Annual Contract Value (ACV)
Annual Contract Value is the value of the customer contract over a 12 month period.
Occurs when one party possesses more information (material knowledge) than another in the context of an economic transaction. This creates imbalance in power and can sometimes put transactions in jeopardy.
Average Selling Price (ASP)
The average selling price at which an offering is sold across the market.
Barriers to entry
The obstacles within an existing market that prevent newcomers from entering the market. E.g., high startup costs, strong brand identity of an existing market player.
The benefit derived from using a feature of a product or service. For example, "child-lock" is a feature of medicine bottle caps. The function of the "child-lock" is that it is designed to lock the bottle cap and keep it from opening unless rotated in a particular manner. The benefit of the "child-lock" is risk prevention; it keeps children from accidentally consuming hazardous medication.
A value premium that a company is able to capture from its offering as a result of its name recognitions in comparison to that of a generic equivalent. Brand equity has four components: brand loyalty, brand awareness, brand associations, and perceived quality.
The process of creating product recognition and shaping product image in the customer's mind. Strong branding can provide companies with a competitive edge.
When a firm links two or more distinct offers and sells then as a package at a single, bundled price.
Business objectives are measurable steps that a business takes to achieve its goals.
Business to Business (B2B)
A business model where economic transaction takes place between business entities as opposed to between a business and a customer.
Business to Customer (B2C)
A business model where economic transaction takes place between a business and a customer.
A detailed description of customer segments. It is used to identify target customer segments and may include demographics, patterns of behaviours, motivations, etcetera.
The steps a customer takes in order to make a purchase decision. The customer buying process may include: a recognition of a problem or need, information search, evaluation of alternatives, purchase decision, purchase and post-purchase evaluation.
A business strategy that causes a product or service to lose market share, revenue or margin due to the introduction of another product or service by the same company.
Capital expenditure (CapEx)
The costs incurred by a business to purchase, replace or improve long-term fixed assets. Some examples of capital expenditure include purchasing buildings, upgrading machinery, and equipment.
The net cash or cash equivalents that flow in and out through a business. Cash flow metrics are indicative of a company's liquidity.
The percentage of category that is captured by a market participant within a given market.
The size (either units or revenue) of a given market category.
Churn rate is the percentage of customers who have stopped subscribing to your product or service.
A business entity producing a similar product or service and is competing within the same market to increase revenue, profit or market share.
The distinguishing attributes of a product or service, or unique market or business circumstances that is advantageous to a company and puts them ahead of the competition.
Setting price based on what a competitor is charging for a similar product or service.
A survey-based, statistical, market research technique that identifies the customer's attitude towards different product features and attributes, as well as the trade-off between these.
A person or business that engages in an economic transaction to purchase a product or service.
The difference between the selling price and the total variable cost of a product. It reveals how much of a company's revenue is contributed to fixed costs and net income after covering variable costs. Contribution margin is often used to make pricing decisions.
Cost to serve
The sum total of the business activity and overhead costs of serving a customer.
Cost-based pricing, cost-plus pricing
A pricing strategy where the price is determined by adding a mark-up to the sum total of the direct material, labour and overhead costs of a product.
Cross-price elasticity (of demand)
Measures the change in quantity demanded for a product or service as a response to a change in price for another product or service.
A sales strategy where the seller tries to get the customer purchase a related or complementary product or service.
A person or business that engages in economic transaction to purchase a good or service from a business.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total cost (sales, marketing,overhead costs, etc.) associated with securing a new customer.
Customer Lifetime Value (LTV)
Customer Lifetime Value (LTV) is a projection of the total profits a business will receive through continued relationship with a customer.
Customer pain point
Real or perceived problems, or unmet needs that the customer does not yet have a solution for. Customer pain points create product or service design opportunities that can be monetized.
Actions taken by a company to prevent customers from defecting.
A group of customers who display similar needs, characteristics or buying behavior.
