11 Oct What We’re Reading Now – Pricing on Purpose: Creating and Capturing Value by Ronald J. Baker
By Grant T. Smith
Would you like to read a book that will make your business more profitable, make your customers more loyal and help you focus on value? This month I have that book for you.
Pricing on Purpose: Creating and Capturing Value by Ronald J. Baker, is the book. I searched out this book because Reese Wilson (a rising star in our offices) asked if I could recommend a good book on value pricing. I told him I could not, as I was not well read on the subject, but that I would happily go find one.
Baker’s book is one of the originals and is seminal to the subject matter, especially for professional operations, like lawyers, consultants and medical professionals (not to mention accountants).
Initially, I loved this book because it does not offer seven steps to success, or key tips to the future. Instead, it puts forward existing theories and then analyzes them to see if they hold water. In this way, the author deconstructs the value of goods or services. For instance, why is a diamond worth more than a gallon of water when clearly the former is unnecessary for survival while the latter is imperative?
In this light, we review the historic viewpoint that labour creates value. Referring back to our example above – since the diamond takes more labour, it must be worth more. Does that mean then that a diamond we found would be worth less than one we mined?
Through much well-presented discussion and analysis we come to expect that the price of something is not determined by the cost of production (your new iPhone X is not priced on cost) but rather by the perceived value in the market place. For a marketer, this may seem obvious but professionals tend to focus on cost instead of value,
Just as geologists fought for decades against plate tectonics theory to explain earthquakes, and germ theory remained on the fringes of medical science until the late nineteenth century, the subjective theory of value is not widely taught, or practiced, in businesses. Yet when people see this theory explained, they intuitively understand it, because it comports to human behavior. And isn’t this what learning is all about—understanding something you have known all along, but in a new way?
-Baker, Ronald J. Pricing on Purpose: Creating and Capturing Value (Kindle Locations 2103-2107). Wiley. Kindle Edition.
I was profoundly impacted by something very simple really, the stated concept that a business only creates value when a customer says, “Can I pay for that, as I perceive value.” The author teaches us that the marketing focus should always be external – what does the customer value or desire? I remember here the words of a friend who used to say that if you know what your customer wants, you do less work because you only do that which they value.
This book goes on. First, it establishes that the client and what they value should drive pricing. This in turn drives the products or services produced and finally the costs incurred. Then, it delves into how to recognize the value of your business offerings. We come to believe that value and pricing are more of an art form than a science.
If, based on your current understanding, your business is based on the cost of the goods and services you provide to your customers, this book will help you to improve your business because:
- it will provide you with the tools and the understanding to redefine your offerings so you can provide the maximum value to your customers.
- it will support the process of realizing the value you offer and how you are likely leaving dollars on the table.
- it will reduce the amount of wasted efforts that adds little value because they are superfluous to your customers wants or need.
- it will teach you to layer or segregate your pricing structures to maximize capacity, increasing value to higher want clients and profit to those who seek lower pricing.
- it will absolutely help you differentiate your market offerings and retain greater customer retention and loyalty.
If you did not figure it out yet, I liked this book. Read on Reese.