6.4

Economic Value to Customer

The maximum a rational buyer should pay: the cost of their best alternative plus the quantified value of the difference you provide.

John L. Forbis & Nitin T. Mehta, McKinsey (1981)

What it does

Reference alternative's cost plus the measurable difference you create equals the value ceiling. Derives price from the customer's economics rather than your own costs.

When it breaks

Strong in B2B, meaningless for emotional or status goods. And pricing at the full calculated value leaves the customer no reason to move.

Case

Rolls-Royce's TotalCare, or “Power by the Hour”, prices engine support per flight hour rather than per repair, so the airline pays only for availability actually delivered. Rolls-Royce documents the model extending intervals between overhauls by roughly 25%.

Rolls-Royce · TotalCare ↗
Value to customer ↑ Reference alternative Downtime avoided Labour saved Longer intervals Value ceiling Nobody moves here What they pay today Where you price Customer keeps You capture
Economic Value to Customer · 6.4

In the wild

Unchecked · not part of the tier

What people have written about this tool in the last twelve months. A machine found these and nobody has read them. Everything above this line was checked by hand.

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