Value Add, Value Pricing, Value Proposition 10.4.10

© TMC 2010 All Rights Reserved 1
Value-Add, Value Pricing, Value
Proposition
ASTD-TCC Coaching SIG
October 4, 2010
Bill Handschin, Ph.D., L.P.
Talent Management Consulting,
Inc.

Agenda
Introduction
Strategy
Value
Value-Add
Value Chain
Value Proposition
Value Pricing
Summary
References

Introduction
Pricing is part of how we go to market, and hence
part of strategy. These are terms that your clients
are familiar with. We will talk about both strategy
and marketing during this hour. This is just a very
cursory introduction to the key concepts and
language of our clients.
I welcome the input of anyone who has strategic or
marketing background during this discussion.

Strategy
Three Basic Strategies
Broad (Industry-wide)
Differentiation
Product uniqueness - Apple
Low Cost
Low cost position - Wal-Mart
Narrow (Market Segment)
Focus
Either low cost or differentiation

Value
The extent to which a good or service is
perceived by its customer to meet his or her
needs or wants, measured by the customer’s
willingness to pay for it.
It depends more on the customer’s perception of
the worth of the product than on its intrinsic value.

Value
How do we create the perception of value when
we talk to our customers?
Remember this!

Value-Add
Difference between the total sales revenue of an
industry and the total cost of components,
materials, and services purchased from other
firms within a reporting period (usually one year).
Gross revenue.
Creation of a competitive advantage by bundling,
combining, or packaging features and benefits
that result in greater customer acceptance.

Value-Add
Corn $4.07/bushel = $0.07/lb.
Corn Flakes $2.22/lb.
Wheat $7.25/bushel = $0.12/lb.
Shredded Wheat $3.94/lb.

Value Chain
Interlinked value-adding activities that convert
inputs into outputs which, in turn, add to the
bottom line and help create competitive
advantage. A value chain typically consists of
inbound distribution or logistics,
manufacturing operations,
outbound distribution or logistics,
marketing and selling, and
after-sales service.

Value Chain
The value chain categorizes the generic value-
adding activities of an organization. The "primary
activities" include: inbound logistics, operations
(production), outbound logistics, marketing and
sales (demand), and services (maintenance). The
"support activities" include: administrative
infrastructure management, human resource
management, technology (R&D), and
procurement. The costs and value drivers are
identified for each value activity.

Value Chain
After Dinesh Pratap Singh's visualization for Porter's Value Chain, retrieved from
http://en.wikipedia.org/wiki/File:Porter_Value_Chain.png

Value-Chain
After Value Chain Partnerships for a Sustainable Agriculture, retrieved from
http://www.inclusive.com/value-chain/

Value Chain Analysis
Examination of the value chain of an enterprise to
ascertain how much and at which stage value is
added to its goods and/or services, and how it
can be increased to enhance the product
differentiation (competitive advantage).
This has yielded new Business Process Models.

Value Chain Exercise
Form groups of three people. Construct a sketch
of the value-chain of one of your client
organizations.
Help each other out!

Value Proposition
The mix of goods and services, and price and
payment terms offered by a firm to its customers.

Value Proposition
Internal Value Proposition
Market – who are your customers?
Customer experience - what does the market value most?
Offering – what product or service are you offering?
Benefits – what benefits can be derived from your offering?
Alternatives & differentiation – do nothing or do in house?
Proof – evidence that you can do what you promise?

Value Proposition
Exercise
Answer these six questions for your coaching
services. Work in your groups.
Help each other!

Customer Value
Proposition
A good customer value proposition will provide
convincing reasons why a customer should
buy a product, and also differentiate your
product from competitors.

Customer Value
Proposition
See Handout
The All Benefits column requires you to know your
business.
The Favorable Points of Difference column
requires you to know your competition.
The Resonating Focus requires you to know your
customer.

Customer Value
Proposition Exercise
Create a customer value proposition for your
business: an explanation in three jargon-free
sentences of why your customers need your
product or service.
Work in your groups.
Help each other out!

Value Pricing
Types of Pricing
Channel-based pricing
Competition-based pricing
Cost-based pricing
Demand-based pricing
Demand-backward pricing
Differential pricing
Value-based pricing

Value Pricing
Pricing method based on the perceived worth of
the good or service to its intended customer.
To price your services on a value basis, you have
to be able to talk about the value that your service
has to the customer in terms of your customer’s
values.
You have to know the ROI of your service as part
of convincing your customer of the real worth of
your service. What is the magnitude of the benefit
realized or threat averted?

Value Pricing
Challenges to Value Pricing
Lack of entry barriers to industry
Fragmented industry
Commodity pricing
Perception of a commodity service

Summary
To determine your pricing strategy, you need to
know:
Your strategy and value-chain
Your competition’s strategy and value-chain
Your client’s strategy and value-chain

References
Porter, M. E. (1996). What is strategy? Harvard Business
Review, November-December, 61-78 (reprint No. 96608).
Download from
http://www.ipocongress.ru/download/guide/article/
Porter, M.E. (1998). Competitive strategy: Techniques for
analyzing industries and competitors. New York, NY: The
Free Press.
what_is_strategy.pdf
http://www.businesdictionary.com
http://en.wikipedia.org
http://www.netmba.com/strategy/value-chain/

References
Anderson, J. C., Narus, J. A., & Rossum, W. v. (2006).
Customer Value Propositions in Business Markets.
Harvard Business Review.
Parasuraman, A. (1997). Reflections on gaining
competitive advantage through customer value. Journal of
the Academy of Marketing Science , 154-161.

Value Add, Value Pricing, Value Proposition 10.4.10

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