Price and value are central to the user experience. Ignoring them leads to poor design decisions. Ask how does each stakeholder receive emotional and economic value? How is that value distributed over the customer journey?

1. Pricing as part of the user experience
Vancouver, Saturday March 9, 2019
karen@ibbaka.com
steven@ibbaka.com
March 9, 2019
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2. Session Goals
The key product management metric is
Value to Customer (V2C)
• Understand value and the role it plays in pricing
• See how value informs market segmentation
• How to design pricing based on value
• Managing value and pricing over the customer journey
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3. 3
Meetup March 21 at VentureLabs
Pricing and Value Case Studies
from London and Vancouver
London – how the Financial Times is transforming
its B2B value proposition with Karen Chiang
Vancouver – how understanding economic impact
transforms pricing and go-to-market strategy at a
precision agriculture company with Brian Kahnert

4. DEMONSTRATE VALUE TO
YOUR CUSTOMERS
Without value there is nothing
to price. To price on value, one
has to create and
communicate differentiated
value to the customer.
TARGET THE BEST
CUSTOMERS
Targeting the most attractive
customer segments that will
respond to your pricing and
value proposition is a key
component of go-to-market
strategy. Targeting is about
prioritizing, as well as
generating the most return on
your marketing and sales
investment.
CAPTURE A FAIR SHARE OF
THAT VALUE
Customers will only accept
value claims and pricing if they
think you are being fair to
them. What does it mean to
be fair? In pricing, the
perception of fairness is based
on three things: transparency,
consistency and value.
OPTIMIZE FOR REVENUE,
PROFIT OR MARKET SHARE
Pricing is a powerful lever to
maximize either revenue,
profit or market share, but not
all at the same time. Effective
pricing requires alignment
around pricing goals and
managing critical trade-offs.
About Ibbaka
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5. Pricing in product management
5
Offer Cost Price Customer Value?
What we often see

6. Pricing in product management
6
Offer Cost Price Customer Value?
Customer Value Offer Price Cost
What we often see
A better approach

7. Pricing Goals and Value
Pricing is a powerful lever to improve
revenue, profit or market share
➔ However, without value there is
nothing to price
Price should reflect value
➔ Pricing and value are closely
connected
➔ When there is a value-price
disconnect, people are unhappy
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8. Value and Differentiation
What is value?
1. Is for a specific customer (or segment) ➔ Does not depend on costs
➔ Is not the value of the customer to the vendor
2. Is relative to the alternatives ➔ There is always an alternative
➔ The alternative is not necessarily your direct
competitor
3. Has economic and emotional components ➔ Today, both B2C and B2B requires economic and
emotional value drivers
➔ If either are nil or even weak, pricing power evaporates
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9. Self Esteem
Community
Security
Basic Functionality
Emotional Value
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PricingPower
Maslow’s Hierarchy
Provides a good way to frame
emotional value
Basic functionality (that drives most
economic value) is not a powerful way
to frame emotional value
The higher up the hierarchy you can
position your offer the more pricing
power you will have
Self Actualization

10. Emotional Value Drivers
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Emotional value drivers frame the conversation with the buyer and determine
pricing power
They are one factor in market segmentation
Consider the emotional value drivers for each person in the stakeholder map
Stakeholders
Maslow Business Economic Technical Procurement Influencer Gate Keeper
Self Actualization
Esteem
Belonging
Security
Basic Functionality

11. Economic Value – Economic Value Estimation (EVE)
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Economic Value Estimation (EVE)
Developed by Tom Nagle
Value drivers measure the impact of your
solution on your customer’s P&L relative
to an alternative
Always consider your own shortcomings
(competitors’ differentiation) and unique
costs (switching costs) relative to the
alternative
Next Best
Alternative
Positive
Value
Drivers
Negative
Value
Drivers
Differentiation
Value
Normal
Price
Range