The process of defining and dividing customers into sub-groups based on similar needs, characteristics or buying behavior.
The process of examining data, with the help of software, to find patterns and draw conclusions from the information contained within.
The quantification of desire in the market to purchase a product or service.
Design thinking is a term popularized by Tim Brown at IDEO and Roger Martin (at the Rotman Business School at the University of Toronto). Design thinking begins with a deep understanding of buyer and user needs. Multiple designs are generated, tested with the buyers and users, and refined before the final design is settled upon.
The net benefit a customer derives from your product offering over the next best alternative available. If the competitor's offer provides more benefit than your product offering, then there could be negative differential value.
Offering a reduced price for a product or service under special circumstances - e.g., advance purchases, a certain category of buyers, meeting volume of purchase requirements.
The exchange value of a product or service. The price of the customer's next best alternative, plus the differentiation value (monetary and psychological) that differentiates the product or service from the alternative.
Economic Value Estimation (EVE)
Economic Value Estimation (EVE) is a framework that quantifies the customer's monetary value for your product offering relative to the next best alternative available. It combines information on price and value from manufacturers, customers, and competitors, etcetera to determine potential price points for your product.
Emotional or psychological value
The ways in which a product or service creates intrinsic satisfaction for the customer.
The distinguishing attribute or aspect of a product or service. For example, "child-lock" caps for medicine bottles.
The cost of producing a product or service that does not change depending on the number of units produced.
A pricing strategy where the basic features of a product or service is offered for free but customers are charged a fee for more value-added features.
The purpose of the distinguishing attribute or aspect of a product or service. For example "child-lock" is a feature of medicine bottle caps. The function of the "child-lock" is that it is designed to lock the bottle cap and keep it from opening unless rotated in a particular manner.
A strategy to get a product or service to the target customers, and gain competitive advantage through effectively communicating the value proposition.
Industrial Internet of Things (IIoT)
A network of internet enabled machines and devices in industrial companies that are embedded with sensors and software, allowing data collection, analysis and insights which can drive business decisions.
Internet of Things (IoT)
A network of internet enabled physical objects (e.g, wearables, devices, buildings, vehicles) embedded with sensors and software that allows the collection and exchange of data.
Key Performance Indicator (KPI)
A metric that measures effectiveness or individual or business performance or objectives.
The cost of producing one additional unit.
Increasing the market share of an existing product or introducing a new product to capture market share through competitive pricing, volume discounts or bundling offers.
Segmentation is the process of defining and dividing the market into sub-groups based on similar needs, characteristics or buying behavior.
The percentage of market that is captured by a particular company or product.
Matrix of competitive advantage
A chart that compares your product offering relative to your competitors. It provides a snapshot of the market landscape, your position within the market, and your competitive advantage.
A quantitative measure used to track or compare goals or performance.
The customer's total cost savings or increase in income derived from your product usage.
The process of taking an asset (product, service or information) and turning it into a source of revenue.
Monthly Recurring Revenue (MRR)
The total amount of predictable revenue that a business receives on a monthly basis. MRR is a typical key metric for subscription business models.
Multi-sided market platform
A business model where a business creates value by connecting and acting as an intermediary between two or more parties (buyers and sellers). The intermediary generates revenue for themselves by capturing a part of the value created.
Pricing is "neutral" when it is set at the perceived economic value of a product or service. This price is not necessarily equal to the competitor's price or a mid-range price. Neutral pricing is used when the customers are value sensitive and if there is limited possibility of gaining market share through low penetration pricing.
New product development (NPD)
The steps to bringing a new product or service to market. The NPD stages include identifying strategies for the new product, idea generation and screening, business analysis, development, market testing, commercialization (launch) and evaluation.
A specific, narrow sub-segment of the market with specific needs.
Operating Expenditure (OpEx)
The ongoing costs incurred from carrying out a business' normal day-day to operations. Example of OpEx include rent, repairs, insurance, payroll, etc.
