. Our Value Modeling tool helps product, pricing and marketing experts work through this process to create and share value models. The following figure provides a simple introduction to the structure of an EVE value model.

At LeveragePoint we post regularly on value modeling using EVE and related tools. All posts in this category can be found here. Some of our best posts are listed below.

• The Real Growth Driver: Blending Commoditization and Differentiation
• A Value Model for BP
• Eastman Uses Economic Value Estimation to Understand the Value of a New Polymer for its Customers
• Leveraging a SaaS (Software as a Service) Value Story
• Are Value Maps Leading You Astray?
• Value Charts
• Managing Value Across Distribution Channels
• Value is Dynamic

W.R. Grace Product Launch Success Story: Understanding & Communicating Value Can Accelerate Commercialization of Innovation

Creating a new product in a new category can be a wildly successful endeavor. Google’s introduction of Adwords to the relatively new world of search marketing in 2000 is a good example of how a unique product offering propelled a company into one of the greatest money making machines in history. It took years and many false starts before Google came up with its brilliant implementation of the pay-per-click auction model.    (The evolution of Google and Adwords is nicely chronicled in John Battelle’s “The Search”.)  

Executive leadership and marketing ranks in many organizations realize innovation can lead to profitable sustainable growth, but they are equally aware that many innovations fail or take a long time to find a market.  How can companies accelerate the process of deciding which business opportunities to pursue, what offerings represent the greatest value creation for their customers and the greatest return on their investment for their resources?  Maybe more importantly, how can different parts of an organization (executive, product development, marketing and sales) agree on what the value of their product or offering is, and communicate it consistently?  

Laurie Andriate, Vice President and General Manager of Grace Davision Materials &  Packaging Technologies – Americas, was tasked with driving a company performance mandate to accelerate growth through new products.  Bondera is an innovative tiling system that allows homeowners to tackle complex tile jobs. A major big-box retailer was excited by this offering.  “What we lacked was a consistent, structured framework for developing marketing plans across all lines of business. Understanding value from the customer’s perspective was probably the single greatest failure mode with innovation at Grace.”

Andriate explained, “We used LeveragePoint to investigate the value of time savings, the ability to complete a tile job in one day and not having to hire a contractor.  LeveragePoint provided a way for us to archive the thinking around this type of value creation so that, as we iterated through this we were able to go out in the marketplace and test the hypothesis, and then refine the calculation further.”  LeveragePoint’s value management collaboration platform enabled Grace to develop more compelling value communications in less time than traditional approaches. Grace did a test launch with 34 stores. Even with thin resources, they quickly moved from a few stores to their nationwide network, in large part due to greater efficiency in their marketing processes. (Read full case study)

Genuine innovation – that aha moment – is what creates real value. But that’s just the beginning. To extract profitable sustainable growth from innovative ideas requires institutional infrastructure, communication and discipline.

Michael English

Marketing Manager

Customers Only Care About Differentiation That Impacts Their Own Needs!

We all pour a great deal of effort into our products and are proud of all the things that they do. They often have great differentiation from the nearest competitor and provide all sorts of benefits, in the abstract that is. But in the real world only some of those benefits will be relevant to any one customer. In value-based selling it is critical to focus your energy and attention on the benefits that actually impact your customer's business model, and within this subset, to concentrate on your differentiated value. You will not get a premium price for the value that your competitor can also provide. That price paid for that value, great though it may be, is set by the market. Figure 1 above is a simple way of seeing how different offers can overlap and the implications for price and sales strategy.

One sometimes runs into sales people who insist that their offer is completely differentiated. Maybe so, but in that case there are generally competing corporate initiatives addressing different needs and the question is which will provide the higher return. This is sketched out in Figure 2 below. 

Of course these simple Venn diagrams are not value models, but they demonstrate the importance of clearly articulating differentiated value in all B2B selling scenarios. To really do this, you need analytic and communication tools such as what LeveragePoint provides with Value Modeling and Value Communication.

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Jay Manson

Vice President, Sales

Bridging the Silos of Marketing, Pricing & Sales

In the field of Value Management, a vast wealth of untapped knowledge lies trapped within the minds of sales professionals, pricing experts and marketing strategists. All too often, that’s where it stays, with no connections made between the silos.

