What is a Value Model and what is it used for?
A Value Model is a tool used to estimate the economic value of your offering for a customer relative to a competitive offering. Value Modeling can be used for a variety of purposes, such as to inform pricing decisions, find profitable customer segments, design product offerings, and provide value communications to customers.
Why do I need a Value Model?
Pricing has become more difficult than ever due to an overwhelming combination of increasingly powerful customers, intensifying global competition, and the accelerating pace of product commoditization. The result for many industries is steady price erosion and shrinking margins. Customers have built powerful capabilities to execute their procurement strategies. Value Modeling enables you to create value that customers will actually pay for, as opposed to great products that customers might like. It is the foundation for a proactive pricing strategy that becomes a powerful lever to drive profitable growth.
How is Value Modeling different from other methodologies for determining customer value, like customer value modeling (CVM)?
Value Modeling looks at measuring value from a customer’s practical perspective. It recognizes that customers explicitly seek to purchase products and services that make them better off economically than other alternatives. Value Modeling therefore frames an objective value story from the customer’s perspective. This is different from other methodologies that base customer value on somewhat subjective perceptions of “willingness-to-pay” or price-performance. Comparatively, Value Modeling is more rigorous and more difficult to manipulate by sophisticated buyers.
How much time and effort does it take to do an EVE® analysis?
An initial Value Model can be done within hours using Value Modeling tool — provided you have good background knowledge of your customer’s business model, particularly details of how the customer uses your products/ services. Even a “quick and dirty” Value Model can provide useful insights about the sources of your offering’s differentiation value. A more thorough Value Model requires gathering data from a variety of primary and secondary sources about a particular customer or segment, as well as competitive data.
It may take weeks to refine and validate the initial model, and a sophisticated Value Model can take even longer. Nonetheless, don’t be discouraged — as long as the original logic is sound, and your inputs are directionally correct, a Value Model can often provide enough insights to provide considerable value. Do not let the desire for precision become a bottleneck. Even with limited data, Value Modeling is a useful framework for thinking about value and engaging in value discussions.