Value Analysis as a Foundation for Price Setting

By Roberto Bedotto, European Pricing Platform – Italian Chapter Board Leader
- Summary of an article in a current issue of the magazine L'Impresa, one of Italy's leading business magazines -

The analysis of value and of the willingness to pay are core elements of the definition of the price strategy. The impact of a proper analysis was measured in several basis points, too important to be ignored.

The rationale of this approach is simple and well known: price is function of the perceived benefits, and of the next best alternative available to customers.

The benefits come from the performance of the product or solution purchased – and this is the area, which is most frequently analyzed -.

However there are at least two other areas for benefits, which are worth investigating.

The first one is linked to the Order to Delivery (and Payment) process, and the interaction between supplier and customer. Even in the most commoditized business, there are reasons why a customer buys from a certain supplier instead of another. Reasons which do not relate necessarily with the best price, but rather to the process of acquisition and fruition of the good/ service, and how this process triggers benefits (measured in money) in the customer.

The second area worth looking into is even softer, however it is well present in the purchase decision; it includes factors such as the reputation, or compliance with relevant legislations, or most importantly, the so called “brand value”.

The actual methodologies to measure value and the related price are well known, and  include for example the conjoint analysis method; they are anyway out of the scope of the present article. 

• I'd rather instead spend few more words on the actual usage of such an analysis, namely understanding which functions benefit from it; this can help the reader “sell” this analysis internally.The first usage is clearly the verification of the value/ price ratio of the goods/ services sold. A best practice in this respect is to involve both the customers and the sales force. Sales is our face towards the market, and shall be on board of the analysis and endorse the results with confidence. The best way to make this happen is to have Sales perform the analysis as if they were themselves customers. The outcome is that all discussions and opinions and emotions are replaced by the results of the analysis. The benefit for sales consists in a more structured and granular understanding of what makes the market segment tick, hence allowing for a more effective and tailored pitch to customers;
• Marketing Communication is another area where a proper value/price analysis allows to define relevant and impactful MarCom campaigns;
• Finally, Product Managers need support in defining the price during the new products development phase. And on the other hand, they also will be happy to understand which specifications of the offer can be eliminated for the sake of cost saving, without impacting too much the value delivered and hence the price.

Special thanks to the Italian Chapter Board members who contributed to the article.
Danilo Zatta - Simon-Kucher and Partners; Giancarlo Curro - Enel Energia; Paolo De Angeli - Syngenta; Raffaele Vitale - ValueLab; Stefano De Angeli - Fiat.