 

Brian Carroll, author of Lead Generation for the Complex Sale, claims there is a dramatic breakdown in communication between sales and marketing in over 90% of companies. That breakdown leaves a lot of money on the table.

 

All too often, the sales team knows what’s really happening in the trenches, while pricing has the tools to create offers that maximize profit margin. But pricing does not share its tools with the sales force, it simply delivers prices. When these meet buyer resistance sales assumes that pricing doesn’t really understand the market and pricing assumes that sales are too focused on meeting targets and winning commissions to do the extra work needed to win the price. Meanwhile, sales and pricing both think that marketing is off in some world of its own, establishing messages and positioning that don’t help establish prices or win sales.

 

In fact, there is important expertise in all three business functions. This expertise tends to come in two forms: one is professional expertise, gained from years of formal and informal learning and adoption of best practices; the other is direct experience with customers and competitors. Both forms of knowledge are essential to creating targeted value messages that incorporate real customer and competitor data. Given disparate organizational cultures, the question is how to do that?

 

At LeveragePoint we tackle this problem in three ways. We build expertise and best practices into on-line solutions that are shared across the organization. Data is collected and organized with these tools, making it reusable and actionable. Then, as people use the tools, the ways in which they modify and adapt them, and the results in the market are tracked and used to drive constant improvement.

 

Pricing analysts build value models using the Economic Value Estimation ™ methodology and work with marketing to translate these models into value communication packages. Sales gets value communications packages that blend together the pricing logic and data (and not just the price) with targeted and tested marketing messages. They use these packages while selling, modifying them as necessary to reflect more precise information about the customer and competitors and rating the effectiveness of specific messages. These changes are fed back to pricing and marketing and get woven into modified value models, messages and pricing strategies.

 

LeveragePoint’s online solution helps professionals in all three functions move beyond what they know to what is known. Information flows back and forth in the background as people do their day-to-day work. Sales people don’t actually have to talk to marketing people; the software does that for them. But they both gain the value of “the conversation that never took place.” The truly successful companies of this decade are likely to be those that have discovered the difference between simply having great processes and data, and actually learning how to use them.

Jonathon Levy
CSO

Tom Nagle Webinar Recording Now Available

Here is a link to the recent webinar, Getting Your Organization Aligned Around Value. Unlike the live webinar, you can watch this even if you are not a member of the Professional Pricing Society (PPS).

Last week we wrote about the various solutions that organization deploy for value management. It was no surprise to us that spreadsheet-based models came up on top. Here is another factoid that came from polling our webinar participants.

What immediately jumps out is that it appears that responsibility for value management is dispersed among multiple functions. One-third of participants say its owned by "brand or segment marketing". One-quarter say "sales."

One hypothesis I have is that practically speaking, this is a shared responsibility amongst all these various functions. Further, that coordination between groups is a major challenge in many organizations. We already know that the communication gap between marketing and sales is the biggest barrier to value communication.

Here's another insight from this poll.  We know that many companies have established a specialized pricing function, usually staffed (appropriately enough) by PPS members. Clearly such professionals bring valuable pricing expertise to their jobs.  How can companies leverage that expertise and embed it deeper into the marketing, sales and other functions?  My pov is that spreadsheets aren't really up to this challenge.

What do you think?

Ed Arnold
Director of Products

What are the most effective ways to create value in customer value management?

Creating Value is an important part of Customer Value Management. If no value has been created it is difficult to communicate or capture, though this does not stop people from trying! Too often we have a narrow view of how B2B companies create value. Some people equate ‘value’ with lower prices (as Wal-Mart has taught us to do) and at the other end of the spectrum there are those who feel that value creation depends on innovation. To provoke some discussion of customer value creation, LeveragePoint recently opened an informal poll on LinkedIn: “In customer value management, what is most important, creating, communicating or capturing value for customers?.” This our the second such poll, following “What are the most important aspects of customer value management?”

Of course questions around value creation are too complex to answer with a simple multiple choice poll. The answers were meant to provoke thought and discussion and perhaps to uncover some gaps in our collective thinking. The answers we provided were 

• Innovate differentiated value
• Package value added complements
• Target customers who get most value
• Reduce costs/prices
• Provide only what creates value

Forty people have responded to the poll to date (March 22, 2010), and there have been about thirty more commented on various on-line forums.

