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Over the past few years, I have been given the opportunity to learn how firms transform their pricing orientation from cost or competition to customer value. Through rigorous and grounded research methods, my conclusions contradict the widely held assumption that value-based pricing can simply be “adopted.” Rather, research findings strongly suggest that implementation and internalization of value-based pricing requires organizational changes that transform the fabric of the firm and making it more adaptive in many dimensions. Marketing and pricing studies concerned with the adoption of the three main pricing orientations in business markets recommend value-based pricing as a modern and advanced pricing approach. I go a step further and argue that the implementation and internalization of value-based pricing transforms the firm’s organizational life and identity as well as the identity of actors within it. This transformation is manifested by a slow “mutation” of what research informants called their firm DNA from cost or competition to customer value.
The implementation and internalization process of value-based pricing requires sustained organizational mobilization to transform established structure, culture, processes and systems. Marketers, sellers and product developers have to change their business mentality and their frames of reference and embrace value-related concepts which are expected to become a new “way of life”. They also must learn a new language in order to carry the value message internally and externally.
Based on research findings as well as the numerous case studies presented at Pricing Society conferences, we have developed the 5 C model for the transformation of a firm’s orientation from competition or cost to customer value. The presence of the 5 C’s is essential but so is the organizational design of the 5 C’s within the firm. These five organizational characteristics are common to firms implementing value-based pricing: ability to effect deep transformational change, presence of a champion, skill in diffusing organizational capabilities, organizational confidence, and center-led pricing process specialization.
Firms we studied declared that the process of transformation took between 4 to 7 years on average. Because of the dynamic nature of the transformation, it required sustainable efforts, resources and leadership intensity. There are investments or actions firms can take to accelerate the implementation process. One of the most effective one is to embrace and implement Leverage Point Innovations value-based pricing platform to support the systematic and integrated process of value assessment and communication. Because of complexity generated by the way firms are structured and organized, there is a need to create a central convergence point that enables firms to reach consensus on value measurements as well as to communicate effectively to all key actors participating in the transformation.
Internalizing value-based pricing is a journey, not a destination. Adopting the proper powerful infrastructure can help reach this destination. At ARDEX Americas, we have implemented the 5 C model and now are embarking on the deployment of LeveragePoint value-based platform to accelerate our transformation. Stay tune for more news on how this deployment goes.
Stephan Liozu is President & CEO of Ardex America Inc (www.ardexamericas.com), an innovative and high-performance building-materials company located in Pittsburgh, PA. He is also a PhD candidate in Management at Case Western Reserve University and can be reached at sliozu@case.edu.
