LeveragePoint has recently made available two key articles by Gerald E. Smith and Tom Nagle on the Resources page of their website.
“Pricing the Differential” first published in Marketing Management, May/June 2005, published by the American Marketing Association.
Summary: Customer value mapping (CVM) and economic value modeling (EVM – often referred to as Economic Value Estimation or EVE) are held up as alternative means to setting price. But their use leads to very different pricing outcomes. In this first of a two-part series, the authors show that CVM results in a series of consistent pricing biases that lead firms to get paid less for the differential value they create, especially with the market introduction of new, highly differentiated products, features, or services.
“A Question of Value” Marketing Management, July/August 2005, published by the American Marketing Association
Summary: In this second of a two-part series, the authors show how economic value modeling (EVM – often referred to as Economic Value Estimation or EVE) is superior to customer value mapping (CVM) for setting price. EVM properly distinguishes between the value of highly differentiated product benefits vs. generally commoditized benefits. It calculates the savings and gains that comprise the product’s actual economic value. The result is more robust and more accurate pricing that recognizes the true differentiation value of the product.
These articles are referenced in Chapter 2 – Value Creation of The Strategy and Tactics of Pricing Fifth Edition. We hope that over time other classic pricing articles can be made available.
