value add, value pricing, value proposition 10.4.10

© TMC 2010 All Rights Reserved

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Value-Add, Value Pricing, Value Proposition

ASTD-TCC Coaching SIGOctober 4, 2010

Bill Handschin, Ph.D., L.P.

Talent Management Consulting, Inc.


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Agenda

IntroductionStrategyValueValue-AddValue ChainValue PropositionValue PricingSummaryReferences


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Introduction

Pricing is part of how we go to market, and hence part of strategy. These are terms that your clients are familiar with. We will talk about both strategy and marketing during this hour. This is just a very cursory introduction to the key concepts and language of our clients.

I welcome the input of anyone who has strategic or marketing background during this discussion.


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Strategy

Three Basic StrategiesBroad (Industry-wide)

DifferentiationProduct uniqueness - Apple

Low CostLow cost position - Wal-Mart

Narrow (Market Segment)Focus

Either low cost or differentiation


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Value

The extent to which a good or service is perceived by its customer to meet his or her needs or wants, measured by the customer’s willingness to pay for it.

It depends more on the customer’s perception of the worth of the product than on its intrinsic value.


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Value

How do we create the perception of value when we talk to our customers?

Remember this!


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Value-Add

Difference between the total sales revenue of an industry and the total cost of components, materials, and services purchased from other firms within a reporting period (usually one year). Gross revenue.

Creation of a competitive advantage by bundling, combining, or packaging features and benefits that result in greater customer acceptance.


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Value-AddCorn $4.07/bushel = $0.07/lb.

Corn Flakes $2.22/lb.

Wheat $7.25/bushel = $0.12/lb.

Shredded Wheat $3.94/lb.


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Value Chain

Interlinked value-adding activities that convert inputs into outputs which, in turn, add to the bottom line and help create competitive advantage. A value chain typically consists of

inbound distribution or logistics,

manufacturing operations,

outbound distribution or logistics,

marketing and selling, and

after-sales service.


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Value Chain

The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity.


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Value Chain

After Dinesh Pratap Singh's visualization for Porter's Value Chain, retrieved from http://en.wikipedia.org/wiki/File:Porter_Value_Chain.png


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Value-Chain

After Value Chain Partnerships for a Sustainable Agriculture, retrieved from http://www.inclusive.com/value-chain/


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Value Chain Analysis

Examination of the value chain of an enterprise to ascertain how much and at which stage value is added to its goods and/or services, and how it can be increased to enhance the product differentiation (competitive advantage).

This has yielded new Business Process Models.


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Value Chain Exercise

Form groups of three people. Construct a sketch of the value-chain of one of your client organizations.

Help each other out!


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Value Proposition

The mix of goods and services, and price and payment terms offered by a firm to its customers.


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Value Proposition

Internal Value Proposition

Market – who are your customers?

Customer experience - what does the market value most?

Offering – what product or service are you offering?

Benefits – what benefits can be derived from your offering?

Alternatives & differentiation – do nothing or do in house?

Proof – evidence that you can do what you promise?


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Value Proposition Exercise

Answer these six questions for your coaching services. Work in your groups.

Help each other!


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Customer Value Proposition

A good customer value proposition will provide convincing reasons why a customer should buy a product, and also differentiate your product from competitors.


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Customer Value Proposition

See Handout

The All Benefits column requires you to know your business.

The Favorable Points of Difference column requires you to know your competition.

The Resonating Focus requires you to know your customer.


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Customer Value Proposition Exercise

Create a customer value proposition for your business: an explanation in three jargon-free sentences of why your customers need your product or service.

Work in your groups.

Help each other out!


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Value Pricing

Types of Pricing

Channel-based pricing

Competition-based pricing

Cost-based pricing

Demand-based pricing

Demand-backward pricing

Differential pricing

Value-based pricing


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Value Pricing

Pricing method based on the perceived worth of the good or service to its intended customer.

To price your services on a value basis, you have to be able to talk about the value that your service has to the customer in terms of your customer’s values.

You have to know the ROI of your service as part of convincing your customer of the real worth of your service. What is the magnitude of the benefit realized or threat averted?


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Value Pricing

Challenges to Value Pricing

Lack of entry barriers to industry

Fragmented industry

Commodity pricing

Perception of a commodity service


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Summary

To determine your pricing strategy, you need to know:

Your strategy and value-chain

Your competition’s strategy and value-chain

Your client’s strategy and value-chain


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References

Porter, M. E. (1996). What is strategy? Harvard Business Review, November-December, 61-78 (reprint No. 96608). Download from http://www.ipocongress.ru/download/guide/article/

Porter, M.E. (1998). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: The Free Press.

what_is_strategy.pdf

http://www.businesdictionary.com

http://en.wikipedia.org

http://www.netmba.com/strategy/value-chain/

http://www.ipocongress.ru/download/guide/article/

http://www.ipocongress.ru/download/guide/article/what_is_strategy.pdf

http://www.businesdictionary.com/

http://en.wikipedia.org/

http://www.netmba.com/strategy/value-chain/


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References

Anderson, J. C., Narus, J. A., & Rossum, W. v. (2006). Customer Value Propositions in Business Markets. Harvard Business Review.

Parasuraman, A. (1997). Reflections on gaining competitive advantage through customer value. Journal of the Academy of Marketing Science , 154-161.

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