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Customer knowledge is key to value pricing

It seems like more and more companies are struggling with incessant pricing pressure. Making sure that you get paid for the value you bring is tough, even when times are good. Under the current economic conditions, smart pricing is even more essential. This is especially true for complex business-to-business sales. The more complicated the product/service offering is—the more difficult it becomes to explain the value. Don’t despair. There is hope. Your customers can tell you a lot.

Try this seven step process to insure you get paid for your value.

1. Segment your customers by how much they like you. We call this relationship segmentation. In our example, we’ll use the Walker Loyalty Matrix to do this.

2. Select a few customers from the Truly Loyal, Trapped and High Risk quadrants.

3. Relate the relationship segmentation to the financial performance of the accounts. Does the Truly Loyal segment have better margins than the Trapped? And do the Trapped outperform the High Risk?

4. Look also at how the different segments value the key aspects of the service experience. Does the Truly Loyal segment have better experiences than the others?

5. If so, now dive deeper into the relationships. Talk to the account managers and customer service staff assigned to the accounts. Are there patterns that emerge from these analyses?

6. Can you now craft a model of what an ideal account for your company looks like in terms of how the customer sees your value and how you get paid for it?

7. Now, can you use this model of the ideal account to align and change your operations to move more accounts in this direction and bring in new accounts with a vision of making them more like ideal accounts?

What’s the matter? You can’t do all these steps today? Are you missing key components of the information? Don’t have a relationship segmentation of your customers? Don’t have account level financial metrics? Well, what are you waiting for?

Just as you can’t prepare for a day of outdoor activity without a weather report—you can’t effectively understand how to value price without knowing what your customer’s value and what they are willing to pay for. This is exactly how the best performing customer-focused companies are addressing the issue of value pricing. Yes, it takes hard work and discipline and leadership and the right tools and good processes and systems. But it can certainly be done.

One of the most important reasons to have a systematic and valid measurement of the strength of your customer relationships is to be able to relate it to other things we know about the business. Only then can you make the kind of change that benefits the customers in a way that you get paid for the value. Walker can help. Give us a call.

Originally posted in Customer Connection July 23, 2009.

About the Author

Steve Walker

Steve Walker

As the third generation of Walkers to lead the privately-held research and consulting firm, Steve is focused on creating shareholder value for Walker’s clients through customer intelligence and customer strategies. Steve was named president of Walker in 1994 and added the CEO title in 1996. Then, in 2006, Steve was named chairman of the board.

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