How can pricing analysis build a strong foundation for the development of new products or services? This is the topic of our second 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 final blog post Customer insights are fundamental for good pricing decisions.
Keep the business case in mind from the start of your service design project
Many service design initiatives end with a steering group meeting where the team presents its' ideas for new service concepts. The presentation describes in detail what kinds of customer jobs the concepts get done or the problems they resolve, or how they make life better for customers.
The presentation of the design team typically covers the value proposition, distribution channels, and some of the required resources following the general idea of the business model canvas. What these presentations frequently miss are the references to pricing and solid arguments for the business case.
After the final presentations of design projects, there is plenty of work to do. Someone needs to construct a business case that covers the costs of providing the service, expected revenues, and profit margins. You also have to analyze how new offering fits with the existing product/service portfolio and what kind of adaptations need to be planned.
What the service designer believes to be a well-rounded proposal ready for implementation often comes across as a somewhat irritating problem to a management team: a potential new piece challenging to fit in an already complex offering puzzle, with an unknown or highly unpredictable impact on the commercial targets for the financial year.
Thus the proposed concepts are too often deemed infeasible or end up discontinued after brief pilot periods, wasting valuable time and resources, creating unnecessary friction and obstacles on the path to sustainable growth.
A preferable approach would be to avoid such unsatisfactory outcomes altogether by keeping the business case in mind from the beginning of the service design project.
Assess your pricing strategy every time your offering changes
The overall commercial targets and potential risks should be made clear to all participants of a service design project, and the feasibility of the ideas for new concepts should also be evaluated from the perspective of the company's strategic targets.
The development of new and improvements to existing services impact both: the customer experience and the relationships with customers. Before jumping into development initiatives, it makes sense to study the existing revenue streams that take place within these relationships. A thorough analysis of existing agreements and transaction-level billing data by pricing experts provides an essential viewpoint into the anatomy of the customer relationship.
The need to adjust the pricing strategy should be assessed every time changes are made to the overall offering. Is the particular part of the offering intended as a loss leader? Does the pricing model reflect different customer segment's willingness to pay? New ideas may well challenge the existing pricing strategy! Problems arise if the rationales for changes are lacking or if the pricing strategy is overlooked in the process. It's easier for the management to commit to the required investments when these issues are properly addressed 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:
Nora Härme is a pricing & revenue management professional and former Capacentian who played a key role in setting up the Pricing practice at our Helsinki office during 2019-2020. She currently works for Terveystalo.
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.