34. Use value calculators to establish pricing

Shareable link (with transcript): b2bgrowth.video/34

By Dan Adams of The AIM Institute

These let you move from supplier-focused pricing (cost-plus) and competitor-focused pricing to customer-focused pricing. It’s the only way to avoid leaving money on the table.

Transcript

Some companies do a great job developing high-value products… and then leave money on the table when they set the price. To avoid this, consider how value is transferred between a supplier and customer.

The supplier innovates and offers value in the form of a new product, which helps the customer improve his process or product. The customer returns some of this new value by paying a higher price. This is value creation and value capture.

To create much value, your improvement must satisfy 3 conditions. It must be important to the customer… measurable by them… and distinctive. If customers can get the same value elsewhere, you haven’t created value, you’ve just matched it.

Your price thinking might be supplier-focused, competitor-focused, or customer-focused. Supplier-focused pricing is cost-plus pricing. It’s inside-out, leaves money on the table and only indicates your pricing floor.

Competitor-focused emphasizes unit pricing, and is only useful for me-too products and gauging initial price reaction.

Customer-focused pricing reflects the economic impact on customers. It’s outside-in and does require more work for you. But if you want to maximize value capture, it’s the only way.

You must accomplish 2 things to maximize pricing: Understand how much value your new product delivers over competitors… and raise customers’ perception to this point. A good value calculator does both. This is a financial model showing how much money customers will make or save with your new product.

You need customer economic data to build this… and it’s critical you gather this at the same time you’re asking questions that help you create value. Once you launch your product, customers will have no more incentive to answer your questions.

If your new product delivers real value, it’s worth the extra effort to create a value calculator. It could let you capture hundreds of thousands—or millions of dollars—in added profit over the years.

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35. Insist on data-driven innovation

These 4 common practices practically ensure confirmation bias and squandered new-product R&D. Escape this trap with quantitative interviews and Market Satisfaction Gaps.

36. Benchmark competing alternatives

The price premium your product gets is driven by its value over customers’ next-best alternative. Here’s the only reliable way to quantitatively assess competing products’ value.

37. Build a front-end business case

Here are the 12 points of a strong B2B Business Case. Also consider an abbreviated-but-powerful 6-point “Market Case” as your entry ticket into the development stage.

38. Pursue fast innovation

You can deliver $80,000 of NPV by accelerating a typical B2B new product launch by just one month. Here are 4 ways to accelerate your projects… and boost success rates while you’re at it.

39. Launch new products with power

You want to deliver the right product to the right market using the right message through the right media. To do this, use AIM’s approach: “Who to tell… What to tell… How to tell.”

40. Invigorate your stage-and-gate process

A stage-and-gate process does much well, but only manages the interface between a company and its teams. Add “customer insight skills” for the interface between teams and customers.

41. Technology- vs. Product-development

Technology development is science-facing; product development is market-facing. The former turns money into knowledge; the latter turns knowledge back into money.

42. Beware of new product incrementalism

It may seem safe to only work on “me-too” and incremental new products. But it’s not. Adams’ Risk Paradox is, “A business built on low risk is at great risk.”

43. Why risk and uncertainty are different

Many companies err by assigning risk levels, probabilities, and rates of return in the early phase of transformational projects. Focus on uncertainty—not risk—for better results.

44. How to pursue transformational projects

In a post-mortem, the landmine that blew up your project is obvious. Here’s how to detect and defuse potential landmines in “pre-mortems”… when you can do something about them.

45. How to manage transformational projects

You’ll have better project reviews when management sees you’ve 1) generated assumptions, 2) rated them for impact & certainty, and 3) diligently investigated the critical ones.

46. Study your industry’s future

It’s more important than ever to study your business’s future: Change can be swift and punishing. Download 16 future trends sheets to help your team see “what could be.”

47. Make your sales force a ‘learning force’

If your sales force was also a “learning force,” you would have an “early-warning system” to focus your R&D on market needs before competitors. We call this “market scouting.”

48. Beware of B2C innovation shortcuts

There will continue to be cool new innovation methods, e.g. Lean Startup. Before you deploy them “as-is,” though, evaluate them using a B2B-vs.-B2C filter to avoid costly mistakes.

49. Employ new growth metrics

The Vitality Index (% of sales from new products) is a helpful, but lagging indicator. Here are two new leading metrics: Growth Driver Index (GDI) and Commercial Confidence Index (CCI).

50. Your organic growth roadmap

You’ve covered a lot in 50 video chapters: Where do you start? This video covers 3 suggested steps on a roadmap to greater growth (and also covered in “Organic Growth Roadmap”).

The video course that revolutionizes how B2B leaders drive organic growth.

1. Intro to B2B Organic Growth

The methods introduced in this series are based on solid research and AIM Institute’s experience training tens of thousands of B2B professionals. Here’s why these methods will be commonplace someday.

2. Superior B2B growth is challenging

The “Red Queen Effect” has your business running as fast as it can just to stay even with competitors. You need to compete differently if you want rapid, profitable growth you can rely on year after year.

3. Be a business builder

Business leaders can be classified as Builders, Remodelers, Decorators, and Realtors. If you want rapid, profitable, sustainable growth, you need to find and reward the Builders among you.

4. How much growth did you earn?

There are three types of growth: inherited, market, and earned growth. You can only control the last type… which only happens when your new products offer greater value than competitors.

