Excerpt from Chapter 4: Pricing Objectives
Manage the Value Exchange
Effective pricers create and sustain a business environment where both the sales organization and customers are forced to acknowledge and pay for value delivery. That might be easy if more TS managers were named Soprano. As it is, pricers must rely on more socially acceptable means of enforcement. Managing the value exchange begins before the first contact is made with a customer and extends through the final stages of negotiation. The most profitable pricing strategies result when TS:
- Works with the product organization to choose target customers where they can deliver superior, differentiated value at competitive advantage.
- Understands client business models and client value drivers, particularly related to services.
- Constructs service offerings and service options that deliver quantifiable economic impact to target client businesses.
Let me use a real training case as an example. I worked with a company that sold software and provided training services to hospital staff. The software was used to manage patient care, and there was a basic training program that provided necessary instruction on how to use the software. As we often find, not all customers are created equal. In this case it was that not all patients are created equal. Perhaps half of the hospital’s patients were insured by Medicare. By using the software in a certain way, hospital staff could capture information vital to Medicare reimbursement. In fact, by capturing that information the hospital would qualify for incrementally higher Medicare reimbursement, i.e. the training had a direct impact on the hospital’s revenue stream. So instead of adding this information into the basic training program, we created advanced Medicare training. To optimize Medicare reimbursement, the hospital would have to enroll their people in advanced training and pay more.
Note what we did. We needed sufficient understanding of the hospital’s business to focus on unique value that would optimize the business impact of our software. We designed a value added training program, above and beyond the basic training, to package that unique value for consumption. That packaging permitted us to force sales and customers to acknowledge and pay for value delivery.