LeveragePoint Value Management Blog

Differentiated Value is More Than Just a Number!

We sometimes think of differeniated value as a number, the dollar amount by which our solution is superior to that of our competitor. There are even software applications that claim to be able to determine the 'willingness to pay' of a customer or segment based on analysis of historical data. But is anything that simple really usable by sales when it comes to negotiating a price with the customer?

Imagine a sales person who is told that a certain customer should be willing to pay an extra 5% based on historical data. That can help to give sales a goal, but can the sales person tell the customer "Our software tells me that you should be willing to pay more, so come on." That conversation is not likely to get very far, espcially with procurement, which likely has its own data analyzing pricing and cost trends.

For value-based pricing to really work, sales has to be able to provide the customer with its unique value proposition.This is the differentiated value, the amount by wihch one solution is superior to another. But differentiated value is not a simple number. It is a composite, comprised of individual value drivers, the message that each value driver gives the customer, a formula and data used to quantify the value driver, and a way to get back to the evidence on which the claim is based.

Simple claims about willingess to pay, differentiated value, or even ROI and TCO (total cost of ownership) are not enough to help sales. Sales needs to get specific, for each customer, on  the unique value proposition. They need to know how your solution has a comparative advantage over the next best competitive alternative (which defines the reference value). And they have to be able to have a conversation with the customer on value. This is what LeveragePoint supports. Our platform covers the end-to-end process of creating value in product development, communicating value through specific, evidence-based value messages and then supporting sales in its conversations with customers.

• Learn about the LeveragePoint Solution for Value-Based Pricing
• See Sales Using Value-Based Pricing on an iPad

Paddling Up the Value Waterfall

The pricing waterfall is a classic and widely used framework for understanding and managing transaction pricing. It illustrates the drop (like a waterfall) between an official list price and the final "pocket" price that the seller sees. Usually it's not a straight Niagara-like plunge, but rather a flume with a series of multiple drops. These drops are caused by various discounts and related pricing practices. For companies with complex product lines and pricing policies this is quite challenging and has given rise to a number of pricing transaction software companies such as Vendavo, Pros and Zilliant.

Certainly companies can and do benefit from more effectively managing their transactional pricing waterfalls. We would argue that companies must also look further "up-stream" and manage their value waterfalls too. In other words, companies need to be able to create differentiated economic value and list prices should be based on the economic value that offering provides to the customers. As readers of this blog know, we advocate using value models based on Economic Value Estimation for this task. Better aligning price with value will enable higher pocket prices because there is less customer demand for special discounts. The chart below shows how the value management waterfall flows into the price (transaction) management watefall.

Transaction (or price management) software is very good at analyzing massive amounts of internal sales data. This data is used to provide dashboards that show the leakages of various pricing policies and the controls that manage them. Where does value management data come from?  Since we are typically asked this question when implementing LeveragePoint for Value Management here are some answers:

• Internal Common Wisdom - Value models often begin with a few well-thought hypotheses that are shared within the marketing team.  Just by making explicit individual's often implicit assumptions and then aligning them among a small team can be immensely productive.
• Wiring in Sales - Since sales interact with customers every day, they are well positioned to get the latest field data about the state of customers' business models and inights as to the relative impact of their offerings versus competitors. Tapping into this data stream closes the loop between sales and marketing.
• Customer Research - We've seen this done in a variety of ways.  A marketer at one of our clients plans to use LeveragePoint to collect data in her field marketing tests. Other companies commission third-party customer research studies which can be used to build models in LeveragePoint for Value Management that are then tested with customers by sales.
• Web Data Sources - Business intelligence sources like Dow Jones and Thomson-Reuter provide timely data on companies and industries.  We are particularly excited about WoframAlpha which provides powerful new ways to find and work with quantitative data.

Like other SaaS solutions, LeveragePoint for Value Management is designed to easily facilitate accessing and integrating these data sources. Providing powerful data search and integration services for specific industries will be an important part of LeveragePoint's own value proposition.

Ed Arnold

Director of Products