This is the third and final blog post in our Service design and pricing blog series. Click here to read our first blog post How should pricing and service design complement each other? and here for the second blog post Don't forget the pricing strategy when developing new concepts.
The emergence of service design is linked to the ongoing transition from production of goods to services and from optimizing production to cultivating customer relationships. This trend is related to the increasing interest in value-based pricing and even the appearance of different kinds of subscription-based pricing models.
When industrial companies dream of the transformation from manufacturers of products to customer-oriented service companies, they often strive to become providers of holistic solutions. Such solutions require new kinds of pricing models, as the traditional cost+ model becomes insufficient.
Such transformations are impossible without the capability to offer exceptional value to the customer. The opportunities for doing so can be identified and realized only by a deep understanding of the customer’s everyday circumstances and related practices, needs, and aspirations. To build and offer a valuable solution, you first need to understand the problem.
How can we put a price tag on the value generated?
The methods used by service design and pricing specialists can complement each other – when used in a coordinated fashion. Coordination also applies when the solution becomes a practical pilot with real customers.
Our recommendation is to analyze the customer experience through qualitative research of real or simulated purchase and usage situations. Then you can enrich the picture by launching quantitative (often online) surveys to help decide on a pricing model and price level for the new concept.
Service design methods stress the importance of involving potential customers throughout the design process. Prototypes can be taken to real-world sites and situations to study customers' experience in a much more nuanced way than possible with an online survey.
This qualitative understanding then helps pricing specialist to choose the most appropriate quantitative survey method to further estimate potential customers’ willingness to pay. Common techniques include the van Westendorp price sensitivity meter, which results in a min-max range and an indication of the optimal price, and the conjoint method, where respondents are presented with several options with different features – one of which is the price. The choices they make help us understand how potential customers value the various features and how much they would be willing to pay for the different features.
Picture: By Levasha - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=46126719
Our hope is that in the future, price is not only an issue considered at the end of a service design project. Neither should companies create their pricing strategies solely within the realm of Excel. We believe that the most successful solutions will stem from development processes in which the collaboration between these practices is a given - right from the beginning.
Don’t hesitate to send a message via LinkedIn to Nora or Taneli if you would like to discuss the opportunities in strengthening the cooperation of pricing and service design! You can also contact us by filling the form:
Read more about service design and pricing
- How should pricing and service design complement each other?
- Don't forget the pricing strategy when developing new concepts
Nora Härme is a Senior Manager and Pricing Lead at Capacent. She has 15 years of experience from Revenue Management & Pricing within passenger transportation, both air and rail. Our Pricing team combines pricing experience with strong BI & analytics to tackle customers’ pricing challenges all the way from defining, planning and piloting to hands-on implementation.
Taneli Heinonen is an independent consultant and a teacher at Aalto University and Laurea University of Applied Sciences. He has 10+ years of consulting experience from the fields of human insights and strategic design in a wide range of industries, e.g. health care, transportation, construction, and FMCG.