Insights into Value-Based Pricing Strategies for B2B with Tom Nagle

Dr. Thomas (Tom) Nagle founded the Strategic Pricing Group (now part of Monitor Deloitte) in 1987 soon after publication of the first edition of The Strategy and Tactics of Pricing. For more than three decades, he has advised companies, primarily in B-to-B markets, on how to manage more profitably the five elements of pricing strategy: Value Creation, Value Communication, Price Structure, Pricing Policy, and Competitive Price Setting.

In this episode, Tom shares how value is perceived and measured by customers, emphasizing the distinction between economic value and willingness to pay. He also delves into the complexities of pricing negotiations, highlighting the importance of understanding customer perceptions and effectively communicating the impact of products or services on their business outcomes.

Why you have to check out today's podcast:

• Understand the intricacies of value-based pricing, distinguishing between economic value and willingness to pay, and providing real-life examples illustrating these concepts effectively
• Delve into these two critical decisions buyers make to help you better understand and influence customer purchasing behaviors
• Find out practical advice on handling price negotiations, emphasizing the importance of "gives and gets" and strategies to avoid undermining your pricing integrity

"Don't ever believe what the customer is telling you upfront about what their value is. They may believe it, but they don't know the impact."

- Tom Nagle

Topics Covered:

01:29 - His early experiences with pricing influenced by his grandmother and how he got into pricing professionally

03:16 - How it is more effective to focus on market response to price changes and gather qualitative insights from clients than just precisely measuring elasticity

08:49 - Important thoughts on why pricing didn't matter much then before its deregulation

11:28 - Explaining the concepts of value and value-based pricing with an example illustrating the point

16:56 - The need to create policies to maintain price integrity and managing negotiations to prevent undermining value capture

23:25 - Discussing the concept of value-based pricing and sharing an insightful example where a service's value was evaluated against the status quo rather than a competitor

26:16 - Tom's best pricing advice

Key Takeaways:

"The goal is not to try to put a line between them that's a weighted average of the high prices and the low prices, and call it a demand curve. The goal is to figure out why we have all this variation and use that variation to create segments that eliminate the trade off between price and volume." - Tom Nagle

"The value isn't in the product. You can study the product from now until kingdom come, and you are never going to understand the value by studying the product. You have to study how the products' benefits impact the customer's income statement." - Tom Nagle

People/Resources Mentioned:

• Financial Analysis for Profit-Driven Pricing: https://sloanreview.mit.edu/article/financial-analysis-for-profitdriven-pricing/
• Walmart: https://www.walmart.com
• DuPont: https://www.dupont.com
• Malcolm Baldrige National Quality Award: http://asq.org/quality-resources/malcolm-baldrige-national-quality-award

Connect with Tom Nagle:

• LinkedIn: https://www.linkedin.com/in/thomas-tom-nagle
• Email: thomasnaglephd@gmail.com

Connect with Mark Stiving:

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: mark@impactpricing.com