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The two most popular approaches to pricing a new product or service are cost and competitive positioning. But it’s time for a third option: an approach that focuses on value. Unlike the traditional methods, companies use value-based pricing to build a deeper understanding of their customers’ business drivers, align their goals with their customers’ goals, and share in each others fortunes in a way that isn’t possible with more traditional pricing schemes.
This paper discusses A.T. Kearney’s approach to value-based pricing. We begin by outlining the basic steps: how to determine what is valuable, what is not, and the obstacles companies may encounter. The paper discusses ways to gain a clear understanding of the customer’s economic performance, and how to quantify the full value that a new offering can create. It also discusses how to “sell” value to customers and, finally, how to ensure that the value is split equitably between buyers and sellers.
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