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Value in Use Pricing Explained

The document discusses value-based pricing and provides examples of how to determine the value in use of products and services from both consumer and business perspectives. It outlines the basics of value-based sales and the fundamental value equation. Examples are given of how to calculate value in use pricing for Swagelok o-rings and Atlantic Computers' Tronn software. The document advocates adopting a value in use pricing approach over status quo, competition-based, or cost-plus pricing schemes.

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yenegalla harsha
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33 views10 pages

Value in Use Pricing Explained

The document discusses value-based pricing and provides examples of how to determine the value in use of products and services from both consumer and business perspectives. It outlines the basics of value-based sales and the fundamental value equation. Examples are given of how to calculate value in use pricing for Swagelok o-rings and Atlantic Computers' Tronn software. The document advocates adopting a value in use pricing approach over status quo, competition-based, or cost-plus pricing schemes.

Uploaded by

yenegalla harsha
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

5/20/2022

Value in Use Pricing


Rajdeep Grewal

Agenda

FOUNDATION EXAMPLES

ATLANTIC
COMPUTER

1
5/20/2022

Foundation

Cost and Value Based Pricing

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Customer Value

Social

Functional
Customer Experiential
Value

Economic

Value in Use Pricing

Price based on the total


value, i.e., functional,
social, experiential, and
economic, that the Consumer Business
product/service offering Markets Markets
provides to the
customer to own the
product/service.

3
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Basics of Value-Based Sales

The essence of customer value management:

• Deliver superior value to targeted market segments and customer


firms.
• Get an equitable return on the value delivered.

Increasingly, to get an equitable return, suppliers must


be able to persuasively demonstrate and document the
superior value their offerings deliver.

Fundamental Value Equation

𝑉𝑎𝑙𝑢𝑒𝑚𝑦 − 𝑃𝑟𝑖𝑐𝑒𝑚𝑦 > 𝑉𝑎𝑙𝑢𝑒𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛 − 𝑃𝑟𝑖𝑐𝑒𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛

𝑉𝑎𝑙𝑢𝑒𝑚𝑦 − 𝑉𝑎𝑙𝑢𝑒𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛 > 𝑃𝑟𝑖𝑐𝑒𝑚𝑦 − 𝑃𝑟𝑖𝑐𝑒𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑜𝑛

4
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Examples

Consumer Markets
• Hybrid and Electric
Vehicles
• Washing Machines

Business Markets
• Data Centers
• Specialized Machine Parts

Swagelok O-Rings
Swagelok O-Rings Value in Use
• Price $5/- • Swagelok
• Lasts four times longer • 𝐶𝑠 = 5 × 10 × 50 + 1000 = 3500
• Competitor
Competitive O-Rings
• 𝐶𝑐 = (.5 × 10 × 50 + 1000) × 4 =
• $.50 5000
• 𝐶𝑠 < 𝐶𝑐
Customer Situation
Parity Pricing
• Number of Machines – 10
• O-Rings per Machine – 50 • 𝑝 × 10 × 50 + 1000 = 5000
• Set-up Costs - $1000 • 𝑝 = $8

10

5
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Atlantic Computers

11 5/20/2022 Raj Grewal - UNC-CH

11

Situation

Tronn

PESA

Zink

12

6
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Current Pricing Schemes

Competition
Status Quo Cost Plus
Based
Pricing Pricing
Pricing

13

Status Quo Pricing

The current practice

Software is free

14

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Competition Based Pricing

Price the same as if Tronn price we know Remainder is price


customer used Zink of PESA

15

Cost Plus Pricing


Predict Predict sales of Tronn

Attach Attach rate of PESA

Allocate Allocate fixed costs

Add in Add in variable costs if any

Include Include margin/mark-up

Add Add price of hardware

16

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The New Pricing Scheme

Value in Use Pricing


• Worth of the product to the
customer
• Know the customer’s
business
• Varies from one customer
to another
• Account for all benefits and
costs

17

Value in Use Pricing

Savings on
• Hardware
• Labor
• Electricity
• Application
Software

18

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Implementation in Excel

Worksheet
provided

Make sure you


Now demo enter your team
member names

Answer all
tabs

19

10

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