Pricing capability at Beta

I dokument Pricing Capability and Its Strategic Dimensions Hallberg, Niklas Lars (sidor 163-167)

6. Pricing capability in the corrugated packaging industry

6.3 Beta

6.3.7 Pricing capability at Beta

The part of the local packaging industry serviced by Beta was character-ized by service differentiation driven by large electronics companies and contract manufacturers that required complete packaging solutions, ex-tensive service, and in some cases, outsourcing of the entire packaging

function. Beta’s strategic position was based on a close relationship with the electronics segment, which had created a differentiation opportu-nity based on the specific requirements of this segment. This enabled Beta to develop a product portfolio that was not directly comparable to any of its major competitors and hard for customers to benchmark based on price. The fact that the product offer contained extensive ser-vice components (sourcing of different packaging materials, integration, etc.) that were less associated with paper prices and processing costs led Beta away from a traditional efficiency and cost-oriented focus towards a value-based strategy. The strategic position briefly recapitulated above partly explains the type of pricing policy found at Beta.

Beta’s pricing policy can be labeled Value-based pricing. The objective and outcome of this policy was price discrimination (in terms of cap-turing commercial opportunities as they occurred). This outcome was achieved by setting the price in a highly flexible manner according to an assessment of the individual customer’s willingness-to-pay in each situa-tion. Naturally, this resulted in prices that varied significantly across customers that attributed differential levels of value to the product. Key characteristics of the pricing policy at Beta are displayed in Table 6.8.

Table 6.8 Key characteristics of pricing policy at Beta.

Characteristic Observation at Beta

Label Value-based pricing

Key dimensions

Price discrimination Prices are highly flexible to individual customer’s willingness-to-pay and competitive situation

Price elasticity lever-age

Prices are based on an assessment of market factors affecting the cus-tomer’s willingness-to-pay and the competitive situation (using added value on material costs as a key parameter)

Operating leverage Costs have a very limited impact on price Reported benefits Price discrimination

The pricing process at Beta was primarily characterized by a strong fo-cus on activities related to the preparation work or routing done by the account team and the team-based discussions leading up to a decision on the added-value to use for pricing the order. Hence, desired levels of price discrimination were achieved through, in the first step, exerting

significant resources routing each new project to make sure that it was both technically and commercially well positioned towards the targeted market segment and the value drivers in that segment. The second step implied choosing an amount of added-value that matched the actual level of perceived benefit inherent in the offer. Both these activities were externally oriented and focused on the market viability of the of-fer, while the role of production costs was downplayed. The key pricing activities are outlined in Table 6.9.

Table 6.9 Pricing activities at Beta.

Pricing activities Observation at Beta

Evaluation and planning

(not a key activity) Customer

assess-ment

Key activity

Highly flexible and idiographic team-based assessment of each new account Preliminary pricing

decision

Key activity

Price is set based on customer’s willingness-to-pay which is assessed in a team-based investigation and specified in terms of added value

Negotiation (not a key activity)

The key pricing activities summarized above were enabled by a particu-lar set of capability elements that have been introduced throughout the case. These capability elements are listed in Table 6.10.

Table 6.10 Pricing capability elements observed at Beta.

Type of capability elements

Observation at Beta

1. IT-based systems (not a key element) 2. Price parameters Added value

3. Commercial organization National-level account team-based organization

4. Pricing authority Pricing authority held by sales & marketing manager (and key account managers)

5. Incentive controlling arrangements

(not a key element)

6. Commercial experience Identifying commercially well positioned solutions and their corre-sponding added value

The pricing capability at Beta was, as indicated by the type of pricing activities performed, centered on the routing of new projects and the assessment of what added-value to use when pricing individual orders.

The key elements enabling these activities are stated in Table 6.10. The most fundamental forms of capital identified in the case were the com-mercial experience of the sales and marketing manager and the key ac-count managers together with different elements related to the organ-izational set-up, including the use of a national key account team or-ganization (instead of traditional sales oror-ganization with external and internal sales reps), and the routinized use of added-value as a key pric-ing parameter (instead of costs). A strikpric-ing attribute of elements identi-fied at Beta were the lack of systems. Instead of cementing the genera-tion and use of particular informagenera-tion needed in the pricing decision in a technical system, such as a costing system, Beta relied extensively on the ability of individuals within the organization to gather and put this information to use. Correspondingly, the type of control over individ-ual behavior that was accomplished by tying action to the technical at-tributes of a system, was accomplished with organizational means, such as having all pricing decisions made by a small group of key account managers at one location under the close supervision of the sales and marketing manager. However, the primary reason for the lack of sys-temization and formal regulation was, as has been highlighted through-out the case, the explicit objective of Beta to achieve a pricing policy that was greatly adaptable to the individual situation and the customer’s willingness-to-pay. In the case of Beta this meant sacrificing elements of formal control and systematized information gathering.

The case presents several indications regarding the dynamic process by which Beta’s pricing capability emerged. Central to this process were the early established ties to the local electronics segment and develop-ment of the service eledevelop-ment in the customer offer according to the seg-ment’s special needs. This process resulted in a non-comparable prod-uct offer with important service elements, which because of the lack of correlation between tangible costs (such as material costs) and the ac-tual resources consumed by the product offer, was badly suited for cost-plus profit pricing. A natural alternative to cost-based pricing was to more directly focus on the customer’s willingness-to-pay in each order situation, thus, assessing the characteristics of the customer and factors related to the relative benefits the customer received from the offer.

Hence, the type of pricing practices observed at Beta can, to a large ex-tent, be attributed to characteristics of the industry environment and the fact that many large electronics companies and contract manufac-turers moved their manufacturing in the nineties (during the same time as local operations were set up). Another reason was the particular managerial initiative of breaking with the long tradition of efficiency and cost-oriented approaches to pricing that were commonplace in SCAP.

I dokument Pricing Capability and Its Strategic Dimensions Hallberg, Niklas Lars (sidor 163-167)