YPP 1: The Value Creation Value Capture Hierarchy
Your Pricing Project: Foundation Part One
I’ve been away.
Thinking. Struggling. Failing.
Try as I might, I've often struggled to really explain Pricing and Monetization to my clients.
Sometimes, I'm close, and they break through.
Other times. Well, nothing.
It's one thing to carry out the project. It's another to enable the client to never need another pricing consultant again. Or, at least not for a while!
This is the ask.
Feed someone fish vs teach someone how to fish.
Or whatever the actual cliche is. You know what I mean.
Is it that difficult?
Or am I just explaining it poorly?
Maybe. Maybe both? Who knows!
But either way, I needed to go back to basics:
Basics that work from the ground up.
Basics that act as a protocol for learning.
Basics that enable you to Start and Finish Your Pricing Project.
So, let's start as we mean to go on. Back to basics.
Back to Basics One:
The Value Creation Value Capture Hierarchy
If you can calculate 'Value Creation', you can negotiate 'Value Capture.'
Here's the Value Creation Value Capture Hierarchy:
Step 1 - Value Creation.
Step 2 - Measurement of Value Creation.
Step 3 - Value Capture
Step 4- Monetization.
Step 5 - Pricing.
One: What is Value Creation? [VCr]
In business, value is created by the benefits of a product or service that exceed the costs (or price to the customer).
Two: How Do You Measure Value Creation? [MVCr]
This is the calculation of the value creation from above.
Three: Value Capture [VCa]
This is the % amount of value you can capture from the value you created.
[VCr] * [VCa]%
Four: Monetization
This is the system for collecting that Value Capture.
The Value Capture Design.
Five: Pricing
This is the expression of your monetization into an easily understood unit.
For example: per seat, per unit, per month, per task, per work, per outcome
That's it.
The foundation.
In Back to Basics Two, we'll go through Value Creation.
Bye for now.