August 26, 2013
Why Value Management is the Key to Profit Maximization

At Price Intelligently, we consistently champion pricing as a process that should be infused into every aspect of your business. Your prices are the final representation of all the creativity, efficiency, and value that your business creates, and no other lever has a higher impact on your company’s success.

Yet in order to ensure your pricing strategy works to justify the value of your product, you need to incorporate value management at every stage of the development process. Simply understanding the concept of value management is critical for a successful business, and it’s one of the first steps towards developing a service with features that your customers truly value at an optimal price they’re willing to pay. As such, let’s properly define value management and look at a few examples of implementation before introducing you to a great new resource for learning more on the topic. 

What is Value Management?
(and why you should care)


 

whatisvaluemanagement

What is Value Management?

Value management has the capability to be more than just an amorphous concept once it’s fully understood, so let’s talk about what it is and what it means for your business. Quite simply, value management is a method for providing value to customers while ensuring that providing that value results in profit. While there are many aspects of value that drive conversions and sales, the process must be approached holistically so that product development, marketing, pricing, and sales are aligned to generate sustainable and profitable revenue growth.

This is because the price you charge for your service should correspond directly with the value metric, or the way in which the customer gets that value. Your prices should be based on how and how much value is received by your customers so that you can effectively justify those prices. The fundamental understanding of this holistic view is the basis for a cycle that breaks down how each component of your business will work towards this goal, which is shown below:

Value Management Cycle

This graphic shows us that value management will require different things from everyone on your team at each stage of the business cycle, but it’s all about making sure that your value metric aligns with your pricing metric, meaning customers are charged a profitable yet saleable price for the value they’re receiving through your product.

Value management leads to an optimal price that customers are willing to pay because it’s a discipline that requires you to assess what the customer wants and needs first. Rather than developing the wrong product or a laundry list of unusable features, you’ll be focused on creating valuable services for a target customer segment. All the other parts of your business, including marketing and sales, will work to provide value as well, and your target customers will be eager to pay top dollar in exchange for the ingenious services you’ve developed.   

How Do I Implement Value Management?

You can guarantee value management is applied to your business and delivers profitable growth by incorporating the following strategies:

Value-Based Marketing

Market your product based on insights about customer value and communicate the value of your offer with specific messages and promotions that rise above the generalized claims of your competitors. Use these insights to segment your customer base effectively so you can market the features valued most to the right customers.

Value-Based Pricing

Construct the different versions of your offering so that customers that receive similar amounts of value are receiving it at similar prices. Discounting policies should be based on differences in how each customer perceives value or the decision to invest in a particular target segment. Your pricing should be structured so that both your team and your customers  are able to justify the value received at a chosen rate that’s optimized for profits and growth.

value management

Photo Credit: SalFalko

Value-Based Product Management

Customer value should dictate which features of your service you invest in to ensure the product meets the target customer’s needs. Begin or retool your product development by first creating a ‘target value model’ based on customer research and then satisfy the goals of that model as you shape the core features of your offering.

Value-Based Selling

Sales should target customers and communicate value messages based on the benefits each customer segment values most, aligning offers and price negotiations along those same value drivers. In addition, the selling process should be used to capture information about customers and competitors that can be used to improve value models and consequently increase conversions.

Want to Learn More?

Pursuing proper value management is a lot like developing a great pricing strategy – it’s a process, and it takes more than one blog post to cover all the angles. Luckily for you, we teamed up with some of the best pricing scientists in the world to bring you our latest ebook, a comprehensive guide to value management. Take a look through the ebook, go through some of the questions with your company and team, and start aligning your product with your customer's value perception so you can boost profits and revenue.

 

  

What is Value Management?
(and why you should care)


 

whatisvaluemanagement


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