Value Maps: A Great Tool for CPG Pricing Decisions (Part 1)
We are delighted to have guest contributor Robert Ribciuc, Managing Partner, EBITDA Catalyst introduce a very useful tool for CPG (and other) companies. His bio and contact information can be found at the end of this article.
Pricing value maps are visualization tools used by marketers and consulting firms to illustrate several linked points:
Pricing should ultimately be linked to “value,” as measured by the perception of consumers. More specifically, a buyer’s willingness-to-pay (WTP) is driven primarily by her perceived value (benefits) from buying and using the product.
By “mapping” the offerings of a brand and those of its competitors against the dimensions of value and WTP, positioning insights can be derived that can aid the firm in:
Better setting overall pricing strategy or specific price points
Determining what existing / new products are relatively advantaged (or disadvantaged) vs. those of competitors
War-gaming how to react when one or several competitors take pricing decisions or enter / exit with various new / obsolete products, thereby “altering” the map
Let’s take a look at a typical value map and see how to read it. (You can see where this data comes from in the descriptions of each axis below.)
The horizontal x-axis is Perceived Benefit and shows numerical values for each item’s perceived “value” in the minds of consumers. This is collected via survey and usually derived from consumer scorecard responses about the importance of various product benefits and their perceived relative rating of each product on each benefit.
The vertical y-axis is Price and shows known or actual prices for each item. Sometimes a choice of “which” prices to use (such as base price vs. average unit price for CPG) can be driven by what data is available, what is seen as more informative for comparison and what can be “standardized.” The best source for pricing data is actual POS data. Other sources used are online pricing scraped from retailer or manufacturer websites or consumer surveys.
The diagonal line starting at the lower left and going towards the upper right is the Value Equivalence Line (VEL). This line shows the hypothetical “fair” tradeoffs of price vs. value that best describe this category or group of products. In theory, if the measured Perceived Benefits and Price for each offering were correct and the market shares of competitors relatively stable then we would expect all offerings to lie on the VEL or really close to it. This would indicate that the market believes “you get what you pay for” with each offering. In practice this is rarely the case, however, particularly in markets with significant differentiation between offerings and benefits that are harder to “value” or efficiently communicate to consumers.
In the example above, the Client’s product is below and to the right of the VEL. This means that it lies in the “Value Advantaged” section – consumers pay less than the Benefits (or value) received would recommend as “fair” in the market. They are “getting more value for the money.” The distance from the VEL suggests that is a deeply value-advantaged position, inviting the question whether a higher price is warranted. Conversely, some of the competitors shown are above the VEL in the “Value Disadvantaged” area, suggesting they offer poor value for the price relative to the market’s overall VEL .
What can you do with this?
In CPG, value maps can and should be used to enforce value-grounded thinking in new product development, price-pack architecture decisions, and go-to-market (GTM) pricing considerations. One of the great benefits of value maps is that they funnel strategy towards a focus on benefits, perception of benefits, quantifying benefits, and solving for prices that can best harvest those benefits.
This analysis also creates a lead-in to take a “dynamic” view of the value proposition, recognizing it can evolve through market developments. As we know, consumer perceptions and behavior are constantly changing!
While the typical value map can be useful as a table-stakes tool for strategy discussions, for CPG in particular it can benefit from CPG-specific adaptations and enhancements. In Part 2 of this post we will introduce an evolved CPG-friendly take on the value map and discuss the additional insights offered and how it can improve strategic and pricing decision-making.