5. Shareholder wealth is a poor goal

“Maximizing shareholder wealth” is a lovely result but a lousy goal. Goals need to be actionable and inspiring. A better goal is, “Understand and meet customer needs better than others.”

6. Pursue market-facing innovation

Research shows exceptional companies pursue “better before cheaper” and “revenue before cost.” Since only customers decide what is “better,” your innovation must be driven by the market.

7. Catch the innovation wave

The earlier Quality and Productivity Waves separated winners from losers. The Innovation Wave will be even bigger because it never reaches a point of diminishing return—unlike earlier Waves.

8. Rethink your major initiatives

Want rapid, profitable, sustainable growth? Most otherwise-fine initiatives cannot deliver this, e.g. productivity, quality, sales training, customer intimacy, global expansion, and acquisitions.

9. Avoid the commodity death spiral

When you stop innovating for customers, your path is marked by lower pricing, lower profits, budget pressures, cost reductions, reduced innovation capability, and then death or “life support.”

10. Extend your time horizon

Business leaders can be classified as Builders, Remodelers, Decorators, and Realtors. If you want rapid, profitable, sustainable growth, you need to find and reward the Builders among you.

11. Avoid the pitfalls of 2nd order effects

First-order actions like spending freezes and travel bans lead to second-order growth declines. Your leadership team needs to be wary of “first-domino fixation” and “first-domino amnesia.”

12. Know what really drives growth

AIM research based on 10,000+ years of experience shows B2B professionals are especially eager to improve their business capabilities to understand customer needs (vs. meet them).

13. Build your growth capabilities

Leaders need to balance their pursuit of “results” and “capabilities.” Today, most are way out of balance. They pursue near-term results, and then hit the “reset” button to do it all again next year.

14. Understand your B2B advantages

Companies that serve B2B markets have enormous engagement potential. Their customers have high knowledge, objectivity, interest, foresight… and there are relatively few of them.

15. Put your B2B advantages to work

The B2B Index is a free website tool that lets you calculate “how B2B” your markets are. You can download a booklet loaded with advice for “early-stage” and “late-stage” marketing.

16. Segment by markets for innovation

There are many ways to segment customers, but for innovation purposes, segment into “clusters of customers with similar needs.” Do this to maximize your effectiveness and efficiency.

17. Concentrate on winning markets

Market concentration takes market segmentation to the next level. It’s the disproportionate concentration of resources on markets you identify as “Attack” or “Study” in strategic planning.

18. Avoid the faster horse fallacy

Henry Ford’s famous quote discourages asking customers what they want. (“They’d say a faster horse.”) But this overlooks two key factors: 1) B2B vs. B2C, and 2) Outcomes vs. Solutions.

19. Stop leading with your solutions

There are two innovation problems: “What’s the question?” and “What’s the right answer?” Most companies waste R&D resources because their solutions don’t address real customer needs.

20. Begin with customers’ job-to-be-done

Instead of starting with their solution, B2B companies should begin with the customers’ “job-to-be-done”… and learn which outcomes are leading to “imperfection” in that job.

21. Give your hypotheses the silent treatment

It’s OK to have a cool hypothesis, concept, or technology, but test it “silently”: Focus on customer outcomes in interviews, and later check if your hypothesis addresses them.

22. Immerse your team in customer outcomes

During interviews, customers give you Outcomes, Solutions, or Background. The science of B2B customer insight lets you examine outcomes at 9 increasingly-detailed “magnifications.”

23. Eliminate most commercial risk

For 5 decades, commercial risk—not technical risk—has been the leading cause of new-product failures. Follow this 11-step path to eliminate most commercial risk in the front end of innovation.

24. B2B Interviewing fundamentals

B2B interviewing should be very different than B2C. These methods help you eliminate most errors of omission (using divergent interviews) and errors of commission (convergent interviews).

25. Let your customers surprise you

In most business situations, you don’t want surprises. But you do want to be surprised by customer needs missed by competitors. You need to conduct interviews led by the customer, not you.

26. Build your interviewing skills

Great B2B interviewing requires new skills, e.g. AIM’s “What and Why” method and economic probing questions. Use these to gain impressive customer insights and engagement.

27. Quantitative interviews are a must

Don’t skip Preference interviews, which reveal important, unsatisfied customer outcomes (with high Market Satisfaction Gaps)… the only ones you can get premium pricing to address.

28. Persuade customers to be interviewed

Many B2B companies struggle to convince customers to be interviewed. Here are our four favorite approaches, which have been proven effective all around the world.

29. Engage your B2B customers

While the main goal of an interview is customer insight, B2B companies should also pursue customer engagement. Here are 10 ways to boost engagement and shorten your “time-to-money.”

30. Trigger fresh ideas in customer interviews

If you want to unleash the full brainpower of B2B customers during a qualitative Discovery interview, introduce them to a trigger method. One such method is the Trends Map.

31. Conduct virtual customer interviews

Sure, in-person interviews are the gold standard... but “virtual VOC” has surprising advantages. Blend in-person and web-conference interviews to optimize effectiveness and efficiency.

32. When to use “hired guns” for VOC

Should you hire a firm to conduct your voice-of-customer interviews, or train your own people to do this? Consider these four factors to find the answer for your business.

33. Conduct B2B customer tours

Supplement your customer interviews with tours. Use them to a) gather context for interviews, b) look for improvement ideas, and c) gather economic data for new-product pricing later.