Stop ‘Special’ Pricing and Start Value Pricing

When your sellers are struggling to explain why your product is worth more and your buyers cannot justify the premium you feel you should command, building a value calculator will help you resolve excessive discounting practices. These tools have been used to establish prices in Value-based approaches however the benefits of reverse engineering them to demonstrate impact will improve the margins in your deals.

All businesses need to prove that their products are valuable; simply declaring it to customers will do little to grow the business.

The window to prove your solution is worth the investment and is becoming increasingly brief.  If there’s a starting point when it comes to educating your customers, it’s probably educating your sales people to believe in your product. Beyond that, if you are selling BtoB, then your claims almost always need to be quantified.

This post will give you one simple way to apply the unique value proposition your product or service brings to you customers if you are willing to invest time.

Download the Sample Value Calculator for a working example of a value calculator, to see how small benefits have a big impact, and to accelerate your ability to customize your own tool.

Diagnosing the Cause

 We ran a pricing project for a company that had a somewhat unique value proposition.  By using their product, their clients would substantially improve the quality and quantity of customer testimonials.  The issue our client faced was how to convince both their customers and their own salespeople that the value created by the product should command a premium over other marketing automation software.  SBI created a Value Calculator for them to address the issue.

The concept was simple.  We considered the benefits their customers might value from using the product and dimensionalized/measured them.  Amongst the claims made by their sales and marketing teams were; more leads, better leads, reduced discounting and improved closing rates.  These were customer-focused benefits that, while users might not be able to give an exact impact, they could estimate.  When we applied 1% here and 2-3% there, the impact of this tool quickly demonstrated that the ROI of a purchase would yield 10x-50x in return. 

So, how do you build a calculator without hiring a team of consultants?  You can invest in Pricing software or you can start here:

Building the Solution

1. Determine Product Attributes that Provide Value

   • Resist the urge to drink your own Kool-aid and do the homework.

   • Review marketing literature and list differentiators from most to least valued.

   • Interview your best sales people and ask then to rank what matters most; quantify.

   • Conduct win/loss interviews and track the results based on product attributes.

   • Evaluate competitive claims against your unique offering.

2. Anchor the Value Using Real Customer Data as a Baseline

   • With the list of attributes in hand, survey your customers regarding your differentiators. How much does this product or service help them with their goals?  Faster / More / Cheaper / etc.  Ask them to estimate the utility of the attribute, not how much it is worth but how much it helps them achieve their goals.

   • Analyze the results. You want to make a claim like “on average our customers save 12% on labor costs by using our product.” That 12% will be applied to the labor cost of the prospect when building the business case for a sale.

3. Determine the Impact and Test Various Scenarios for Believability

   • The utility associated with a product attribute will change from customer to customer but that does not mean it cannot be estimated. The survey of existing users will help someone who has never experienced the benefits to know how others feel about it however the use of a calculator will be based on the unique conditions that prospect is experiencing and their beliefs.

   • Consider using your Customer Success team to speak with existing customer using their data – validate the findings.

4. Build a Simple Interface for Your Use Cases

   • An Excel worksheet that calculates the benefits based on your prospects size, revenue, run-rates etc. See the downloadable example.  Keep it simple – buyers will reject your claims if they cannot quickly wrap their head around it and see that you are considering their unique situation.

5. Develop Your Script

   • How your new tool is used is key. Your sellers are not guaranteeing anything nor are they saying that this prospects results will be like your average customer, but this will help them quantify the benefits. 

Fixing the Issue

Claims about your products and services cannot be talked about in relative terms to prospects.  Nor should claims made by the product marketing teams be considered gospel.

Using the process above, and possibly an even a more vigorous prosecution of the facts about how your products are viewed in the marketplace, will bridge this gap.

Producing a value calculator takes the mystery out of buying by establishing impact you can create. What is your product worth to your customer? Can you be more accurate?

Download the Sample Value Calculator for a working example of a value calculator, to see how small benefits have a big impact, and to accelerate your ability to customize your own tool.

Credit:

By: SBI