Value-based Pricing and Willingness To Pay, What’s the Difference? with Steven Forth

Steven Forth is Ibbaka’s Co-Founder, CEO, and Partner. Ibbaka is a strategic pricing advisory firm. He was CEO of LeveragePoint Innovations Inc., a SaaS business.

In this episode, Steven emphasizes the importance of shaping willingness to pay by understanding and communicating real value to customers. He also highlights the role of AI and context-driven pricing in adapting to customer needs dynamically, stressing that consistent delivery and documentation of promised value are crucial for long-term retention.

Why you have to check out today’s podcast:

• Explore the nuances of pricing strategies, distinguishing between perceived, real, and proven value and how each impacts customer retention and willingness to pay.
• Learn why documenting value delivered to customers can significantly reduce churn, with actionable steps to demonstrate value in B2B sales.
• Gain insights on Context-Driven Pricing, offering a fresh approach to optimize pricing in real time.

"You need to make sure that the value you promise in sales is the value that you deliver and that you can document that value. Because if you don't do that, you're going to struggle with renewals."

- Steven Forth

Topics Covered:

02:09 - Why Steven believes that value-based pricing and willingness to pay are distinct, with value coming first shaping willingness to pay

06:19 - How techniques from behavioral economics, like anchoring, actually impact value perception rather than solely increasing willingness to pay

07:12 - Acknowledging Mark's example of using "good-better-best" as a framing strategy but argues that it’s more than just a "trick"

10:40 - Introducing his concept of generative pricing, which leverages generative AI to dynamically adjust product configurations and prices based on each buyer’s context

12:35 - Steven emphasizes the need for a clear value model rather than solely relying on AI-driven willingness-to-pay estimates

14:49 - Highlights how value is not only unique to each customer but also varies over time for the same customer

17:05 - Underscoring that willingness to pay is actively shaped by how a company communicates and delivers value

18:34 - Emphasizes the need for a value model in pricing, contrasting it with software approaches like revenue management that estimate willingness to pay without actively shaping it

20:37 - Explaining why B2B pricing cannot rely on traditional price elasticity curves

21:36 - Steven's best pricing advice

Key Takeaways:

"Willingness to pay is an outcome that you shape. It's not something that is given to you by something outside of your product and how you sell it, and that you play a huge role in defining the context." - Steven Forth

"We want people to pay a fair amount of money. If I can trick someone into paying more than something's valuable, greater than its actual value, and value in this case means the economic return they're going to get, I don't think I've done myself a service in the long term." - Steven Forth

People/Resources Mentioned:

• Pros: https://pros.com
• Pricefx: https://www.pricefx.com
• Zilliant: https://zilliant.com
• Vendavo: https://www.vendavo.com
• Tom Nagle: https://impactpricing.com/podcast/604-insights-into-value-based-pricing-strategies-for-b2b-with-tom-nagle/
• Barret Thompson: https://impactpricing.com/?s=barrett+thompson
• B.F. Skinner: https://en.wikipedia.org/wiki/B._F._Skinner