Review > Value First, Then Price: Building Value-Based Pricing Strategies

Finalized Value First, Then Price: Building Value-Based Pricing Strategies by Andreas Hinterhuber (editor), Todd C Snelgrove (Editor) My Book Rating - 2.5/5 (Qualitative - between "Okay" and "I Liked It”) BOP#3 - Book Club The book explores the relevance and importance of a value-driven organization through multiple lenses: (i) pricing, (ii) procurement, (iii) management, and (iv) change management. It comprises 25 individual pieces—including interviews, essays, use cases, and empirical evidence—written by various authors. These contributions emphasize the importance of understanding value, its relevance, and how to effectively quantify and communicate it both internally and externally. As a whole, the book serves as a solid introduction and refresher on the significance of being a value-driven organization in any industry. It encourages readers to focus on the value they generate for customers and consumers. It also provides a great starting point for deepening your knowledge of value-based approaches and opens multiple pathways for further exploration.A recommended read for professionals in pricing, sales, and procurement, offering insights on how they can apply these principles within their organizations. A word of caution: Avoid the Kindle edition. While it is technically readable on a Kindle, the formatting has not been properly adapted to the platform. As a result, many of the Kindle’s features and readability enhancements are missing, significantly diminishing the overall experience and value. (text revised by a LLM) https://www.goodreads.com/review/show/7110863649

- Pedro

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What Must Be True: Strategic Thinking for Managing Risk

Roger Martin, former Dean of the Rotman School, has written a fascinating and insightful article about risk management, emphasizing that a robust strategic process is the only effective way to approach it. Martin argues that, in most cases, risk management conducted by corporate boards often amounts to little more than box-ticking to comply with the Sarbanes-Oxley Act (S-OX) Section 404. This requirement, enacted after scandals like Enron and WorldCom, has become a lucrative exercise for consulting firms but provides little real value to management or investors. Instead of addressing critical risks, these efforts often generate exhaustive lists of potential risks (as seen in typical 10-K filings), which serve as "safe harbor" statements for management rather than actionable insights. A more effective way to approach risk management is by applying the Rumsfeld Risk Matrix (as illustrated in the accompanying graphic). This matrix divides risks into four quadrants: 1.Known Knowns – Risks we are aware of and understand well enough to measure and manage. 2.Known Unknowns – Risks we recognize but do not fully understand. 3.Unknown Knowns – Risks we are unconsciously aware of but fail to identify as risks. 4.Unknown Unknowns – Risks we are entirely unaware of. The ultimate goal of risk management is to increase awareness, turning unknowns into knowns, and improving precision by addressing uncertainties. This involves identifying key risks that are not fully understood, assessing their material impact and likelihood, and investing in understanding them better. It also requires implementing systems to monitor risks that might not be obvious and to uncover entirely new risks. So how is this achieved? The answer lies in a strong strategic process. A well-designed strategy explicitly considers what must be true (WWHTBT) for success and potential derailment, addressing factors such as industry dynamics, customer behavior, organizational capabilities, competitor actions, vendor dependencies, and technological advancements. By conducting thorough internal (IFE) and external (EFE) factor evaluations, along with a comprehensive SWOT analysis, organizations can identify key risk factors, enhance awareness, and improve their ability to detect unknown risks early. This article offers valuable insights and is highly recommended for anyone interested in strategic risk management. (text revised by a LLM) https://rogermartin.medium.com/risk-management-strategy-59869afd3558

- Pedro

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Starting a new book! Value First, Then Price: Building Value-Based Pricing Strategies by Andreas Hinterhuber (editor), Todd C Snelgrove (Editor)

