Value Pricing: Getting Into the Transformation Business

Source: VeraSage Institute Blog

The following includes excerpts, reproduced with permission, from a blog entry by Ron Baker.

How do firms offer a value proposition to their customers that prevents them from falling into the so-called “commodity trap,” while still allowing them to maintain their leadership role as price makers, not takers?

One compelling hypothesis comes from Joseph B. Pine II and James H. Gilmore, in their book The Experience Economy, wherein they put forth a futuristic value curve for businesses, with the following echelon of customer value:

1. If you charge for stuff, then you are in the commodity business.
2. If you charge for tangible things, then you are in the goods business.
3. If you charge for the activities you execute, then you are in the service business.
4. If you charge for the time customers spend with you, then you are in the experience business.
5. If you charge for the demonstrated outcome the customer achieves, then and only then are you in the transformation business (page 194).

We believe professional knowledge firms are already poised at the top of value curve, since they do offer their customers transformations, even though they may not think of themselves as doing so. These are inherently personal transformations, guiding the individual into their preferred vision of the future — guiding them from where they are to where they want to be. There is no similarity between this offering and a commodity or even a bundle of intangible services. You are literally touching your customer's soul, forging a unique relationship virtually impervious to outside competition and commanding prices commensurate with the value of the results you are creating.

The blog entry reproduces an e-mail from a VeraSage colleague that relates how one firm adopted these principles to take value pricing to a new level.

For the complete blog entry, read “The Experience Economy and Advanced Value Creating Ideas.”

From VeraSage Institute, http://www.verasage.com/index.php/community, December 27, 2010.