The purpose of this paper is to describe and provide a guide to design and price a service offering based on customer value. The customer value proposition framework helps to convert discovered customer specific value into tangible and intangible service offering. The service offering is priced according to quantified customer values (both tangibles and intangibles). This paper describes the process of designing and supporting value-based pricing of advanced services through quantification of customer value. In particular, the framework helps to convert value offered into quantified customer-specific value, justifying the price difference between offerings and the best available alternative on the market.

1. Designing and pricing of advanced services
based on customer value
6th International Conference on Business Servitization, Barcelona 2017
17 November 2017
Dr Shaun West, Dominik Kujawski, Mario Rapaccini

2. 6th International Conference on Business Servitization, Barcelona 2017 | West, Kujawski, Rapaccini
Introduction
Problem and purpose of this presentation
… to provide a guide to design and price service offerings based on
customer value
This paper describes the
process of designing and
supporting value-based
pricing of services through
quantification of customer
value
… to describe the process and the results results of two cases
based on the pricing and design of advanced services
Purpose of this presentation
…manufacturers shift towards the provision of integrated product
service solutions solutions – how can they prices these offers?
Problem

3. 6th International Conference on Business Servitization, Barcelona 2017 | West, Kujawski, Rapaccini
The customer perceives positive net benefits by solutions and it results in a willingness to pay
Introduction
Classification of value
“..manufacturing companies are currently
competing for the identification of innovative value
propositions to position themselves in the market
and this led to a shift from providing traditional
transaction-based and towards the provision of
integrated solutions”
(Pezzotta, et al. 2014)
“…companies fail to account for collective and
relational goals in customer solutions, a
mismatch can occur between firms’ solutions
and those that customers envision”
(Epp and Price, 2011)
”prices should be coherent to the ‘value scope’
of the solution to the customer’s problem”
(Osterwalder and Pigneur, 2014)

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This model does not address value-based pricing
Introduction
Service revenue models can provide insight into the pricing on value
- Product-related services
- Use-related services
- Outcome-related services

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Internal
interviews
Qualitative
and
quantitative
form
External
interviews
Understand
end to end
sales
Customer
surveys
Collect insight
from target
group
Use cases
Internal
workshops
Pricing design
Build
prototype of
processes
Methodology
A five step methodology was applied in this study
The methodology was designed to provide the insight into a value-based pricing process

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Methodology
The two firms that were studied
Both use cases were used to develop a designing process of service offerings
Middle-sized enterprise, Swiss based
OEM clean room equipment
Global market servicing
Small-sized, Dutch based
Disruptive entrant in offshore wind bolting
Global market servicing

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Results and initial analysis
Set of internal workshops was performed to develop the process of designing and pricing
- Confirmed that input from different functions is needed
- Highlighted that different functions had different views on the customer’s price relevant dimensions
- Building prototypes helped to improve the common understanding and increased the creativity
basisThe initial basis of pricing were inward looking rather than customer oriented (cost plus)
Identification of
customer persona
Pricing dimensions
based on CVP
Building and
prototyping
solutions

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There was lack of alignment between objectives, strategies and tools
Results and analysis
External interviews show top 4 pricing objectives, strategies and tools
Competition-related
pricing
Service quality-related
pricing
Stability in the market
Financial objectives
(in general)
Market based
Cost plus
Customer value
Willingness to pay
Cost build up
Trade discounts
Customer value
Willingness to pay
Objectives Strategies Tools

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Results and initial analysis
Customer surveys provided insight about customer perspective
Customer are not the same and they should not be treated with the same approach
“We would be keen to pay twice more to not
have current problems with the product”
“Ideal case is when the product runs 6 months
correctly until the next planned maintenance”
“The offering from your firm does not change over
time, we could pay more … if you could guarantee
us the performance”

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Discussion
The three step model developed from the analysis
The model helps firms to understand and improve design and pricing of services
Customer and value
identification
Building and
prototyping
solutions
Service offering
value quantification
and pricing

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Discussion
Step 1 – Customer and value identification
Create customer value proposition for each key actor in the ecosystem
- Ecosystem mapping to identify
customers
- Create a detailed understanding of
value
- Customer value propositions help
to understand value
We need to have a common understanding of outcomes – ’need finding’ is not sufficient

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Discussion
Step 2 – Building and prototyping solutions
Each proposed solution should address the business problem
- Clear problem definition is
required
- Three solutions at least help to
identify customer value
- Compare with current as a
reference
This should be done in a group and confirmed with the customer

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Discussion
Step 3 – Service offering value quantification and pricing
The final stage of service offering value quantification using value-based pricing framework
- Different methods are needed to
home in on the value
- Willingness to pay is a best guess
- Fair price must reflect value
The margin is what is left after all of the costs have been spent

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Conclusions
The business must understand customer’s value importance pricing
It reinforces the need to understand key actors in the ecosystem
It shows the importance of value exchange and pricing dimensions
Confirms the relation of scope, price and delivered value
Quantification of customer value helps to design pricing of services
The process helps to convert
discovered customer value
into service offerings priced
according to quantified
customer value

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Recommendations
Further research and application of the process should be undertaken
More research is needed in
this area if industrial firms
are to take advantage of
designing and pricing of
service offerings
How to use visuals (or other tools) to improve understanding
Ways to create design/pricing prototypes
Ways to test design/pricing prototypes to improve understanding
The lessons need to be translated so managers can use them

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Postscript…
We have since further refined the model and have a value-scope-price model
Step 1 – Value
Step 2 – Scope
Step 3 – Price

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Thanks for your time!