In the vast majority of industrial companies, prices are set unsystematically, using the cost-plus and competition methods. As a result, profit potential is left on the table at many companies. Customer-centric pricing in industry makes it possible to determine optimal willingness to pay, the weighting of the individual value drivers, and a possible segmentation. Our client wanted to align its pricing to the customer, build pricing competencies, and strengthen sales in this area.
In collaboration with CustomersX®, a pricing process was developed. The various stakeholders were involved and pricing was located within sales. Price-measurement competencies were established and practised using a pilot. A pricing strategy and an implementation plan were also developed. As a result, the industrial company was able to increase profit by 8% in the first year.
Customer Value-based Decision Making
Customer-centric Transformation
Co-Creation
Customer Management
It's always surprising how much companies invest in the individual communication instruments but not in pricing — even though pricing is the most powerful lever. Pricing in industry usually faces the challenge that the assortment is very large, the individual offerings come in several variants, and numerous services are offered. Comparing this with the academic recommendations and the popular publications, it's easy to get the impression that customer-centric pricing in industry is barely possible.
To establish customer-centric pricing, we use our DTC approach. We not infrequently find that customer-centric pricing is reduced to methods for measuring customers' willingness to pay. And since not every method works for every company, confusion can easily arise. But customer-centric pricing isn't only about willingness to pay and price elasticity (which are certainly at its core). It's also about identifying the underlying value drivers and possible price-differentiation options — combined with a customer-value-increasing approach to discount management. Based on our pricing consulting, we proceeded in four steps.
As a first step
the starting situation was analysed comprehensively. The initial focus was on developing systematic pricing and placing pricing within the responsibility of sales. This quickly caused irritation — that sales should set the prices. But only through this change does it become clear to sales that the company's goals can be achieved either through more volume or through more systematic pricing. The sales team must therefore determine the optimal challenge for each coming year, naturally in coordination with product management. This reduces resistance, since most sales teams fundamentally need to strengthen their pricing competencies. The pricing strategy and a pricing methodology were then determined for the company in collaboration with all relevant departments. Here it's especially important to safeguard the price positioning (brand strength) and to identify possible conflicts of price differentiation early.
As a second step
the company's employees were thoroughly trained. Communication and the service area should also be included in this training, not just product management and sales. A customer survey was then conducted in order to underpin the general pricing strategy with customer insights. A lighthouse project was also defined so that a concrete added value of the new pricing competencies could be demonstrated right at the start. Otherwise, pricing in industry can quickly get lost in the daily grind.
As a third step
the company's pricing strategy was optimised. The customer insights from the survey (willingness to pay, price elasticities, value-driver importance and different price segments) were compared with internal data such as customer value. This information was used, for example, to systematise cross-selling or to increase the value of D customers and parts of the C customers. A central insight in a customer-centric pricing project — and this was the case here too — is that, until then, communication and sales had been using terms that don't strongly support customers' willingness to pay. Customer-centric pricing can unfold its full power when the offering and the communication are aligned to the value drivers from the customers' perspective. Here, price measurement among customers delivers the greatest added value. A system for price differentiation by customer value and an understandable price model were also developed. As a result, the industrial company had a clear pricing methodology.
As a final step
implementation support was provided. The price-measurement training was repeated. A roadmap was developed for how to further develop pricing within the company over the coming years, and price controlling was established. A playbook was also developed for implementing the pricing strategy and the lighthouse project. As a result, the company was able to increase profit by 8% in the first year and is continuing to work on improving it further.
In summary
customer-centric pricing in industry offers very great added value. But it isn't enough to run just one project and optimise the prices of individual offerings. Pricing has to be established within the company, and sales in particular has to be given far more responsibility. This requires management to recognise the value of customer-centric pricing in industry, and sales to be oriented not towards revenue but towards profit growth.
*We take confidentiality towards our clients seriously. The name has been changed; the results are real.
