For our October Webinar, Stephan Liozu shared best practices for accelerating value strategy deployment and overall value transformations. To conclude the webinar, he answered some questions from the audience. Here are his live answers:
Can you give some best practice examples of B2B companies implementing value pricing?
Yeah. So that’s always a good question because if you look at the theoretical definition of pure value-based pricing, I would say not many are doing it because it’s such a complex field and most companies will adapt the value-based pricing process to their own structured dynamics, business and culture. But typically you would look at the software space and there’s obviously a direct correlation between the profit margins in value based pricing. So you would look at the software companies like the Microsofts and the SAPs with very high profit margins, and the pricing discipline at the heart of their pricing process is value-based pricing.
So, so typically the companies with a higher high pricing power that you read about (the Disney’s, the Starbucks) in the world of B2C, they’ll do [value-based pricing].. In the B2B world, there are some of the chemical companies that have changed their mindset about five or 10 years ago, and now focusing a lot more on value. You can read about their case studies on the pricing society website, you’ll see how they do it. Large industrial companies like 3M, for example, is always an example as far as having a very high EBIT and their ability to constantly churn innovation and capture value. You also have some pharma companies that are B2B and they are doing extremely well right now with high profit margins because you didn’t need that to fuel their R&D budget. So there’s a lot of companies out there and typically we call them the pricing power champions.
I recommend that you search the library of papers and case studies from LeveragePoint and you’ll see a lot of good stories from Bayer and Schneider and other companies that do this very well. And then the Pricing Society, has lots of examples on their website as well.
You’re currently in the role of Chief Value Officer and you’ve worked with other CEOs as well. How do you define the role to make it successful? When you’re in that role, what are your priorities?
Yeah, so my priority is really across all the functions. So we pay attention to customer value. So if we’re gonna do technology R&D, we’re gonna do a digital transformation with lots of digital MVPs. I want to ask the right questions about as if I was solving a customer problem. What are the pains and gains are the customers? What’s their willingness to pay? Are we going to get some premium out of this? My role is to go to the marketing managers and tell them, “hey, in your marketing plan, what are you doing around customer segmentation?” So I’m working a lot with all other people, helping them give them the tools, but pretty much I manage a battery of, I would say, methods like value proposition, EVs, and value maps.
And then I’m going to make sure that everybody is aware of them, trained on them, and that they’re using them. If you take the six steps of value based pricing, I make sure that all the steps are well done, by multi-functional teams. And then I manage the three steps that I’ve mentioned before: the creation, the quantification, and the capture of value. So that includes a lot of pricing activities as well.
So, it’s wide. It can be very strategic on one side. And the next day I’m with a team giving them coaching on how to price. So it’s a very diverse job, and considering we have 30 divisions, I can tell you I’m never bored and it’s always very interesting.
What are some examples of hackathons and how they have worked and not worked in your experience? How do you organize a well-run hackathon?
Yeah, so it’s a lot of work, but it has a high impact. We’ve done 14 hackathons in the last two years, and you can imagine 20 teams every time. So, we’re touching a lot of people and we touching people that typically would not be touched, like engineering managers or software developers. So with a wider population, we try to give them the bugs – the value bug, right? So it starts by thinking of objectives and working with the divisions promoting the concept.
We train them on the process and prepare beforehand. We give them homework to do. So there are a couple of prep sessions by phone. All the upfront work, like who’s your competitor, what’s your competitive landscape? Do you have your segmentation down? When we do a dollarization hackathon, we address steps three, four and five of the value based pricing process, which is assessing your differentiation, quantifying your value drivers, and calculating a value pool. So we ask them to prepare beforehand and then we use a template, which is pretty much a LeveragePoint Value Proposition with screens.
We have a huge room, and pretty much the whole day is 20% training and 80% working in groups. We don’t call that a training session. We call that workshop action learning. And that attracts people because they leave the room and we have done the work and they learn at the same time. It’s not another training session where we sit in the lecture hall and watch PowerPoints. So, when I do a hackathon, I bring LeveragePoint Value Propositions where they can do a demo of the software in half an hour. I also bring other teams that are using LeveragePoint to show an example of a real Value Model. So it’s highly concrete, with very little theory. And it works very well.
Could you share some KPIs to show the results of your value generation actions?
Yes, that’s a tricky one. The KPI should include the number of people trained in the value process, the number of people using the value process, and how many times we use it in bids. These are easy to calculate. Some are not very easy, and are going to be declarative. So for example, we an objective this year to have a value based pricing strategy in each of the divisions next year. We’re going to have value propositions for every single product line and we have about 200 of them. So, is it done or not?
So in a dashboard you may have the typical value KPIs like, what is your gross margin, your value realization, price realization? You may name them differently, so I would say the difference between the traditional pricing dashboard is that it is going to be a half quantitative and half qualitative and you’re going to have to work closely with sales and other functions to see how your value propositions are being used.
