World Class pricing is the pursuit of excellence in the execution of the pricing process. The five levels framework helps companies benchmark where they are on the journey to Pricing Excellence and enables them to systematically know how to move forward. It begins at Level 1 with the firefighter, followed by the Policeman, the Partner, the Scientist and finally, the Master. Each level is distinct, with its own issues.
The majority of companies are operating at Levels 1-3. Based on our project work, Pricing Solutions has found that a 10:1 payback is typically achieved on projects that move an organisation up a level. This payback is usually realised within 12-24 months, and continues to deliver as the company reaps the rewards of superior pricing.
Value based pricing is driven by a deep understanding of the customer’s perception of value. To ensure that deep customer knowledge is at the heart of pricing decision-making, a company must introduce a number of new processes that incorporate information beyond the boundaries of the company’s internal system and industry ‘know-how’.
One of the key tools for evaluating customer value is the Perceived Value Map, which helps companies quantify and analyse ‘soft’ value attributes. Value Maps are often initially produced from internal wisdom, and enable more productive discussions regarding the relative value vs. competitors. Customer research can also be used to verify or inform the value map, allowing you to analyse customers by segment, and track value movements over time.