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Service Strategies

What is Value Based Pricing, and why should I care?

Most companies don’t practice value-based pricing. That’s a fact. Yet I would bet if you asked any group of executives which orientation is best for business, value-based would win hands down. So why the gap? And why should you care?

There are four basic pricing orientations. Each results in different business outcomes.

Market-Based (a.k.a customer-based) Pricing - The primary objective of market-based pricing is to “close the deal”, therefore profitability takes a back seat to growth.

It Was the Best of Times, It Was the Worst of Times. It’s Business as Usual

By Al Hahn

When Sid asked me to write the article, I asked him what he would like me to write about. “Write about a real client experience you have had recently,” he said. OK, here it is. As the title to this article suggests (apologies to Dickens), my clients are all over the map on this score. This surprises me in the current economy.

There is no question that the economy is affecting companies in extraordinary ways. I have been helping many unemployed service marketers to find jobs. Most of them would not even need help in normal times. Generally there is demand for service marketers that is usually not met by the supply of experienced people. Today, however, many need help to find work.

Company financial results are generally down and unemployment is up. This is not a time when you would expect a lot of forward motion and success. Yet when I analyze what many clients are telling me, it seems surprising.

In January, I helped a company pump up their professional services sellers because (while capital equipment sales were way down) they expected good professional services sales this year. Jumping on that particular bandwagon, I am helping another client launch a big expansion in their professional services. In doing some research for that client, I spoke with another company that has seen their professional services do very well, as they are viewed by their customers as essential for surviving this downturn. They do a particularly good job of helping their customers achieve and maintain profitability.

Globalization

Globalization is a hot topic for service organizations today. This is a complex topic requiring volumes to fully address. However I would like to put forth a couple of strategic frameworks to consider as you consider, or re-consider, your worldwide service operations.

Globalize, globalization, being global, global services etc. are all over utilized terms that we hear every day. I like the definition used by Herman E. Daly, a renowned economist. He argues that sometimes the terms internationalization and globalization are used interchangeably but that "Globalization" means erasure of national boundaries for economic purposes. I also agree with the premise put forward by columnist, Thomas Friedman who says that with instant communications, better transportation and cultural integration, the world is becoming flatter.

In services, we tend to say “We are Global…” when we mean that we are only international. Paradoxically when we adopt a product for another region of the world we say that we are “localizing” the product. In the worst case scenario the term “globalization” is used as a euphemism for outsourcing or off-shoring the work force. If you hear your CEO say that they are going to “globalize” operations, make sure that your resume is up to date!

It is time that you start to re-think what globalization means to your company and how to take advantage of a flatter world. Many international service organizations use the “follow the Sun” methodology to provide support resources 24 / 7. The essence here is to have resources available to support customers during prime local business hours and to provide at least emergency support for customers in the off hours elsewhere in the world. A U.S. based customer calling for service after 5 pm in the Pacific Time zone might well be connected to a response center in Asia and so forth. This is an improvement over the days when you might have had to staff 24 /7 in each individual region or country, but is by no means optimal.

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