The Service Design Network approach to fair global pricing
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
How does one manage prices globally when the value delivered and the ability to pay can differ greatly in different markets and societies?
This question challenges many of us involved in pricing. One approach is simply defer to some simplistic estimate of Willingness to Pay and to adjust prices accordingly. This goes against value-based pricing best practices, which asks us to really understand the value being provided relative to the next best competitive alternative.
Few of us have the time or resources to conduct a full value study in all the markets we serve. Such studies generally take several months and cost anything from $30,000 to the mid six figures (if you. use a major consulting firm). Very few organizations will do this for more than two or three markets. Is there an alternative approach?
One thing we have done at Ibbaka for several of our clients is to introduce a pricing adjustment based on a set of economic metrics for each market. These often take the form of an industry x market matrix. For example, Indian IT services companies compete globally and may not require any pricing adjustment, but an Indian business that operates primarily in India in a domestic industry, say textiles, may deserve a significant discount from the standard price.
Why? It comes back to value relative to the alternative. The Indian textile company may not be able to generate as much economic value as a similar company in another market.
Other factors to consider are the community value drivers. Traditional value-based pricing is focused on the economics, which is for sure important, but we know that emotional factors play a big role in positioning, pricing power and price acceptance and cannot be ignored in customer value management. Another emerging aspect of value-based pricing is community value.
Community value is becoming increasingly important and Ibbaka is working to formalize this and make it part of customer success management. The key value driver types for community are
Social impact
Health and wellbeing
Rights and freedoms
Security and safety
Society advancements
Education
We are weaving environmental issues like climate change to this.
Community value drivers can be a reason to adjust prices in different markets when the community value is greater.
Ibbaka believes that good pricing is fair, consistent and transparent. See our post on the Arthur Ventures blog
Great Pricing is Consistent, Transparent and Fair
Adjusting prices for specific markets can be done in a way that fulfills these three goals. By indexing the price to a relevant local indicator (which can be industry specific), one moves local pricing from the ad-hoc and arbitrary to the consistent and transparent. I would argue that this approach is also fair.
Given this, I was delighted to get this email in my inbox this week.
Dear Service Design Insider,
We are more than happy to share with you that the SDN is on its way to an ever more diverse and inclusive community! With our newest initiative, the SDN Accreditation Programme has a new financially inclusive pricing structure that considers the global disparity in currency value by using the World Bank's country income index as a guiding framework. Discover the new pricing structure for accreditation along with the integration of financial inclusion for our SDN Membership and Service Design Global Conference. Having implemented financial inclusion within our network, we now have a powerful way to demonstrate our commitment to this ethos. Learn more below on all these initiatives and get involved in this vibrant community to help us become a more diverse and inclusive organization!
Happy reading, service designers!
Warmest regards,
BirgitFor the SDN community
Birgit Mager (she/her)
SDN President
This is a good approach on several levels:
Transparent: the pricing and the pricing methodology are both published
Consistent: although the pricing differs from market to market, it is adjusted based on an independent index
Fair: the value that a person will get from a service design accreditation will depend on the market they are working in, so the World Bank country income index is an appropriate index to use to adjust price
A note on service design and its relevance to value and pricing (customer value management)
Not everyone in the value and pricing profession will be familiar with service design. But we should be. Service design is the activity of planning and arranging people, infrastructure, communication and material components of a service in order to improve its quality, value and the interaction between the service provider and its users.
One of the thought leaders in service design, Majid Iqbal, has a model that connects customer experience to price, which we have written about previously: Service Design and Experience - Thoughts on Majid Iqbal's O-P/E=N Model.
Customer value management is best addressed through service design, but an approach to service design that considers how value is communicated, delivered, documented and captured in price across the customer journey.
