February 12, 2015 by The Pricing Authority
Part 2 in the PPS “Value Capture” Series: “WHY” Leverage Value For Your Business
Last week we shared the “What” regarding leveraging pricing value for businesses. This week, we will share an example to show why Value Capture is the right lever for business, or the “Why.”
Few businesses possess the quantitative tools and methodologies to assure they are getting full profit potential from their innovations and incremental improvements in their offering. Two of the most critical capabilities are charging for and receiving the most value from a product.
“Charging for” entails setting the correct price and proper guidelines for customer discounts and concessions. It involves having infrastructure and set capabilities in place to repeatedly assess the competitive landscape, customer needs and internal constraints to formulate offers that achieve the desired level of profitability.
“Receiving” the correct amount of money involves an investment in business process that ensures the amount quoted matches the amount paid by customers at the time payment is due. Both sets of processes are critical to any business’ survival.
Optimizing these value capture processes is what sets companies apart from the pack and leads to sustainable growth. Hypothetical example: assume two companies launch their storage devices at the same time. Product performance and specifications are essentially the same.
Company (A) has invested in robust pricing and value capture capabilities which allow them to accurately set a list price and discount guidelines, and has effective systems that allow for accurate processing of orders and all the related price attributes.
Company (B) does not manage a list price and approaches each customer opportunity in an ad hoc and reactive manner. Further, their internal systems are incapable of enforcing and processing the price for the order that was approved and offered to the customer.
- List Price Management (Yes)
- Segmented Discount Guidelines (Yes)
- Value Selling Expertise (High)
- Order Management (End-to-end)
- List Price Management (No)
- Segmented Discount Guidelines (No)
- Value Selling Expertise (Low)
- Order Management (Manual)
In this case, Company (A) will have higher and more predictable value capture on average. But what will differentiate the companies in their long term performance? Company (A) has a distinct edge in the ability to fund activities that will improve their growth prospects – particularly product innovation and development.
Next week: we will examine the hurdles businesses often experience in leveraging Value Capture in Part 3 of our Series.
Don’t miss our 26th Annual Spring Pricing Workshops and Conference this May in Dallas, Texas! Learn from leading pricing professionals and experts from around the globe. Register TODAY!