Abstract
Pricing specialists agree that businesses should price products based on value. Yet most companies set prices based on the cost of their product. Alternatively, they set prices based on the prices of competing products, without fully accounting for the worth of performance differences between their product and the reference products. They do not have the techniques or tools to appraise their product's value versus other products on the competitive landscape. We illustrate how to appraise a product's value based on the going rate prices of competing products and on its performance versus these comparable products on key purchase criteria that customers assess. We discuss how this benefits business teams by making them more market driven, customer focused and competitor savvy.
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Notes
The idea of scatter plots as an analytical tool goes way back. The price–performance curve, which plots prices versus a specific aspect of product performance (for example, expected miles per tire), has been a staple of technology analysis for a long time. The use of a value map (price versus a composite index of performance) for assessing the competitive landscape, product positioning and strategic pricing – was introduced in book format in Managing Customer Value. The value map concept has been further developed by Marn et al (2004) and discussed by other authors of pricing books, see Dolan and Simon (1996), Nagel et al (2006).
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Gale, B., Swire, D. Implementing strategic B2B pricing: Constructing value benchmarks. J Revenue Pricing Manag 11, 40–53 (2012). https://doi.org/10.1057/rpm.2011.44
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DOI: https://doi.org/10.1057/rpm.2011.44