Blog, Pricing

The Opportunity in Value-Based Pricing

By Ben Blaney
September 12, 2019

Does this sound familiar?

A Pricing Fairy Tale

An ambitious, recent college grad starts their first pricing job. In week one, they are told to dive into the pricing project for which they were hired: to implement a dramatic change in the company’s pricing strategy.  After studying the status quo and learning the layout of the company’s data files, they pull up the Excel file (“Value Based Price List (v. 285).xlsx) and review the sophisticated algorithmic formula:

 =((‘[Cost_File1.xlsx]Costs_Sheet1’!$F13)+ (‘[Cost_File2.xlsx]Costs_Sheet1b’!$F13))*1.085

Excited and ready to impact the business, the pricing analyst implements a new strategy.  How?  By changing the number (the PLUS in cost plus) from 1.085 to 1.082. After saving the file, they  feel pretty good about a solid day’s work of ‘strategic’ pricing.

This only slightly fictionalized story happened almost twenty years ago. No willingness-to-pay studies were conducted, no price optimization algorithms were developed, not even any forward-looking cost projections went into this so-called strategy. Cost-plus was the order of the day.

Talking the Talk But Not Walking the Walk

In the intervening years however, much has changed. Pricing professionals now rely on both high-impact, dynamic data and sophisticated solutions that have powered a dramatic shift in the pricing view of the world…or do they?

While new data and solutions to manage it all have emerged, most pricing professionals aren’t making good use of it. In reality, value-based pricing remains a pipe dream for most companies.

Over the years, Joe Dallimore of Qualtrics and I have managed pricing teams at numerous companies and consulted with hundreds more. Sadly, this silly story is not far from what is happening with most companies throughout the world. Too many people talk “value-based” pricing but actually walk with “cost plus.” The good news is this situation marks a great opportunity for those who can establish value-based pricing ahead of their competitors.

In our increasingly digital world, the time to learn how to leverage data sources and available solutions to develop true value-based pricing processes and practices is now. And it has never been easier to get to value-based pricing.

CX and ML

To start making improvements to your pricing strategy, there are two primary disciplines to understand: Customer Experience (CX) and Machine Learning (ML) Based Price Optimization.  Knowing the important roles these two different, but related practices play in B2B pricing will help you regardless of where you and your team are on the pricing maturity spectrum.

Next month, Joe and I will present “Why Customer Experience is the New Battleground in B2B and How to Monetize It” at the Professional Pricing Society’s fall conference on October 16, 2019 in Las Vegas. In it, you will learn the important connection between CX data and data-driven pricing programs as well as:

  • Five principles of CX assessment
  • Techniques for analyzing and developing improvement hypotheses
  • Deployment mechanisms for these new learnings
  • Success stories from the companies who are at the leading edge of these innovations

We would love to see you there!

Registration for the October 16 session, “Why Customer Experience is the New Battleground in B2B and How to Monetize It” is now open. Please visit the PPS website and note conference registration is required to attend.

  • B2B Pricing , cost plus pricing , customer experience , machine learning , Value-Based Pricing

    Ben Blaney

    Ben has deep experience in all areas related to enterprise pricing solutions. He has helped some of the world’s largest companies redesign their pricing and commercial models (systems, processes, and priorities). Ben has also sold enterprise software and cloud solutions that changed the game for Fortune 500 companies, and he has managed large teams in executing digital transformation projects in unpredictable combat zones.