12. Positive Economic Value Drivers
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ECONOMIC VALUE DRIVER EXAMPLES
Increase revenues Increase market size
Increase market share
Improve pipeline metrics
Decrease operating expenses Reduced employee turnover/cost of recruiting
Streamlined/automated administration
Decrease operating capital Reduced inventory
Faster collections/accounts receivable
Decrease capital investment Get more productivity from existing assets
Defer capital investments
Decrease risk Better compliance
Increase options Flexible benefit packages tailored to individual needs
Ability to scale usage as required
Economic value drivers measure how your solution impacts your customer’s financial statements compared
to the alternatives
There are six types of Economic Value Driver

13. Negative Economic Value Drivers
• Your shortcomings compared to the next best competitive alternative
(that is, your competitor’s differentiation)
• The unique costs associated with your offer, such as switching costs
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14. Value and Differentiation
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Your Offer Alternative
Unmet Needs
Commodity
Your
Differentiation
Competitor
Differentiation
Irrelevant
Functionality
Irrelevant
Functionality
Potential to Innovate
Customer Needs

15. Your Offer Alternative
Commodity
Your
Differentiation
Competitor
Differentiation
Customer Needs
Pricing and Differentiation
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The price of the commoditized
component is set by market forces
Your pricing power comes from
your differentiation

16. Your Offer Alternative
Unmet Needs
Commodity
Your
Differentiation
Competitor
Differentiation
Irrelevant
Functionality
Irrelevant
Functionality
Potential to Innovate
Value and Differentiation
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Price of
Alternative
Options
Risk
CapEx
OpCap
OpEx
Revenues
+ Value Drivers
Shortcomings
- Value Drivers
Unique Costs
Customer Needs

17. Customers with similar demographics can be very different from each other
Market Segmentation and Targeting
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70 years old
Lives in a castle
Wealthy

18. Market Segmentation and Targeting
Customers with similar demographics can be very different from each other
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Prince Charles Ozzy Osbourne
70 years old
Lives in a castle
Wealthy

19. Market Segmentation and Targeting
We segment markets in order to find customers
1. Who get value in the same way
2. Who buy in the same way
3. Who drive your performance in the same way
Segmenting markets is the first step in value-based pricing
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20. Customer 1 Customer 2 Customer 3 Customer n
Economic Value Driver
- Lower operating costs XXX X XX …
- Global risk management X XXX XX …
Emotional Value Driver
- Treat employees equally XXX XXX …
- Support employees needs X XX X …
Market Segmentation by Value Driver
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It can be difficult to see how customers cluster just by eye-balling the data
One needs to identify deeper patterns that can combine economic and emotional value drivers

21. Consideration
Trial
Negotiation
Purchase
Adoption
Market Segmentation and the Buying Process
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Awareness of
Solution
Awareness of
Need
Offer
Functions
Proof
Points
Proof
Point
In most buying
processes the Emotional
sets the context for the Economic
but this is dependent on the buying
process the stakeholder
+

22. Market Segmentation and the Buying Process
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The buying process is
defined by two questions:
1. What are the trusted
sources of information
2. How are decisions made
Consideration
Trial
Negotiation
Purchase
Adoption
Awareness of
Solution
Awareness of
Need
Offer
Functions
Proof
Points
Proof
Point
+

23. Value and Pricing – Pricing Model – The Basic Pricing Models
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Model Advantages Disadvantages When to Use
Cost Plus Simple
Seen to be fair
Pushes pricing down over
time
Does not relate to value
For services with little
differentiation
When the client controls the
deliverables
Market Following Simple Loss of control
Market risks
For traded commodities with
little differentiation
Value Based Supports marketing and sales
Leads to higher prices for
differentiated offers
More complex
Requires understanding of
customer’s business and
competitors offers
For differentiated offers
Performance Based Shared Risk
Realize higher price points
when successful
Risk
Transparency
When it both parties agree to
the risks and the financial
benefit can be measured

