Pricing needs to be simple for the consumer or the client, even if the process itself is highly complex. New improvements and cases are shared in the presentation that demonstrate the road toward mass-customized pricing for an increased Pricing Power.

1. Complex Pricing…Simple Prices!
The Power of Mass-Customized Pricing
Dr. Manu CARRICANO
Director Pricing Center, EADA Business School
Director Research, Pricing Solutions Europe

2. « Harry: I'll have a number three.
Sally: I'd like the chef salad please with the oil
and vinegar on the side and
the apple pie a la mode. »
When Harry Met Sally, Rob Reiner, 1989.

3. Marketing vs. Pricing

4. Decision Protocol
Values Perceptions
Preferences
Behavioral
Intentions
Attitudes Judgement Data
Stated Protocol
Stated Preferences
Stated Intentions
BLACKBOX
Market
Behavior
Market Constraints
(budget, availability,…)
External factors (historical experience
& Socioeconomics effects)
Market
Information
Product
Attributes
What do we try to understand / model?

5. WORLD CLASS PRICING™
PROCESS MATURITY
THE
MASTER
WORLD
CLASS
L
E
V
E
L 1
Baseline
Process is
Ineffective
L
E
V
E
L 2
Internal
Process
In Place
L
E
V
E
L 4
Optimization
Processes
In Place
L
E
V
E
L
3
Value
Processes
In Place
L
E
V
E
L
5
Excellence
in
Execution
Gain
Control
Optimization
Tools
Price/Value
Analysis
30% of companies
40% of companies
<10% of companies
20% of companies
<1% of companies
Upsell & Add-on
bundling
Sell core product
Cross sell:
Mixed/Pure Bundling
Sell Integrated &
customized solutions
Sell portfolio of
solutions
PROCESS
MATURITY
LEVELS
© 2012 Pricing Solutions Ltd.

6. We need to open the black box

7. What makes it possible today?
Customer
Addressability
Advanced
Customer
Choices
Analysis
Mass-
Customized
Pricing

8. Case 1:
Pricing a Solution

9. Tested fees and fees variation:
•Fixed across scenarios
Methodology :
Adoption Scenarios
• Solutions’ first release options:
1.
2.
Add-on
Applications
3.
Add-on
Services
APP 2
APP 1
APP 3
BASE PACKAGE*
FULL SUITE OF APPS
ITEM 2
•3 service levels
ITEM 1
•3 service levels
*Required with all purchases
•Monthly Subscription Fee
•Installation Fee per Segment
•Monthly Subscription Fee
•Monthly Subscription Fee
$1.08 £0.70 0.85 €
•Range of -25% to +25%
from Base Price Level [Level
3]
•For Full Suite, range of 10%
to 30% discount rate for
bundling
Based on client case

10. Segment 2 should be the initial target of the Solution “go to market” strategy followed by Segment 1
Adoption rates decreased slightly in Segments 1, 2 and 3 at tested subscription fees
Segment 4 adoption rates increased after seeing tested subscription fees
Solution Adoption Rate
Example findings:
Adoption rates per offer structure Based on client case

11. Average % impact in Adoption Decision
Europe (N=306)
1.
2.
Add-on
Applications
3.
Add-on
Services
CARBON AND ENERGYCONTINUOUS DIAGNOSTICS
ENERGY PERFORMANCE
BASE PACKAGE*
FULL SUITE OF APPS
CARBON AND ENERGY
•3 service levels
CONTINUOUS DIAGNOSTICS
•3 service levels
*Required with all purchases
Panoptix
CARBON AND ENERGY
• Base Package installation and subscription fees impact the potential adoption of add-on
applications and services
– Adoption decision is weighted by more than half based on Base Package information
Example findings:
Elasticity per offer structure
Solution
Based on client case

12. Pricing Model
AdoptionRate
Own Price Effect Base Package Price Effect
APP1APP2APP3 Total Europe (N=306)
E= -0.2
E= -0.2
E= -0.3
E= -0.3
E= -0.2
E= -0.2
Example findings:
Elasticity per offer structure
Based on client case

13. Case 2:
Restaurant Menu
Optimization

14. Understand customer decision nodes

15. Based on client case

16. Burgers
EVM: EXTRA VALUE MEALS INCLUDES SOFT DRINK AND A CHOICE OF FRIES OR SALAD
Value Menu
Based on client case

17. Menuitembrandvalueindex
Menu item price elasticity
-0.1 -1.0 -3.0
50
150
100
Item 3
Item 4
Item 7
Item 2
Item 5
Item 6
Item 1
Long term value proposition implications
High item mix changesLow financial & value risk
Price & value insights
Based on client case

18. Menu price
Customerchoiceshare
Risk identifiers
“Tipping Point”
Based on client case

19. Modeling Optimal Combinations
Based on client case

20. Simulate
menu item
price
changes
View the
impact on
visits, sales,
margin mix…
Simulation tools
Demo simulator

21. Key Take Aways

22. Recommended
Approach

23. Survey Steps
Screening
• U&A demographic
and screening
questions
• Most recent
purchase
• Satisfaction ratings
Stage1
• Determine
cannibalization
to/from
manufacturer’s
portfolio
• Choose most
preferred
competitor Device
(Fixed price – Single
choice)
• CBC exercise with
Manufacturers
Device vs. winning
competitor Device
• Only Manufacturers
prices changing
Stage2
• Determine
choice/price
sensitivity within
the Manufacturer’s
Portfolio
• MBC exercise with
the price of all
components varying
each time
• None Option
0 1 2

24. Project Overview
Consumer
Research:
Menu-Based Choice
Experiments
Utility of each
feature & price:
For every individual
consumer
Channel / Margins
& COGS
Main Pricing
Database:
- Transactional
- Market
- Competitive
KPIs:
Market Share
Predicted Revenue
& Profit
Optimization:
Find best product
set, given
competitive
environment
SIMULATION MODEL

25. So…

26. Mass-Customized Pricing?

28. App 1
App 2
App 3
Service 1
Service 2
Service 3
Service 4
Product 1
Product 2
Product 3
Product 4
Product 5 ……
…
…
…
…
…

29. Mass-Customized Pricing:
Builds offers which are tailored
to a custmomer…

30. … and are activated by a
customer

31. As a conclusion…
Change in dynamics has meant traditional analytical
approaches such as Conjoint analysis are less valid
Rather than needing to identify the optimum product or
product line the focus is now on:
Identification of a set of features that should be
Offered ;
Understand how consumers want to customize
their product ;
The premium, if any, consumers are willing to pay
for a customized product ;
How to price each feature to simultaneously increase
customer value / revenue / profit.

32. Who wants to do Mass-
Customized Pricing?

33. Thank You!
Contact:
mcarricano@pricingsolutions.om