Do you focus on the price or on the value?

As consumers we often focus on price (or cost of acquisition). If we can get the exact same product or service at a lower price then why not.

However, as what we acquire becomes more complicated and we come to rely on it’s availability and performance, then the price/value relationship gets more difficult to assess. Often it is even worthwhile paying a premium for what appears to be the same product or service, which we could get for less if we pushed.

I work with technology companies that provide solutions for businesses and often the value of a solution is magnitudes higher than the price the customer has to pay (this is why companies make investments – they expect a nice return).

The exact same product can produce very different levels of value depending on how the customer applies the technology. Some of these differences may be associated with objective factors such as the customer’s industry, location and company size, but mostly they are only associated with the customer’s organisational capability to take full advantage of the value potential. It can be the level of investment the customer is willing to make, but very often it is only the ambition, the persistence and the skills that make the big difference.

When we enter the arms race for market leadership in the information technology industry we are obviously much better off if we keep adding customers that can report immense value from our technology, rather than winning customers who struggle to make it work (and for political reasons would like to put the blame on the vendor). When we have established our reputation and enjoy brand recognition then this risk quickly diminishes.

Assessing if a potential customer has what it takes to get value out of our technology is not an easy task. It requires salesmanship and nerves of steel in situations where we really need the revenue and the testimonials. One way to qualify potential customers is to observe if they are mostly focused on negotiating a low price or if they are mostly focused on releasing the potential value. If there is too much of the first then maybe we should walk away.

Years ago when I was responsible for revenue generation with a startup I received a call from a very well known global company. They had heard about our technology and wanted to test it out. They asked me to provide a proposal for a test setup including implementation, training and support for six months. I thought long and hard about this quotation. Winning this account would make us jump the chasm in one big leap. I finally decided to quote list prices and I also added what I believed would be my own expenses associated with winning the deal to the support package. A week later I was invited to review the proposal with the responsible director from the customer. A couple of days later I flew back to Copenhagen to find the PO waiting on the fax. Not once did they negotiate the price. They were entirely focused on the potential value the technology could bring and squeezing us on price (on the test configuration) wouldn’t have any impact on the RoI scenario

PS. The size of “price” and “value” in the illustration at the top of the post are exactly the same. The way I have organized them makes the value appear bigger than the price.

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I write about issues related to revenue growth and globalization in the software

industry.
You can follow me on Twitter: @hpbech

Author:

Hans Peter Bech is an author, economist and consultant. He is a frequent blogger on issues related to growing software driven companies to global market leadership and is the author of several books and whitepapers on business development in the software industry.  Hans Peter also facilitates workshops for software executives in the TBK Academy¨. Hans Peter holds a M.Sc. in macroeconomics and political science from the University of Copenhagen. He speaks Danish, English and German and is a certified ValuePerform, ValuePartner and Business Model Generation consultant.

http://www.linkedin.com/in/hanspeterbech

hpb@tbkconsult.com