 

The most popular response was “Innovate Differentiated Value,” followed closely by the early leader “Target Customers That Receive the Most Value.” It is hard to argue with innovation and customer targeting when it comes to creating value. They are two of the most powerful levers. And perhaps we should add “Package Value Added Components” and “Provide Only What Creates Value” together, as these are two sides to the same coin: constructing offers that include differentiated services, but that do not include costly services that buyers do not perceive as valuable.

What is surprising is the very low number of respondents who chose “Reduce Costs/Prices.” In fact, many companies have been reducing prices in an effort to provide more value to their customers in a tough economy, and one can’t help thinking that people are turning a blind eye to this behavior. And there is nothing wrong with lowering prices when appropriate. Lower prices can trigger innovation set off new cycles of value creation. This is one of the things we have learned from Clayton Christensen’s work in The Innovator’s Dilemma and The Innovator’s Solution (ideas that he and his colleagues have applied to the healthcare debate in The Innovator’s Prescription).  Another interesting perspective on the role of low-cost solutions in driving innovation can be found in recent work on The Bottom of the Pyramid, which suggests that creating low-solutions to serve ones poorest customers can create large new markets.

There were some interesting differences in responses based on company size.

Enterprises (the largest companies) try to create value by “Targeting Customers” and by “Reducing Cost/Prices.” Large and medium companies were focused on “Innovation.” And small companies “Package Value Added Components” and “Provide Only What Creates Value.” Of course the N in this poll is far too small to draw any conclusions, but intuitively this distribution makes sense. Enterprises have the resources to go after whole new classes of customers based on the value they can create and have the scale to reduce costs (a good thing to do if you are going to reduce prices). On the other hand, they are often too large to rely on innovation alone to drive growth. Large companies have the resources to innovate and are still small enough for product innovations to be transformative. Small companies struggle to fund innovation but they are often very sensitive to their customers needs and able to fill these needs by partnering to pull together offers that maximize value. There is room for much discussion in all of this though, so we will be keeping the poll open as long as LinkedIn allows.

Our earlier poll “In customer value management, what is most important, creating, communicating or capturing value for customers?” remains open and has had more responses. However these responses have just increased the N without making much change in the distribution of results.

Steven Forth

CEO

Jack be Nimbler

There’s a world of difference between talking about agility and actually being agile. Every company’s annual report talks about agile organizations but very few organizations actually demonstrate real agility in the face of unexpected change.  There’s a reason for that: it’s hard to be agile in the abstract.

  

 

For example, in B2B marketing, we know that the value of a product depends on the customer and competitor: value is determined by the impact of your product on your customer’s business and on your customer’s alternatives. Changes in your customer’s business model and your competitor’s offer can both change the value of a product.  And the power of value messages will depend on the role of the person receiving the message: an operations manager will not respond the same way as a purchasing manager or a sales leader . In the abstract there is a price that represents the best value for the client and the best value for the company. But most often the client gets the better end of the deal. Why? 

In an ideal world, the marketing person would actually stand next to the sales person, listening to every word the customer is saying, doing research on the fly, coaching the sales person in real time, and setting a price based on a value proposition that is tailored to that client in that moment.  But that’s impossible. And lacking an agile model to set a price that responds to conditions as they change and the value messages that communicate that value, the sales person sticks his finger in the air and comes up with a price that feels comfortable. Often, the best deal is left on the table for lack of ability to justify a higher price in terms of the value the customer will receive. 

The Native Americans had a saying: “you cannot know a man until you walk a mile in his moccasins.” We can turn that just a tad: you cannot know your best bargaining position until you stand in the shoes of your customer, and compute the world from that point of view. The power to do this in real time throughout your marketing and sales organization would create organizational agility.

In B2B customer value management, the LeveragePoint for Value Management online suite of tools create real-time agility in three ways: first, in the marketing department; secondly in the sales meeting with the client; and finally, in the feedback from sales to marketing.

