Value Stick Model: WTP, Price, Cost, WTS
The Value Stick Model maps Willingness to Pay (WTP), Price, Cost, and Willingness to Sell (WTS) so you can see customer delight, firm margin, and supplier or employee surplus. Stretching the stick means raising WTP or lowering WTS. Moving Price or Cost inside an unchanged stick only reallocates val…
Framework Card
- Name:
- Value Stick Model
- Goal:
- Map Willingness to Pay, Price, Cost, and Willingness to Sell so customer delight, firm margin, and supplier or employee surplus are visible, then see whether a move creates value or only reallocates it.
- Flow:
- Willingness to Pay (WTP) → Price → Cost → Willingness to Sell (WTS)
- Best For:
- Pricing debates that ignore customer willingness to pay; Cost cuts that may be squeezing jobs or suppliers rather than true cost; Seeing who currently holds surplus among customer, firm, and suppliers or employees
Why it matters
Pricing meetings often treat “value” as a slogan for a higher price.
Cost meetings often treat “efficiency” as a slogan for paying people or suppliers less. Customer success talks about delight without a picture of how much room exists between what buyers would pay and what they pay now. People teams talk about pay without a picture of what would make the job easier to accept.
Those conversations talk past each other because the four points are not on one sketch. A price rise can be a capture move. A better product can be a creation move. They are not the same, even if both change margin.
The Value Stick is a way to put those points in order. It will not measure WTP for you, and it will not finish a compensation cycle.
What it is
Felix Oberholzer-Gee’s teaching uses a vertical stick. Top to bottom:
| Point | Meaning |
|---|---|
| WTP | The most a customer would pay for this offering |
| Price | What the customer pays |
| Cost | What the firm spends to deliver |
| WTS | The least a supplier or employee will accept to provide the input (including the job, not only a wage) |
The gaps are the three value zones:
- Customer delight: WTP minus Price
- Firm margin: Price minus Cost
- Supplier or employee surplus: Cost minus WTS
Total value is the distance from WTP down to WTS. Raising WTP (a better offering for that customer) or lowering WTS (a job or supply relationship people will accept for less hassle, risk, or toil) can grow that distance. Raising Price or cutting Cost without that stretch slides who holds surplus inside a stick that did not grow.
WTP and WTS are judgments. If you lack evidence, say so and label a guess. Do not paste a textbook number onto a market you have not looked at.
How it works
A useful pass places four points, names three zones, then labels the next move.
1. Place WTP and Price
What would this customer pay, and what do they pay? Customer delight is the gap. If Price sits above a honest WTP, you are not looking at delight. You are looking at a fragile capture.
2. Place Cost and WTS
What does delivery cost, and what will suppliers or employees accept? Employee WTS is about the whole job (toil, risk, meaning, flexibility), not only the wage line. Supplier WTS is about the terms they will keep living with.
3. Name the three zones
Write who currently holds surplus. A stick with fat margin and thin customer delight is a different political fact than the reverse.
4. Label create vs reallocate
- Create: raise WTP (better product, complement, reduced hassle for the buyer) or lower WTS (better job design, easier supplier operations) so total value can grow.
- Reallocate: move Price or Cost inside a stick that did not stretch.
Then say which you are proposing. Without that label, “optimize value” is a slogan.
How it compares
When another lens fits better, or when you need a complementary view, these frameworks do different jobs.
| Framework | What it helps you see | How it differs from the Value Stick |
|---|---|---|
| Porter’s Five Forces | Industry structure and pressure | Arena diagnosis. The stick maps surplus for an offering. |
| Business Model Canvas | How value is created, delivered, and captured | Nine blocks. The stick is four points and three gaps. |
| SWOT Analysis | Internal-external position | Fit vs environment, not WTP/WTS. |
| VRIO Framework | Whether a resource can sustain advantage | Resource gates, not surplus zones. |
The Value Stick is the lens for who holds value along WTP, Price, Cost, and WTS. Other methods help when the question is industry structure, the business model, strategic position, or a resource test.
When to Use This Framework
- Pricing debates that ignore WTP. The room wants a higher price without a story of why customers would pay more.
- Cost cuts that may be WTS cuts. Savings come from worse jobs or harsher supplier terms, not from true cost to serve.
- Seeing who holds surplus today. Customer, firm, and suppliers or employees are arguing from three different pictures.
Example
A concrete example makes the structure easier to reuse when you are under uncertainty.
Example: SaaS price increase
A B2B tool wants a 15 percent list-price rise. Sales says customers “get huge value.” Nobody has placed WTP.
A stick-shaped discussion would ask whether WTP actually sits that far above current Price (create room already there) or whether the rise is a capture that shrinks delight. If the product has not changed, and switching costs are the real story, say that. It may still be a choice. It is not the same as stretching WTP.
Example: Warehouse overtime and “cost”
Operations cuts cost by reducing headcount and stacking overtime. Margin ticks up. Quit rates rise.
On the stick, some of that “cost reduction” is a WTS move: the job got harder to accept. Surplus moved from employees to the firm, and total value may shrink if quality and continuity fall. A create-side WTS move would make the work easier to do (tools, scheduling, fewer dead-end tasks) so people will accept the job on better terms without pretending overtime is free.
Illustrative, not a measured WTP study.
Takeaway
What the Value Stick can help with
- Putting WTP, Price, Cost, and WTS on one map
- Naming customer delight, firm margin, and supplier or employee surplus
- Separating value creation (WTP up, WTS down) from reallocation (Price, Cost)
- Catching price rises and pay cuts that are labeled “value” without a stretch
What the Value Stick cannot replace
- Porter’s Five Forces. Industry attractiveness is not a surplus map for one offering.
- Business Model Canvas. Nine blocks of how the business works are not WTP/WTS.
- SWOT. Internal-external position is not the stick.
- VRIO. A resource-advantage test is not a value-split map.
- A full WTP survey or cost-accounting system. The stick organizes judgment. It does not invent precise numbers.
Honest scope: the model structures a value-split picture. It should not be sold as optimized pricing for all parties.
Frequently asked questions
No. Raising Price without raising WTP takes from customer delight. That can be a capture choice. Creating value means stretching the stick (higher WTP or lower WTS).
No. For employees, WTS is the whole job people will accept. For suppliers, it is the terms they will keep living with. Pay is part of it, not the whole point.
You need a defensible placement. If evidence is thin, label a guess. Inventing a precise WTP does not make the stick more scientific.
Five Forces diagnoses competitive pressure in an industry. The Value Stick maps how value is split on one offering among customer, firm, and suppliers or employees.
Squeezing jobs or suppliers can lower what they will accept only by making life worse, and it can shrink total value. Teaching on the stick prefers making supply or the job easier to do so WTS can fall without that squeeze. Name which you are doing.