Join Stefan Michel for an in-depth discussion in this video How do companies move to value-based pricing?, part of Value-Based Pricing.
- So companies who are using cost-based pricing and wanna go into value-based pricing, usually what they do is first, and I'm a marketing professor, so I'm biased, you always start with better customer insight. You need to understand what is it the customer actually value. And then, based on that insight, you find out what is the solution, what is the value that the customer want from you. That's the second step. The third step is you need to be able to communicate that value through a superior value proposition.
And the fourth step, then, is you need to be able to capture that value differential. So, it's these four step, customer insight, better solution, better value proposition and value-based pricing to capture that value. Companies usually don't move from 100% cost-based pricing to 100% value-based pricing. You have different approaches. One company I work with very closely is Bossard in Switzerland. It's a company in the fastening technology market.
So we can say they sell screws, nuts and bolts. But, of course, we call is fastening technology, but it's screws, nuts and bolts. And they sell 700,000 different types. So for many of the products, it's cost-based pricing because it wouldn't make sense to do a research of what we could charge. But for some screws, actually it's not cost-based pricing, but we try to understand what is the true value that this particular screw creates for the customer.
To give you one example, Bossard has a patented technology to put lubricant on a screw, so it's a pre-lubricated screw. And the price for this screw is not depending on how much it costs Bossard to produce the screw, but actually on how much time and hassle it saves the customer by not having someone putting lubricant on a screw. So that would be an application of charging for the value rather than just passing the cost onto the customer.