Organizational culture or corporate culture
The collective beliefs and values of a company that act as guidelines for employee conduct as well as drives business strategy.
A pricing strategy where the price of a new product or service is initially kept low in order to generate user adoption and capture market share by getting price sensitive customers to switch to the new offering.
The value of your product or service in the customer's mind. The perceived value of a product may be higher or lower than the economic value of the product. It could be a "feeling" that is shaped by incomplete information about the product's benefits, cost of production and competitive landscape that is available in the market.
The maximum price a seller should charge for a product or service.
Charging different customer segments different prices for the same product or service.
Price elasticity of demand
Measures the change is quantity demanded for a product or service as a response to a change in price for that product or service.
Price elasticity of supply
Measures the change in quantity supplied for a product or service as a response to a change in the price for that product or service.
These are minimum thresholds (level of usage, dollar amount spent, etc) that a customer has to meet in order to qualify for rewards, discounts or move between different product offering tiers.
The minimum price a seller should charge for a product or service.
A decision-making process that examines all possible pricing choices to determine the price that aligns best with business objectives and maximizes revenue, profit or market share.
The degree to which changes to the price of a product or service affects the customer's purchase behaviour.
The process by which an price for a product or service is set as well as communicated to customers. The process incorporates relevant customer, competition and cost data that to set price levels.
Pricing architecture provides a framework of different feature/benefit variations, discounts and prices for different customer segments.
The unit by which your price is applied. E.g. dollars/GB, dollars/user, dollars/report.
Is determined by how much a company can raise the price of its product or service without losing demand. If large increases in price result in relatively small loss in demand, then the company is said to have strong pricing power.
The strategy used to assign price to a product or service. It takes into account factors such as business objectives, market conditions, competitive landscape, customer expectations, customer value creation and willingness-to-pay.
A well designed pricing framework comprises of multiple pricing tiers, each with different feature or benefit variations, discounts and prices for different customer segments.
Primary market research
Information that is gathered directly from potential customers. Primary market research can be conducted in-house or outsourced to a third-party. This information can be gathered via surveys, interview, focus groups, observation, etcetera.
The different stages a product goes through during it's lifetime. The stages are introduction, growth, maturity and decline. Marketing and pricing strategies should be tailored to the different stages within the product lifecycle as each stage has different business implications.
Product management is responsible for understanding customer needs and driving product strategy through the entire product lifecycle.
The role of product marketing involves a deep understanding of customer needs to develop product positioning, differentiation, and communication strategies.
A product or service offering should create value for the customer. Understanding the differentiated and relevant value of a product or service is key to successful pricing and the execution of business strategies.
The process used by marketers to determine differentiated product attributes relative to the competitive landscape, to select communication channels, and to communicate these differentiated attributes to select target customer segments.
The price of the customer's next best alternative for a product or service.
Return on Investment (ROI)
A profitability ratio that measures the efficiency of an investment by calculating the gains per dollar invested.
Income received from the sale or monetization of a good or service.
A systematic process to evaluate possible risks before undertaking a project or activity.
Having a low risk tolerance and low willingness to take risks.
Having a high risk tolerance and a high willingness to take risks.
Secondary market research
Third party market research data available that is collated and organized. This data could be from government agencies, trade associations, industry research reports, etcetera.
Serviceable Addressable Market (SAM)
A share of the Total Addressable Market (TAM) that can be realistically targeted by a business.
Serviceable Obtainable Market (SOM)
The share of the Serviceable Addressable Market (SAM) that can be captured by a business.
A pricing strategy where initially the highest possible price is charged for a new product or service. After the demand for this customer base is satisfied, the price is systematically decreased to capture customers with lower willingness-to-pay.
Software as a Service (SaaS)
A software delivery model in which software is distributed and licensed on a subscription bases and where the software is centrally hosted.
