Core Concepts: Economic Value Estimation (EVE)
By Gregory Ronczewski, Director of Product Design at Ibbaka.
Definition of Economic Value Estimation (EVE)
Economic Value Estimation (EVE) is a modeling framework introduced in the classic 2013 book The Strategy and Tactics of Pricing by Thomas T. Nagle. EVE looks at the monetary value created by a product or service for a particular customer versus their next best alternative. This approach is central to building value in sales and is a foundational method for business value selling, as it quantifies and communicates the unique value your offering delivers compared to competitors
4 Key Components of EVE Models
Competitor Reference Value: The price the customer pays for the next best alternative, providing a baseline for value-based conversations and helping sales teams understand how to sell value by highlighting differentiation.
Positive Differentiation Value: The monetary value your offering creates for the customer, exceeding the next best alternative. This is where the value selling definition comes into play, as it focuses on tangible benefits that resonate in value-based selling.
Negative Differentiation Value: Any additional costs the customer incurs with your offering, such as switching costs or training, or the positive differentiation value of the competitor. Addressing these transparently is part of selling on value and building trust in value-based conversations.
Net Differentiation Value: The sum of positive minus negative differentiation value. When positive, this represents the range for setting a value-based price and demonstrates added value selling in action.
Applications in B2B Enterprises
EVE models are widely utilized by B2B enterprises to:
Compare product alternatives effectively and support value selling examples in competitive markets
Highlight differentiation between offerings, which is crucial for selling value and conducting value-based conversations with prospects
Quantify the unique value proposition of each product or service, supporting both pricing and sales teams in how to build value in sales and communicate it clearly
These models are particularly valuable for:
Pricing professionals: Strategic analysis and value-based pricing decisions, ensuring that pricing reflects the true value of sales delivered to customers
Product Development teams: Customer segmentation and product strategy, using EVE insights to guide what value-based selling is in practice
Sales and Marketing professionals: Communicating value propositions and engaging in value-based conversations that resonate with buyers
By providing a structured framework for value quantification, EVE enables businesses to make informed decisions about pricing, product development, and customer communication. This ultimately drives more effective value-based strategies, supporting both building value in sales and business value selling.
For example, here is a great article published on LinkedIn by Mark Stiving, Ph.D.
Value-based pricing is based on the Economic Value Estimation (EVE) method and is used to understand the economic impact on a customer's business relative to their next best competitive alternative. There are two key points here:
Value is for a specific customer or group of similar customers (a market segment)
Value is relative to the alternative
Here is a post by Steven Forth titled Why value-based pricing means something and another one by the same author published on OpenView’s Blog. When the sales team uses the EVE approach with a focus on the value of each part of the offer rather than the price, they will be able to present different alternatives of the offer, for instance, less expensive with fewer features. Also, it is worth noting that EVE is not the same for each customer so applying price segmentation will be beneficial.
EVE-style models are built up from value drivers. There are 6 types of economic value drivers used in EVE models.
The 6 Value Drivers in EVE Models
The 6 key value drivers in EVE models are:
Revenue Enhancement: Offerings that can increase customer revenue or income.
Cost Reduction: Products or services that help customers lower their operating expenses.
Working Capital Optimization: Solutions that enable customers to reduce their operating capital requirements.
Capital Expenditure Savings: Offerings that help customers minimize their capital investment needs.
Risk Mitigation: Products or services that help customers manage and reduce their overall business risk.
Flexibility and Optionality: Offerings that provide customers with increased flexibility, adaptability, and future options.
Focusing on these drivers allows organizations to deliver compelling value-selling examples and engage in value-based conversations that are tailored to each customer segment.
You can also read up on Core Concepts: Value Driver (which also looks at Emotional and Community value drivers).
Ibbaka’s CEO, Steven Forth, has shared another insightful post discussing the design of value models.
More reading on Ibbaka’s Core Concepts:
Economic Value Estimation (EVE) (this post)