24. Value and Pricing – Pricing Model – The Basic Pricing Models
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Model Advantages Disadvantages When to Use
Cost Plus Simple
Seen to be fair
Pushes pricing down over
time
Does not relate to value
For services with little
differentiation
When the client controls the
deliverables
Market Following Simple Loss of control
Market risks
For traded commodities
with little differentiation
Value Based Supports marketing and sales
Leads to higher prices for
differentiated offers
More complex
Requires understanding of
customer’s business and
competitors offers
For differentiated offers
Performance Based Shared Risk
Realize higher price points
when successful
Risk
Transparency
When it both parties agree to
the risks and the financial
benefit can be measured

25. Value and Pricing – Pricing Model – The Basic Pricing Models
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Kare
Model Advantages Disadvantages When to Use
Cost Plus Simple
Seen to be fair
Pushes pricing down over
time
Does not relate to value
For services with little
differentiation
When the client controls the
deliverables
Market Following Simple Loss of control
Market risks
For traded commodities with
little differentiation
Value Based Supports marketing and
sales
Leads to higher prices for
differentiated offers
More complex
Requires understanding of
customer’s business and
competitors offers
For differentiated offers
Performance Based Shared Risk
Realize higher price points
when successful
Risk
Transparency
When it both parties agree to
the risks and the financial
benefit can be measured

26. Value and Pricing – Pricing Model – The Basic Pricing Models
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Model Advantages Disadvantages When to Use
Cost Plus Simple
Seen to be fair
Pushes pricing down over
time
Does not relate to value
For services with little
differentiation
When the client controls the
deliverables
Market Following Simple Loss of control
Market risks
For traded commodities
with little differentiation
Value Based Supports marketing and sales
Leads to higher prices for
differentiated offers
More complex
Requires understanding of
customer’s business and
competitors offers
For differentiated offers
Performance Based Shared Risk
Realize higher price points
when successful
Risk
Transparency
When it both parties agree to
the risks and the financial
benefit can be measured

27. Pricing Design – Value Metrics and Pricing Metrics
Pricing Metric = The unit of consumption
by which you charge
(Liters of Paint)
Value metric = The unit of consumption
by which your customer gets value
(Square Meters Covered)
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28. Pricing Design – Value Metrics and Pricing Metrics
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Power by the hour
Value Metric ≈ Pricing Metric
Does your pricing metric track
your value metric?

29. Value and Pricing – Pricing Models – Fences and Pricing Metrics
The pricing model is the combination of pricing metrics and fences used to
price different packages or offers and to guide customers to the most
appropriate offer
Pricing metric – the unit by which things are priced
Fence – limits to the offer that guide customers to the right offer
In most cases, a pricing metric can be converted into a fence and vice versa
Pricing Metrics and Fences are the building materials for pricing models and
packaging
Let’s look at Salesforce as an example …
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30. Value and Pricing – Pricing Models – Salesforce as an example
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‘Users’ is the pricing metric
‘Lead/functionality ‘
are a fence
Number of leads is an
alternative pricing metric
‘Campaigns’ is another fence

31. Value and Pricing – Pricing Models – Salesforce as an example
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0
50
100
150
200
250
300
350
Essentials Professional Enterprise Unlimited
Price per User
• Check the shape of the pricing
curve, it is concave or convex?
• Concave curves are associated
with more opportunities at the
bottom end of the market
• Convex curves are more common
when the upper end of the
market is more important
Ask also
1. What is the target offer?
2. What frames the price (makes a
specific offer appear to be
expensive or inexpensive)?

32. Value and Pricing – Pricing Model – Types of Pricing Metric
Pricing metrics need to be measurable
And can be combined
• Time and materials (cost plus)
• Number of users (of different types)
• Number of transactions
• Value of transactions
• Access controls (geography, organization, industry)
• Performance based (percentage of economic benefit)
…
New ways of collecting and analysing data make possible many new pricing
models
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33. Choosing a Pricing Metric
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Tracks difference in value
across segments
Tracks with difference in
cost to serve
Easy to measure
and enforce
Facilitates
positioning
Aligns with
value
Pricing Metric
Choosing the pricing metric(s) is the
critical step in pricing design
Different segments can (often should) have
different metrics
Economic value drivers map to value metrics
The pricing metric should be chosen from the value
metrics (other value metrics are often used as fences)

