What Is Value Management V1 11082012

What is Value Management?
(And why you should care)

November 2012
A position paper from an open group of value management practitioners and consultants.
(See final page for participants.)
“The final question needed in order to come to grips with business purpose and
business mission is: “What is value to the customer?” It may be the most important
question. Yet it is the one least often asked. One reason is that managers are quite
sure that they know the answer. Value is what they, in their business, define as
quality. But this is almost always the wrong definition. The customer never buys a
product. By definition the customer buys the satisfaction of a want. He buys value.”
Peter Drucker, Management: Tasks, Responsibilities, Practices, 1993
Value Management: The management discipline of providing value to customers while ensuring that
providing value results in profit. Value management is a holistic approach that
results in alignment between product management, marketing, pricing, sales
and other business functions. The goal is sustainable and profitable revenue
growth.
Popular Tags for Twitter, LinkedIn and Google+

#valuemgmt #valueprop #pricing #marketing #sales #innovation #proddev
What is Value Management? (And why you should care.)

Creative Commons (cc) CC BY-ND 3.0 2012
By the Value Management Advocates
Page 1
Value management and its related disciplines have become a hot topic in the business press, within
leading companies and among consultants. Advocates, and we are among them, assert that value
creation and capture can and should be what companies optimize. By value is meant the value provided
to customers, not the value extracted from customers or shareholder value. Value management is a
holistic discipline that supports the cycle of Create → Communicate → Capture → Assess Customer
Value, all based on a foundation of Understanding. This cycle is sketched in Figure 1: The Value
Management Cycle.
Figure 1: The Value Management Cycle
What is Value?
Value can be a slippery term and it is used in many different ways. In value management the term is
understood as follows:
 Value is relative to an alternative – value cannot be judged in isolation.

 Value is composite and decomposable – value can be analyzed into a set of value drivers.
 There is more than one aspect of value – in B2B the most important aspect is the economic, but
other aspects such as the emotional, environmental and social value can also be considered.
 Value can be quantified – economic value can be quantified in a currency, other aspects have
their own forms of quantification such as Quality Adjusted Life Years in healthcare or Carbon
Footprint for green solutions.

Page 2
The standard way to quantify economic value is shown in Figure 2: A Standard Economic Value Model.
Figure 2: A Standard Economic Value Model
There should be a mapping from the value metric (the way in which the customer gets value) to the
pricing metric (the way in which the seller charges for value). For example, the value of a surface coating
may derive from the area covered, while the price may be quoted in volume.
Value management relies on multiple streams of information from inside and outside the company.
Both internal and external perspectives are necessary. Information about customers, competitors,
demand, offers, costs and production constraints are all used in value management.
How will Value Management benefit my company?
Value management delivers profitable growth. It does so in the following ways:
 Innovation is focused on products and services that provide value to the customer
(innovation that does not provide additional value relative to the best alternatives is money that
is thrown away)
 Markets are segmented and pricing architecture structured around how the customer gets value
(this helps to maximize prices across the full range of potential customers)
 Value is communicated in marketing messages
(so that messages can rise above the noise of generalized claims)
 Prices are based on how and how much value customers get from your solution
( helping to manage discounting and commoditization pressure)
 Sales negotiations are shifted from demands about price to tradeoffs on value
(controlling discounting and managing costs)

Page 3
Value management shifts innovation from a feature-cost orientation to a customer-value orientation as
is shown in Figure 3: Moving to a Customer-Value Orientation.
Figure 3: Moving to a Customer-Value Orientation
What disciplines are based on value management?
Value management is being applied with great success in many sectors, from specialty chemicals and
building materials, to software and medical technology. It is applicable anywhere there is meaningful
differentiation between offers for buyers. It is primarily used in business-to-business (B2B) but can be
applied in business-to-consumer (B2C) when economic factors shape buying decisions. And remember
that for a consumer goods company, selling to a distributor or retailer is a B2B relationship.
Value-Based Marketing Marketing based on insights about customer value. This can
include everything from segmentation and targeting to the
construction of specific value messages.
Value-Based Pricing A Value-Based Price is designed and communicated such that all
parties understand, recognize and accept the distinctive worth
of products and services purchased in the transaction and
participate optimally in the gains created by their use. Pricing
metrics are based on or can be converted to value metrics.
Offers are constructed so that customers that receive similar
amounts of value in similar ways are in the same price segment.
Discounting policies are based on differences in differentiation
value or on decisions to invest in a target customer or segment.

Page 4
Value-Based Product Management The use of customer value to shape decisions on product and
feature investment and to guide understanding of the target
customer’s business needs. One can begin product
development by creating a ‘target value model’ and then
validate this aspiration. Value models are also used in many
stage gate processes. The value drivers in the models can be
used in market segmentation.
Value-Based Selling Customers are targeted based on value drivers and

differentiation value. Value messages (based on value drivers)
are used in the sales process. Information about customers and
competitors that can be used to evolve value models is
captured in the selling process. Offers are constructed and
prices negotiated based on differentiation value.
What should I do next?
 Join the Professional Pricing Society Group on LinkedIn and engage in the conversation.
 Read one or more of the books on the field.
 Contact one of the people on the next page.

Page 5
Value Management Advocates
Ed Arnold Harry Macdivitt
Jerry Bernstein Gautam Mahajan
Patrick Campbell Augustin Manchon
Steven Forth Aaron Miller
Jim Geisman Reg Nordman
Adrienne Gordon Chris Provines
Andreas Hinterhuber Dick Sobel
John Hogan Mark Stiving
Chris Hopf Mike Wilkinson
Vernon Lennon III Ralph Zuponcic
Stephan Liozu
(Please contact Steven Forth if you would like to endorse this position paper and add your name to this
list steven.forth@gmail.com.)

Page 6

What Is Value Management V1 11082012

Uploaded by

Copyright:

Available Formats

What Is Value Management V1 11082012

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

What Is Value Management V1 11082012

Uploaded by

Copyright:

Available Formats

What is Value Management?

(And why you should care)

Peter Drucker, Management: Tasks, Responsibilities, Practices, 1993

Popular Tags for Twitter, LinkedIn and Google+

What is Value Management? (And why you should care.)

Figure 1: The Value Management Cycle

 Value is relative to an alternative – value cannot be judged in isolation.

What is Value Management? (And why you should care.)

Figure 2: A Standard Economic Value Model

How will Value Management benefit my company?

Value management delivers profitable growth. It does so in the following ways:

What is Value Management? (And why you should care.)

Figure 3: Moving to a Customer-Value Orientation

What disciplines are based on value management?

What is Value Management? (And why you should care.)

Value-Based Selling Customers are targeted based on value drivers and

What should I do next?

What is Value Management? (And why you should care.)

Ed Arnold Harry Macdivitt

Jerry Bernstein Gautam Mahajan

Patrick Campbell Augustin Manchon

Steven Forth Aaron Miller

Jim Geisman Reg Nordman

Adrienne Gordon Chris Provines

Andreas Hinterhuber Dick Sobel

John Hogan Mark Stiving

Chris Hopf Mike Wilkinson

Vernon Lennon III Ralph Zuponcic

What is Value Management? (And why you should care.)

You might also like