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 — “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 ↗

Diagram — not yet drawn

A stacked bar from reference price up through each quantified value increment, with the split between what you capture and what the customer keeps drawn as the only real decision.

In the wild

Unvetted · not part of the tier assessment

What has been written about this tool in the last twelve months. Machine-retrieved and unchecked — everything above this line was checked.

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