OnDemand WTP Pricing Research

Focus More on Value Capture | Harvard Business Review

Another interesting example of auctioning that is on the government side is license plates. So we have seen in several countries like Saudi Arabia or Switzerland or Russia that the government sells out very unique license plates. Like the number one or specific numbers. Maybe 88 in China. And then whoever bids the highest amount for a specific license plate gets that license plate. And sometimes the price that drivers are willing to pay is much, much, much higher than everyone would have guessed. It could be six digits, seven digits figure. And that’s a good way for the government to capture a value then apparently exists in the minds of some drivers.

JULIA KIRBY: That seems like an extreme form of what’s known as a value pricing.

STEFAN MICHEL: Correct. This is an extreme form of value-based pricing. It’s almost the perfection of value-based pricing, where you capture all the willingness to pay. Value-based pricing in most industry is not done by auctioning, but by figuring out what is the value that we create with the customer? And how can we capture that value better? And one example I use in the article is from Bossard, a Swiss company that sells screws, nuts, and bolts. Of course, they call it “fastening technology” because that sounds better than screws, nuts, and bolts. And what they have developed is a screw that is already prelubricated.

And when they price the screw, they don’t look how much does the screw cost and how much does the lubricant cost. That will be cost-based pricing. But they try to figure out how much value does it provide to the customer and industrial company who puts together coffee machines, for example. Or cars. Of not having to lubricate each and every screw. So they tried to figure out what is the value that the prelubrication has to the customer. And based on that, they set a price that creates a win-win for both parties.

Read complete article here:

Focus More on Value Capture.