Service design and pricing

When I got the chance to invite a key-note speaker for our Breakfast Seminar last September, I did not hesitate to contact Taneli Heinonen. Taneli is an ethnographer and the founder of Insight Delivery, and he helps companies understand people as cultural and social beings and make better decisions concerning strategy, brands, and the design of new services.

I have had the pleasure of working with Taneli in my previous role as Director, Product & Pricing at VR. Based on our shared experiences, we believe that service design and pricing can and should complement each other in development projects aiming to create new, commercially viable customer experiences. This co-authored blog series explains our reasoning.

Service design is trending, and pricing is increasingly considered a key focus area

During the past decade, a wide range of service design methods has become more and more prevalent in business development initiatives in Finland. On the other hand, companies also increasingly see the value of focusing on pricing as a key lever impacting their profitability and are hiring Pricing Managers. 

To provide excellent customer experience, companies must take a holistic view of how different parts of their offering create value to their customers and generate profits for the company. A deep understanding of the customer experience is crucial for making the right decisions on which elements to add or enhance – and which to take out.

Service design and pricing experts don’t cooperate as much as they should

Both service design and pricing are essential for business development, but how does the cooperation between these two practices currently seem? The short answer is poor, most often practically non-existent. There are too little interaction and teamwork done between service design and pricing experts. 

Some astute companies have recently enhanced their service design teams by introducing more analytics to the equation by hiring business designers. However, the explicit links between service design and the pricing strategy remain weak. Taneli sees that in Finland, service design has become a term used as a loose synonym for all sorts of customer-centric development efforts. These share a common idea of beginning with some form of a qualitative study, followed by ideation and lead to a number of conceptual recommendations. 

Service designers bravely pursuit the generalist path, trying to find and solve a wide range of issues by improving customer experience and using the everyday life of the customers as a valuable starting point. It's usually a worthy objective for the company but does not guarantee in itself that acting on the recommendations is a profitable business. 

Pricing experts ensure a solid business case for innovative concepts

Based on our experience, the best practice is for service designers to join forces with pricing experts, who are skilled at systematically analyzing transactional sales data and agreements to supplement the qualitative research with valuable data-driven insights. Pricing-focused current state analysis provides a solid base for the multidisciplinary development team. Everyone has a clear understanding of differences in demand and profitability within the current offering portfolio.  

In addition to identifying the top sellers and profit drivers, this analysis also helps identify potential elements that could be phased out. For example, low-demand elements that are costly to provide – or elements for which demand has been generated only at loss-making price levels - should be analyzed in more detail. Team members involved in customer research can then keep such findings in mind, and aim to gain more insights to understand whether this lack of demand is likely due to low perceived value or perhaps a lack of awareness about the product or service. This understanding can then be used in making decisions about continuing or discontinuing the service or product in question.

Beginning a service design initiative by a combination of qualitative customer research and a quantitative, pricing-focused current state analysis helps ensure that the new, innovative concepts or proposed changes to the existing offering can be backed up with a solid business case 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: 

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Authors

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.