Pricing is a holistic discipline. It requires integration of ideas from many different disciplines, in order to design pricing that will support new products and services. The same is true of data. Any data that gives insight into how users get value from a solution is an input into pricing.
One of the most powerful frameworks to emerge for this in recent years is service design thinking. This approach emerged in Scandinavia in the 1990s and was initially applied in the finance sector. It is now accepted as a critical tool for the development and understanding of service businesses. You may be thinking, that's fine, but I am responsible for a product, not a service. Are you? More and more companies are wrapping services around their products and even selling the product as a service. PaaS generally means 'Platform as a Service' but I have also seen it used as 'Product as a Service.' As you transition your product to a service, wrap services around the product, or move to enterprise solutions, you will need to understand the entire customer journey, from the first time they become aware of a need, to when they transition off your product/service.
Customer journey maps are becoming a standard tool for understanding value and pricing. Many customer journey maps include some measure of emotion, frequently the degree to which the buyer and user are feeling positive or negative about the experience. This is a good start, but it is not enough to help us with value-based pricing.
To build a customer journey that factors in value and pricing, you need to add some rows to the customer journey. Map out the following:
- Value Understanding - Which aspects of the value proposition are understood by the customer?
- Value Resonance - Which aspects of the value are felt, at an emotional level, by the buyer?
- Value Delivered - How much value has the customer gotten from using the service? Here it is important to track each of the economic and emotional value drivers separately.
Mapping these across the customer journey is a beginning. One still needs to layer price in. There are two aspects to consider here: price communication and invoicing.
- Price Communication - How are prices communicated and how does that connect to the three value streams? If price is communicated outside the context of value, then you are inviting the buyer to think about price and ask for a discount. Pricing, and the logic of your pricing, needs to be communicated differently as part of Value Understanding, Value Resonance and Value Delivered.
- Invoicing - There are two things to consider here: value communication and the connection between the amount charged and the value delivered. The invoice is a tool to communicate value. More important though, is the connection of how much has the client been charged compared to how much value has been delivered. In services models it is common for these to track each other closely. This is very different from pricing models where the customer pays a large amount upfront and then recoups this investment over time. The invoice should communicate value and help the customer understand their ROI. Regular communication on ROI can have a big impact on renewals.
We are going to have to get much more flexible in how we design pricing and value capture. Obviously, we need to capture back part of the value we deliver. If we don't do this, we will not be able to continue to support the solution, make ongoing investments in innovation and provide a return to our stakeholders. Flexible pricing design is a subject for another day, but it is important to include the rhythm of the customer investment (not just invoicing, your customers make other investments in your solution) and customer return on investment in your journey map. Seeing the balance of investment and return, and bringing these into balance as quickly as possible is an important part of understanding the customer journey.
At Ibbaka, we frequently build customer value journey maps to help our clients align their pricing strategy with the customer's needs. Contact us if you would like to learn more about this.