Solving the Mystery of Value-Based Pricing

Mike Wilkinson has been practicing value-based sales for his entire career. This experience has given him a unique perspective on the current buzzword. During our recent webinar, he shared his strategy for getting to the core of your value offering and turning it into profit. 

The Value Mystery 

When asked directly, every single company says they deliver value to their customers. Things get a little more complicated when you ask them to explain what exactly that means. After over a decade of focusing on value, Wilkinson has landed on a definition that is simultaneously accurate and frustrating. 

Value is a mystery. It’s virtually impossible to discover what value you bring to your customers on your own. The things you consider important might be entirely different than the real reason they care about your company. 

Leaving value in this limbo of uncertainty is never productive. Your team needs to be in the business of solving the value mystery. There is an answer, and the only people who have it are your customers. 

No one purchases something unless they see value in it. Your existing clients will have answers to every unanswerable question you have. The ultimate solution to the mystery will be different for every person, meaning part of your job as a company is to constantly be returning to your customer base for clues about value. 

How to Secure Value-Based Pricing

The concepts of customer-centricity or value-based pricing can easily get bogged down with theory and complex systems. To drive implementation, you need to make the process simple. 

One or two new objectives can change the focus of your sales calls altogether. You simply need to find ways to communicate those objectives to your team. If every sales and service professional on your team follows these steps when interacting with customers, they’ll be actively moving toward a value-based system. 

Step One: Putting the Customer First 

To start chipping away at the value mystery, you need to shift the focus of your initial contact with a customer or lead. There are two different mindsets you can have when starting a conversation.

• Product-first Conversations – Coming into a negotiation or sales pitch to share all the wonderful things you can offer 
• Customer-first Conversations – Ask leads about the challenges they’re facing and the outcomes they’re looking for 

Shifting toward a customer-first outlook allows your team to tailor each conversation around value to the specific needs of the client. Ideally, you won’t talk about your own company at all in the initial meeting. The better you can understand where a customer is, the easier it is to see the opportunities. 

This shift has the added benefit of showing leads that you’re genuinely invested in their success. This is invaluable when it comes to building trust and forging a partnership that will last for years. 

The B2B sector faces a unique challenge when defining value because they are hardly ever selling to a monolith. Each client you take on will have a host of stakeholders defining what their perfect product is. The solution is to approach every single meeting as an opportunity to learn more about value. 

Equip your sales and service teams with a list of things they need to know about each potential client. This will be particularly helpful for anyone coming from a more traditional sales background because it gives them a road map for building relationships. 

This mindset also opens doors to collecting qualitative data from your target audience. Asking leads to fill out questionnaires or join a focus group can produce mixed results, but connecting with them one-on-one works nearly every time. 

Step Two: The Value Journey 

Sales professionals are, at their core, storytellers. By breaking down your negotiations into beats of a story, you can draw customers in and reveal the impact of your offering with ease. 

• Problem – What specific issues are they facing at their company? This is not the time to tell them about what you can do, simply to discover what they need 
• Impact – What happens if these issues aren’t solved? Can you find the monetary repercussions? Use case studies to strengthen your standing
• Value – If someone could solve that problem, what would they be willing to pay? When it comes to things like service contracts, you’re trying to sell something that people don’t want to have to use. The key is tying the value back to the result of not using it
• Summary – Given what was talked about, how committed are they to doing something about the problem? Getting a commitment out of folks is an excellent, natural way into more focused negotiations 

Through your storytelling, you need to connect with customers on every level of a purchase decision. This means appealing to their logic, emotions, and urgency. 

Step Three: The Value Triad

The value you provide your customer is a mix of three specific factors. Wilkenson coined the phrase “value triad” to describe them, taking into consideration both tangible and intangible value adding.  This includes 

• Revenue Gain – How can what you do help customers improve their performance? This includes both their volume and margins 
• Cost Reduction – How does what you do help reduce costs for your client? 
• Emotional Contribution – The trust, respect, culture, and connection between you and the client

When you have these factors in mind, conversations around value go from nebulous to specific. When it comes to emotional contribution in particular, you need to have a base level of connection and trust to get any usable information. Every customer will have an element that is most important to them, but you still need to include all three. 

Step Four: Stand Your Ground

A common way to deal with price resistance is by offering discounts. This may be effective in the short term, but it ultimately leads to lost revenue and relationships built solely on having the lowest price. 

One of the major focuses of value-based pricing is giving you the tools to defend your prices without always having to offer a discount. To do this, you need to separate the ideas of price and cost. 

When a client says “I need a lower price on this, can I get a discount,” what they’re saying is, “I need to reduce my costs.” While giving them a discount may bring down those overall costs slightly, there are always ways you can demonstrate your solution bringing down costs more dramatically. 

For example, if a customer has a recurring issue that costs them $2000 to repair, they will think of it as a $2000 problem. However, when you zoom out and consider how often the issue happens, and how long it’s been going on, you might find that it’s costing closer to $72000 or more. With that context, your full-priced solution is still reducing costs without a discount.  

One of the most challenging things to realise when making the change to value-based pricing is that not everyone is your type of customer. Some buyers are only interested in getting the lowest price possible. If your company prides itself on having a premium solution with lots of value, dropping the price too low only dilutes your brand. You need to have options available to your sales team beyond discounting the price. 

Conclusion 

The conversation around value-based pricing is rife with overthinking. The goal according to Wilkinson is to simplify the complex rather than complicate the simple. When you focus on forming a relationship with your clients and show an interest in their goals, you create the perfect foundation for value-based pricing. 

Not only will you understand the value your company has, but you will have a clear path to defending it once negotiations start. By following these clues, your team will be able to solve the mystery of value in no time.