From my experience, value-based pricing is one of the most often used, yet least understood concepts in product management. While deceptively simple on the surface, most product managers have trouble turning it into something concrete. Sure it makes sense that a good product should provide value to the customer, but trying to get a handle on this is like trying to catch smoke with your bare hands. Luckily, this task is a bit easier for those of us in the B2B space since we don’t typically have to be overly concerned with the fuzzy intangibles so important in B2C like how our brand will help the consumer achieve their personal goals, laddering up to get closer to the consumer’s core values, and all that noise. But even still, understanding how your product can help a customer improve their business does not automatically translate into a price point.

Economic Value to the Customer (EVC), a concept I mentioned in a previous post, can be of great help in this situation – especially when you’re working on pricing a new product and you don’t have the luxury of existing sales data to calculate a demand curve (not that this is exactly easy either). Once you’ve completed the EVC framework for your product you’ll be able to use it to help diagnose why sales are slow, assist sales force personnel in negotiations and even determine which enhancements will result in the largest gains in customer willingness to pay. Continue reading this post »