?? Sunday Reflection: Time to Rethink Our Pricing Habits?

In many industries, services are still priced based on time and resources - but should we instead focus on the value created for the customer? It may be time to revisit how we think about pricing and explore alternatives that better reflect today’s business realities.

There are countless pricing strategies to consider, and some could be adapted to new contexts. Could the freemium model, common in SaaS offerings, find a place in consulting services - offering basic services for free while premium features or services attract paying customers?

Holistic pricing strategies also open up opportunities for innovation. Consider the example of a Swedish contractor who won a highway construction bid by offering a much lower price in exchange for owning the sensors embedded in the road. These sensors could later be used for road pricing or other use cases, showcasing how forward-thinking approaches can create value beyond the initial project. This illustrates how pricing innovation can create long-term value for all stakeholders.

Some Real-Life Pricing Variations:

1. Pablo Picasso’s Napkin Story

When asked to sketch on a napkin, Picasso requested a substantial fee despite completing it quickly. When the customer objected, Picasso replied, “No, it took me 40 years.” This underscores how expertise often outweighs the time spent. Source: quoteinvestigator.com

2. Nike’s “Swoosh” Logo

Carolyn Davidson created the iconic logo in 1971 and was initially paid $35 based on time spent. Later, Nike gave her shares when the logo’s value became clear - a reminder that creativity often outlasts its price tag. This highlights how value evolves over time. Source: en.wikipedia.org

3. Voice-to-Text Technology

A voice recognition technology I worked with 20 years ago was priced on the value it created for customers. This outcome-based model sparked debates that challenged norms, proving that aligning pricing with outcomes can reshape markets.

4. FinOps and “No Cure/No Pay”

I once proposed a “No Cure/No Pay” model in FinOps, sharing value realization with a client. Although rejected for complicating procurement, it highlighted traditional views clashing with innovative ideas - showing how pricing change can face resistance but also spark meaningful dialogue.

5. Markbr?d in Helsing?r

My local micro-bakery, Markbr?d, produces some of the finest bread in the region. Their prices are higher, but they’ve established their own category of quality. Locals line up in the mornings to buy their bread - a testament to the fact that when you set the standard, you also set the terms. This perfectly illustrates quality-based pricing in action.

A Framework of Four Pricing Models

These examples align with different pricing strategies:

• ?? Quantity-Based Pricing: Tied to units sold or consumed.
• ?? Outcome-Based Pricing: Aligns price with results achieved for the customer.
• ?? Value-Based Pricing: Reflects the perceived value to the customer.
• ? Quality-Based Pricing: Tied to the craftsmanship or uniqueness of a product or service.

Pricing is only truly impactful when part of a broader context - product, place, people, processes, promotion, and more. This holistic approach ensures that pricing aligns with the overall value proposition.

If You’re Rethinking Pricing

If you want to give your pricing a sanity check, there are countless books and resources to explore - but I’d actually recommend starting with Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne. The book champions creating your own space instead of engaging in price wars, emphasizing value innovation as the foundation for unmatched customer experiences.

From my own experience, adopting a Blue Ocean mindset is far from a walk in the park, but it’s an exciting process that truly never ends. The journey of continuously redefining value and space is as rewarding as it is challenging.

Are We Ready for the Change?

To embrace value-based pricing, we must rethink how we measure success. It’s not about resources consumed - it’s about the value delivered.

?? The more differentiated you are, the better your chances of finding a pricing model that reflects your true value.

How will you rethink pricing in your business?

Feel free to share your comments below or drop me a PM with your experiences - I’d love to hear your thoughts!

Happy Sunday. ??

#SundayReflections #PricingStrategies