A person or entity that can be affected by an organization's actions and therefore has a vested interest in critical business decisions.
A plan of action designed to achieve a specific goal.
A pricing model where the customer subscribes to a seller's services at a set price and has access to those services for a specific amount of time.
A cost that has already been incurred and cannot be recovered. Sunk costs should be ignored when considering any future business decision because they have no implications on the outcome of that decision.
The amount of product or service that is available in the market.
Surge pricing or dynamic pricing
Flexible pricing for products or services that are determined by the market demand and supply. This method is predominant in the sale of airline tickets.
The customer's cost of switching to another another product, seller or supplier. This cost may be monetary (additional costs incurred) or psychological (emotional barriers).
A business concept where the value, performance or effectiveness of two or more business units combined is greater than the sum total of each individual unit.
A specific group of customers that a company targets to sell it's product or service.
Total Addressable Market (TAM)
A high level market segmentation that shows the total revenue opportunity or the total market demand for a product or service. TAM is a quick metric that shows total opportunity but realistically not all of this market may addressable by a business. Prioritized target segments within the TAM have to be selected based on business objectives.
A business model where an intermediary creates unique value by serving as a network that connects two distinct parties (buyers and sellers). The intermediary generates revenue for itself by capturing a percentage of the value created.
A sales strategy where the seller tries to get the customer to transition to a more expensive product offering tier or purchase add-on services for an additional price.
Usage model is the collection of data that describes customer usage of your product or service offering within a particular context.
Value is the overall benefit a customer receives from using your product. Value can be both monetary and emotional. Monetary value is the customer's total cost savings or increase in income derived from your product usage. Emotional value is the way in which the product offering creates intrinsic satisfaction for the customer.
Customer value creation leverages a deep understanding of how a product or service creates monetary and psychological value for the customers. This understanding is used to design product offerings, shape customer willingness-to-pay, set prices, and manage discounts.
Value equivalency line
The linear relationship between price and perceived quality. The relative strength for all the product attributes of each competitor is rated and then weighted by the customer's estimate of importance based on surveys. The average relationship between the perceived quality and price is then calculated, represented as the Value Equivalency Line. A product offering more than "fair" quality at a given price stands to gain market share and vice versa.
The graphical representation of a customer segment's price or benefit tradeoff of competing product offerings within a market. The horizontal axis shows the customer's perceived benefit and the vertical axis shows the perceived price.
The unit by which your product offering is consumed that drives value for the customer. For instance, if you are a photo hosting service, then it is storage space (or GB) of photos hosted.
Value model is a framework that uses customer usage data to quantify how your product affects the customer's costs or revenues.
The value a product or service has from the customer's mindset. The customer's perceived value is determined by the customer's understanding of the costs and benefits of the product or service, the reference price of the next best competitive alternative, as well as the perceived fairness of the price charged.
It communicates the value of a product or service to the target customer segment. Value propositions highlight how a product or service can address the customer pain points relative to a competitor's offering.
Features or benefits added to a basic product or service offering for which customers are willing to pay an additional amount.
Value-based pricing is a customer-led approach to pricing that includes economic value estimation, customer segmentation, and designing a product offering. This approach estimates the value of the different combinations of benefits for the customers. Prices are determined for different customer segments based on the value derived by the customer.
A pricing model used to determine the optimal price point and the optimal price range for a product or service. Respondents are asked four questions to determine at what price point they deem the product or service to be too inexpensive, a bargain, expensive but still under consideration, and too expensive. Data from the respondents is graphically represented and used to determine the optimal price for a product or service.
The cost of producing a product or service that varies with the number of units produced.
The maximum dollar amount a customer is willing to pay for your product or service.
The difference between a business' current assets and current liabilities. The amount of working capital available is indicative of a business' ability meet short-term obligations.
Zone of indifference
There are positions around the Value Equivalence Line where small changes in price do not result in any significant changes in sales or the customer's perceived benefits of a product or service offering.