• Agility in the Marketing Department:  your marketers gain the expertise they need to develop professional Economic Value Evaluations (EVEs) and convey them to sales people because the needed coaching and value drivers are built into the online e-Working tool. They can learn what they need in real time without attending workshops, and gain the benefit of others’ best practice and best thinking without leaving their desk.
• Agility in the Sales Meeting:  Using the value model as both sales preparation and as a customer-facing sale tool, sales professionals can clearly demonstrate the amount of economic value that your product delivers to the customer versus the competition. Your sales people are given compelling proof-points of your product's differentiation that shift the focus of sales discussions from price to value and allow them to instantly customize value messaging to specific accounts and to specific functional stakeholders within accounts.  The message is quickly tailored from account to account, competitor to competitor, and person to person.
• Agility in feedback from Sales:  using the same LeveragePoint tool, your sales people share real-time customer feedback and competitive intelligence from the field with marketing, providing an overall rating and feedback that marketing can use to either modify the base value model or in future value models. This creates a virtuous cycle between sales and marketing, and a “virtual conversation” that keeps information flowing in both directions.

Agility can be more than just an abstract goal or a bullet point on a list of corporate objectives. It can be a reality, embedded and activated in every company’s marketing and sales organization. For our customers, agility means the ability to create measurable value that was previously left on the table by capturing important competitive value and communicating it to your clients in ways that are meaningful and persuasive to them, even when the client changes the argument mid-stream. Nothing else we have seen defends your price and your value on the fly with such agility.

Jonathon Levy

CSO

What are the most important aspects of customer value management?

We recently conducted an informal poll of our contacts on LinkedIn where we asked “In customer value management what is most important, creating, communicating or capturing value for customers?” To make things interesting, we also added the option “understanding” so that the possible answers were

• Creating – You have to create value for your customer first
• Communicating – The customer has to understand what value is being created for them
• Capturing – Otherwise who cares
• Understanding – Is the foundation of Customer Value Management

Of course it is a bit silly to ask people to pick one activity from what is, or should be, a cycle. And indeed, many of the people who responded pointed this out (some 20 people declined to vote for this reasons). In the words of the VP Pricing at a large B2B company “I’m not going to play your game, we both know that these all depend on each other.”

As of February 10, 2010, forty people took the question in the spirit it was asked, as a way to provoke a conversation, and there are some interesting results and comments.

It is interesting that Understanding got the most votes. In some sense this is understandable. If you don’t understand customer value how can you create or communicate it? At LeveragePoint we began our suite of customer value management tools with LeveragePoint Value Modeling, which is first of all a tool for understanding how one creates value. But in fact, our experience suggests that relatively few companies really understand customer value or begin by understanding. There are many companies that create value for their customers and capture it into prices without every understanding what they are doing or communicating it clearly. In first chapter of their book Value Merchants, James C. Anderson, Nirmalya Kumar and James A. Narus tell the cautionary tale of a sales person who got beaten up in a sales negotiation because he did not understand value but the customer did. This is a telling point, but it is worth noting that even though the vendor often has only a vague understanding of value, buyers can be much better informed. Of course one would hope that a company understands it own business model and that it will buy the solution that generates the most value.

The phase that got the fewest votes was Capture, which was a bit of a surprise. As Mark Donatelli, Senior Manager at Acxiom noted, “The fact that capturing has the lowest response is very telling - it must be the most important! We all know that measuring results is the only way to know if the value that was created and communicated actually paid off - capture is king!” In other words, the best way to show that you have really created something of value is to get someone to pay for it!

Digging a bit deeper, it is interesting to filter the results by company scale (See Figure 2). Here we see that enterprises are focused on Communicating Value while large companies are equally concerned with Communicating and Capturing and medium-sized companies are the ones focused on Understanding. This is most likely an artifact of the sample, but it is interesting and may reflect the investments that enterprises are able to make in marketing and the more immediate importance of sales to smaller companies. Small companies were balanced in what they thought most important, perhaps because they are small and people at small companies have to cover all the bases!

 One can also filter results by role (See Figure 3). Here the voting pattern was predictable:

• Business Development people were concerned with Communicating Customer Value
• Consultants & Engineers focused on Understanding Customer Value
• IT Professionals voted for Creating Customer Value
• Product Managers were most interested in Capturing Customer Value

We plan to do more of these informal polls and if you are interested in Customer Value Management or you would like to continue to discuss the customer value management cycle, please join the LinkedIn Group for Value Management. Suggestions for polls are most welcome.

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Steven Forth

CEO