Pricing with Confidence, 2nd Edition

CHAPTER 4Rule Four

Know Your Value

Value is the foundation of all business activity. Know it, own it, and prosper. The goal of Rule Four is to connect you in a fundamental way with the measurable value your customers have determined your offerings contribute to their go-to-market effort. If you can do that, pricing suddenly becomes more precise and transparent. If pricing is akin to playing poker, knowing your value eliminates the customer's capacity to bluff. It's as if you can see your opponent's hidden cards.

Why Value?

For what job is your customer hiring your product or service?

The late Harvard Business School professor Clayton Christensen used this question to get to the heart of what a customer wants a product or service to do. Customers “hire” your products to do a certain job that is to their advantage. That advantage, as determined by the customer, represents a clear channel to the question of how to measure the value that your offering delivers to your customers.

This book focuses on business-to-business (B2B) pricing. Business buying is more complicated than selling to consumers, where prices are more or less non-negotiable. It's unlikely that a consumer will ask the checkout clerk at Wal-Mart for a discount on a quart of milk. Understanding customer value is the core of B2B pricing. Businesses buy because they often convert what they buy into something they sell to other businesses. While the volumes can vary by a lot or a little, the impact within the operations ...