I was speaking with the VP of Pricing Transformation for a Fortune 500 company recently and, as disciples of value-based pricing, we debated the subtleties of modern-day pricing theory. We agreed that a shift to value-based pricing within an organization should achieve the following:
- Align internal resources with customers who are willing to pay, building better and lasting business relationships
- Create tiered offerings to match a variety of customer value /price segments, enabling sales to protect value with tradeoffs
- Establish a common language to transform insights into differential value, inherently guiding future efforts to extend the companies competitive advantage
The VP of Pricing Transformation had just completed a transactional analysis across a marquee set of products and, despite being volume weighted, found significant price variability. No doubt, part of the pricing variability should be attributed to a suboptimal value-based pricing scheme however, we quickly diagnosed the primary issue as poor negotiation outcomes.
In our experience, value-based pricing initiatives will consistently fail if the sales team cannot defend price with value. As a result, negotiations represent one of the greatest sources of price leakage today.
Please don’t assume that I am blaming the sales team. Far from it. In fact, I am faulting the commercial teams for not adequately arming the sales team. Simple, compelling sales tools with supportive messaging are table stakes if a Seller is going to lead meaningful value conversations throughout the sales cycle. These conversations must explain how your solution drives financial value for the customer’s business and hence, when it comes to the ‘propose’ and ‘negotiate’ stages, why your prices are completely fair. The goal is to move the conversation away from price to value, before a negotiation is even considered. That way, when Sellers are faced with an especially aggressive procurement professional, they have the confidence to defend price and reiterate the value they deliver. If the procurement professional is persistent in demanding a discount, the Seller can simply revert back to their tiered offering or well-defined Give-Gets, to force a price-value trade-off. This simple trade-off assures price integrity in the market—where the price aligns to the value promised and/or delivered.
Price for value + Sell with value + Negotiate on value
We have learned over the years that each step, when executed individually, will improve profit growth. However, a sustained effort that focuses on all three elements will produce far greater returns. The introduction of Negotiating with Backbone was our first step in building on over three decades of thought leadership in value-based pricing. Selling with Backbone represents the next step as Holden Advisors builds a value culture throughout your commercial team.
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