34. Pricing Design – Pricing and Value over the Customer Journey
The buying process in the beginning of the customer journey
The Customer Journey Map is used to show the journey
• A core tool for service design
• A way to map all of the touchpoints with a customer from first awareness
to after they have stopped engaging
• Often looks in two directions – at the person receiving or using a product
or service and at the person providing the product or service
• Generally focuses on the emotional response
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35. Pricing Design – Pricing and Value over the Customer Journey
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Journey map is a visualization of an
experience of a person over time
Assumptions vs. Research
Often combined with:
- Service blueprint
- Stakeholder map
- Value network map

36. Pricing Design – Pricing and Value over the Customer Journey
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• When is value understood?
• When does value resonate?
• When is value delivered?
• When is price communicated?
• When is price claimed?
Understanding customer journey
mapping and pricing
Touchpoints ->
Stakeholder
Channel
Artifacts
Emotional Response
Value Communication
Price Communication
Value to Customer (V2C)
Customer Acquisition Costs (CAC)
Cost to Serve
Value of Customer (LTV)
LTV/CAC
V2C/LTV

37. V2C and LTV – Value and Unit Metrics
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The key unit metric
Value to the Customer (V2C)
How much value do you create for different stakeholders over time?
How does value delivery map to price?

38. V2C and LTV – Value Over Time
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Value
Time
Value can build steadily over time

39. V2C and LTV – Value Over Time
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Value
Time
Sometimes a gestation period is needed
before value builds rapidly, then
levels off

40. V2C and LTV – Value Over Time
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Value
Time
For some offers
most of the value is
delivered early on

41. V2C and LTV – Value Over Time
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Value
Time
Does it make sense
to have the same pricing
model for each of these
value distributions?

42. V2C and LTV – The foundational question
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Long term viability requires that
Value to the Customer > Lifetime Value of Customer
And that
Value Delivery leads Value Capture

43. Discussion
Discussion – Wrap Up
Are you designing based on value?
How does value unfold over the customer experience?
Is V2C > LTV?
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44. Pricing changes over Moore’s technology lifecycle
PRICING CONCEPTS – PRICING OVER THE LIFECYCLE 1
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45. Innovators and Early Adopters Buy for Different Reasons
PRICING CONCEPTS – PRICING OVER THE LIFECYCLE 2 (Initial Phases)
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Innovators tend not to pay but influence Early Adopters
Early Adopters pay a premium for a competitive advantage

46. Value Driver Structure Changes Between Bowling Alley and Tornado
PRICING CONCEPTS – PRICING OVER THE LIFECYCLE 3 (Early Majority)
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Bowling Alley Buyers Reference Each Other
Value Drivers Specific to Their Vertical
Tornado Buyers Buy Because Everyone is Buying
Switch to Horizontal Value Drivers

47. Main Street B2B Buyers Are More Economic Value Driven
PRICING CONCEPTS – PRICING OVER THE LIFECYCLE 4 (Late Majority)
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On Main Street
Solutions Proliferate
Targeted at Tight Niches
Without Differentiation Commodity Pricing
Prevails

48. Laggards Buy Technology Bundled Into Other Solutions They Already Have
PRICING CONCEPTS – PRICING OVER THE LIFECYCLE 5 (Laggards)
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Laggards Don’t Buy Technology Solutions
They Buy Solutions They Are Familiar With
and Already Have

49. Pricing consultancy and technology company
built by experienced entrepreneurs
We understand innovation because we live it
Our passion is improving product launch and in
market success through better strategic pricing
and execution
Understand the larger picture of segmentation,
targeting, value modeling, value propositions
and pricing architecture
Twitter LinkedInWebsite
Steven Forth
Managing Partner
steven@ibbaka.com
+1 604 763 7397
Karen Chiang
Managing Partner
karen@ibbaka.com
+1 778 628 4085
Rashaqa Rahman
Consultant
rashaqa@ibbaka.com