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Cha-ching! Using value pricing to grow sales and profits, part 1

January 13, 2014 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

It's no secret that the quickest, easiest and least expensive way to grow your top line, margins and bottom line is to raise prices. Why, then, are you resisting value pricing?

Is it because:

• The term "value" is so vague that it defies comprehension?
• Value pricing is complex? Instinctively we know that different market segments view value differently.
• Providing demonstrable results is difficult? It often feels like you're trying to prove a negative.
• That value is a moving target? Given how quickly economic conditions and customer interests change as well as how short product life cycles are today, does it even make sense to calculate value and pricing that reflects that value?
• Senior leaders feel that the pricing pressures they're getting from their competitors and their customers make it nigh on impossible to get premium prices?

Of course there are other reasons. As a senior leader you might be:

• A price buyer and logically assume everyone else is as well.
• Volume focused. He/she prefers to own a large share of the market even though a smaller share would be more profitable.
• Concerned that your organization isn't providing the value necessary to warrant higher prices.

If you're a senior leader and any these last three conditions resonate with you I'm going to save you a lot of time and energy. STOP READING! The likelihood of you employing value pricing is so small that reading the rest of this blog will be a waste of your time.

For the rest of you, we're going to address each of the concerns highlighted in the opening.

Value is "vague"

Value is personal. Each of us determines the value that a given product or service has for us and it's often much different for us than for our family and friends. Naturally the question that comes to mind is, "How do I establish value prices when everyone values things differently?"

The answer lies in the commonality of our humanity which is manifest in our buying behaviors. There are only three things that any of us buys: image, innovation and time savings.

As sellers, any benefit we claim to provide fits into one of these three categories. For example, quality can enhance our customers' image, save them time by helping them avoid repairs or a combination of the two.

Some of Apple's customers buy iPhones and iPads because they love the innovations that Apple builds into their products. Others buy because they love the look and feel of those products. Why? Because it enhances their self image.

The good news is that customers who value image are willing to pay as much as those buying innovation. Indeed there is readily available buyer data to show exactly what premiums people are willing to pay depending upon where they fit on the image, innovation or time savings spectrum.

So while value is personal, there is enough commonality to our humanity and enough buying data to allow us to categorize markets, design offerings and price based on the value to each of those market segments.

For those of you selling B2B, don't forget that you're selling to people, not organizations. Those people represent organizations, but each also possesses a self-interest motive that influences their buying decisions. So don't dismiss the commonality of our humanity as a B2C phenomenon.

Next time, we'll explore the complexity of value pricing to see whether or not it's a valid reason to avoid adopting value pricing.

About Dale Furtwengler

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