Starting a new book! Value First, Then Price: Building Value-Based Pricing Strategies by Andreas Hinterhuber (editor), Todd C Snelgrove (Editor) "...Value-based pricing – pricing a product or service according to its value to the customer rather than its cost – is the most effective and profitable pricing strategy. Value First, Then Price is an innovative collection that proposes a quantitative methodology to value pricing and road-tests this methodology through a wide variety of real-life industrial and B2B cases. This book offers a state-of-the art and best practice overview of how leading companies quantify and document value to customers. In doing so, it provides students and researchers with a method by which to draw invaluable data-driven conclusions, and gives sales and marketing managers the theories and best practices they need to quantify the value of their products and services to industrial and B2B purchasers. The 2nd edition of this highly-regarded text has been updated in line with current research and practice, offering three new chapters covering new case studies and best practice examples of quantified value propositions, the future of value quantification, and value quantification for intangibles. With contributions from global industry experts this book combines cutting edge research on value quantification and value quantification capabilities with real-life, practical examples. It is essential reading for postgraduate students in Sales and Marketing with an interest in Pricing Strategy, sales and pricing specialists, as well as business strategists, in both research and practice. ..." https://www.goodreads.com/book/show/59858279-value-first-then-price?ac=1&from_search=true&qid=zhnvkchD61&rank=3

- Pedro

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Dynamic Pricing Silver Bullet?

https://www.ibbaka.com/blog/2019/11/7/dynamic-pricing-is-a-two-edged-sword

Fully agree with this great post! When you only have (want to sell) a hammer everything looks like a nail. Every solution has its value and should be applied accordingly and we should avoid to go with the latest trend flow and thoroughly assess the pros & cons and look at the value fundamentals. "...The conflation of willingness to pay and differentiated value has to come to an end. Willingness to pay is an outcome of the creation, communication and delivery of differentiated value. It is an outcome and not a driver. Pretending that you understand value because you can estimate willingness to pay is wrong headed. ..."

O-Ring Theory of Development and its importance on a company organization, HR, output & wages

Came across this economic theory by chance (on the Marginal Revolution Blog - Tyler Cowen and Alex Tabarrok) and it was surprisingly insightful, simple and helped to structure my line of thought on the areas of: Management, Organization setup and the importance of Areas of Excellence within an organization. 

Additionally, it also explains the pay gap between excellent (A-players) and very good & below associates (B/C/D - Players).

I strongly advise you to see the video of 19 minutes that provides a great overview of this theory (so you can also understand the math).

So the O-Ring Theory of Development (Michael Kremer, 1993) is underpinned by the following assumptions:

1. Production (broad sense) depends on completing a number of tasks;
2. Failure or quality curtailment of any task reduces the entire product (weakest link problem);
3. Quantity cannot substitute quality (2 mediocre Finance Directors will not do a better job than a great Finance Director)

If you take a broad approach to this production function you have a company or even an entire economy.

Main practical deliverables of such theory:

• Quality matching - you should put your high quality workers together (preferentially allocated to the company areas of excellence, based on its value chain) and the other workers (B/C) also together, instead of mixing them up, as the results will be significantly better;
• Higher quality it will imply better results (i.e. better outputs)
• Higher outputs/results will result in better wages (macroeconomics 101) for any organization & that the function Output/Wages is not linear

• The wage distribution is severely skewed to the right and the talent distribution follows a normal distribution (that is why small incremental talent on the top decile can have a significant impact on the associates wages);

• Workers performing in high-skill firms will have higher wages than low-skill firms (look at the wage gap of tech/pharma companies compared with other industries);
• Talent attracts Talent - High quality worker will want to work with other of the same standards (virtuous cycle)
• There is an tremendous incentive to invest in skills/quality of the workers (company and and associates)
• This theory has several "equilibria", meaning that if your are surrounded by high quality workers it pays-off to invest in becoming one, but if you are within a non-high quality organization it does not pay-off to invest, as your higher potential output will be severely curtailed by the others;
• Capital will be allocated to high quality organizations or within the organization to the areas with the highest quality potential - so if you are investing within your organization make sure you have your A-team on that area.

You can think your organization is performing several activities throughout your value chain, thus applying this theory you can identify bottlenecks, linkages and complementarities and don't forget where are your areas of excellence based on the Value Proposition so you can have your A-players on it!

On Pricing - how to create value

Why do they sell used books by weight (and what that implies for pricing data)

Interesting and make you think about several industries