The Value Stick
Strategy reduces to two questions. Everything else is tactics.
A team debates pricing. Should they charge more? Less? Match the competitor who just dropped prices?
The conversation goes in circles because they’re asking the wrong question. Price captures value; it doesn’t create it. Before “what should we charge?”, ask “how can we raise what customers would pay?”
That’s the Value Stick. Four points, top to bottom:
Willingness-to-Pay (WTP) — the maximum a customer would ever pay for your product. Not what they do pay. What they would pay if you pushed them.
Price — what you actually charge.
Cost — what you pay suppliers and employees.
Willingness-to-Sell (WTS) — the minimum suppliers and employees would accept to work with you.
The gaps tell you where value goes. WTP minus Price is customer delight — value you give away to attract customers. Price minus Cost is your margin — value you capture. Cost minus WTS is supplier and employee surplus — value you give away to attract talent and inputs.
Strategy is about lengthening the stick and choosing how to divide it.
Only Two Levers
Every strategic initiative must do one of two things:
Raise WTP. Make your product more desirable. Better features, better brand, better experience. Customers will pay more because they want it more.
Lower WTS. Make your company a better place to work or a better partner to supply. Employees accept lower wages because they love the mission. Suppliers accept lower prices because you’re reliable and easy to work with.
That’s it. Every project, every meeting, every initiative should map to one of these. If it can’t, why are you doing it?
The Hidden Lever
Most strategists obsess about their own product and miss the larger system. But value pools shift — and complements are the mechanism.
When the price of a complement falls, WTP for your product rises. Cheap petrol makes cars more valuable. Great apps make phones more valuable. Fast broadband makes streaming services more valuable.
The strategic insight: invest in making complements cheaper or better, even if you don’t capture that market directly. Companies that produce their own complements can shift profit pools deliberately. Those that don’t are at the mercy of whoever does.
The Discipline
Price-sensitive customers don’t signal unavoidable market conditions. They signal weak differentiation. If customers haggle relentlessly, you haven’t raised their WTP enough. Tough customers are feedback — you haven’t given them a reason to pay more.
Lowering WTS for employees is underrated. Making work more meaningful, culture better, flexibility higher — these let you attract better people at the same wages, or the same people at lower wages. Just like raising WTP requires deep understanding of customers, lowering WTS requires intimacy with your staff and their lives.
Before your next strategy session, run this test: for every initiative on the table, ask which lever it pulls. Raises WTP? Lowers WTS? If the answer is neither, cut it. That filter alone will halve most agendas and double their strategic coherence.
Related: Third Lever · Real Choices · Reading Guide
Connects to Library: The Value Stick