value-stick

Value Stick Analysis

When to Apply

• Pricing decisions or reviews
• Customer says "too expensive"
• Margin analysis or improvement needed
• Multi-tier or freemium pricing strategy
• Strategy Kernel diagnosis involving revenue or pricing

Core Framework

4-Layer Model

WTP (Willingness To Pay) ----------- top of stick
  |
  |  Customer Delight = WTP - Price
  |  (surplus given to customers)
  |
Price ---------------------------------
  |
  |  Firm Margin = Price - Cost
  |  (what the company keeps)
  |
Cost ----------------------------------
  |
  |  Employee/Supplier Satisfaction = Cost - WTS
  |  (surplus given to workers/suppliers)
  |
WTS (Willingness To Sell) ----------- bottom of stick

All strategy reduces to this single bar. Everything — pricing, compensation, supplier negotiation — is how the bar is sliced.

Value Stick Diagnostic

When revenue, pricing, or margin issues surface, diagnose:

WTP (estimated from conversations + alternatives):  $200/mo
Price (actual):                                      $49/mo
Cost (COGS + SGA per customer):                     $30/mo
WTS (min suppliers/employees accept):               $20/mo

Customer Delight: $200 - $49 = $151  (giving away 76% of value)
Firm Margin:      $49 - $30  = $19   (capturing only 11%)
Supplier Surplus:  $30 - $20 = $10

3 Diagnostic Patterns

Pattern	Diagnosis	Response
WTP too low (stick too short)	Customers don't value product enough	"Not a pricing problem. Improve the product to raise WTP."
WTP high, price too low (delight giveaway)	Value capture failure	"Raise price or add premium tier. You've earned the right to charge more."
Cost too high (margin squeezed)	Operational problem	"Lower WTS through non-cash value (culture, equity, mission) or reduce COGS."

"Too Expensive" Reframe

When customers say "too expensive," do NOT default to "lower the price."

First ask: Is WTP genuinely below the price (product problem), or is the customer anchored to a lower reference point (perception problem)?