Author: Fabien Cros, Co-founder of PricingForThePlanet.com
As we enter a new era of risk management, sustainability has become a critical priority for businesses across the globe. The challenges of global warming and resource scarcity demand our immediate attention, and companies that fail to adapt risk being left behind in a rapidly evolving marketplace. Pricing, in particular, has emerged as a critical key to monetizing sustainability and to helping accelerate sustainability transformations.
To this end, pricing practitioners need to arm themselves with a powerful set of tools that can help them navigate the complexities of the modern marketplace and respond to the changing consumer perceptions towards sustainability. From conjoint analysis and willingness to pay studies to usage-based pricing, subscription pricing, consumption-based pricing, and value-based pricing, there are a variety of techniques that can help businesses monetize sustainability and improve their bottom line.
Yet, many companies are not discussing sustainability monetization or just relying on outdated pricing strategies. This lack of maturity in pricing not only undermines sustainability efforts but also leaves businesses struggling to compete in an increasingly crowded and competitive market.
In this article, we breakdown the toolbox for pricing practitioners who are willing to monetize sustainability. We examine the latest pricing strategies and techniques, exploring how they can be used to help businesses adapt to the changing landscape and capitalize on the growing demand for sustainable products and services. By doing so, we can help companies invest even more in sustainability and make this transformation more impactful.
In the context of sustainability, value-based pricing is paramount.
In today's business landscape, sustainability has become an increasingly important priority for companies of all sizes and industries. As consumers become more aware of environmental issues and seek out sustainable products and services, businesses must adapt their practices and offerings to meet this growing demand. Value-based pricing is a strategy that seeks to capture the value that a product or service provides to the customer. It takes into account factors such as the customer's willingness to pay, the monetary benefits that the product or service provides, and the competitive landscape at the customer segment level. By doing so, value-based pricing allows businesses to set prices that reflect the true value of their offerings, rather than simply relying on cost-based pricing.
In the context of sustainability, value-based pricing is paramount. For the end user, it is difficult to communicate the benefits of sustainable products and services without framing them in terms of economic value. Consumers are usually willing to pay more for sustainable products and services, but they need to understand the value that they are getting in return.
Value-based pricing also provides businesses with a powerful tool for promoting sustainability. By setting prices that reflect the value of sustainable products and services, businesses can encourage consumers to choose these offerings over less sustainable alternatives. This, in turn, can help drive demand for sustainable products and services and encourage other businesses to embrace sustainability as well.
The first drawer of the toolbox: an understanding of the circular economy
The circular economy seeks to minimize waste and maximize the use of resources by keeping materials and products in use for as long as possible. Pricing practitioners must understand the importance of designing products and services with end-of-life in mind. This means considering the entire lifecycle of a product or service, from production to disposal, and finding ways to reduce waste and increase efficiency at every stage.
Additionally, they must work closely with other areas of their company, such as supply chain and procurement, to ensure that sustainable practices are being implemented throughout the entire organization. This includes understanding the sustainable engagements and activities being made internally and by suppliers, as well as the perception of customers towards sustainability.
By incorporating circular economy principles into pricing strategies, businesses can reduce costs, increase efficiency, and minimize waste, while also promoting sustainability. This can lead to a competitive advantage in the marketplace and a more positive perception among customers who are increasingly concerned with environmental issues.
The Second Drawer of the Toolbox: Pricing Research
In the pricing practitioner's toolbox, pricing research studies play a critical role in helping businesses monetize sustainability. These studies provide businesses with insights into consumer behavior, preferences, and willingness to pay for sustainable products and services.
One common type of pricing study is willingness to pay (WTP) studies. These studies seek to understand how much consumers are willing to pay for a particular product or service. By conducting WTP studies, businesses can gain insights into consumer demand and set prices that are in line with what customers are willing to pay. This, in turn, can help businesses maximize their revenue while also promoting sustainable offerings.
For example, you have the Van Westendorp price sensitivity meter. This study helps businesses determine the optimal price range for their offerings by asking consumers simple questions. By analyzing the results of the study, businesses can determine the sweet spot for pricing that balances consumer demand and profit margins.
Another example is the Gabor-Granger pricing model. It involves presenting consumers with a range of prices for a particular product or service and asking them to indicate which price they would be willing to pay. This helps businesses identify the optimal price point for their offerings and understand how price affects consumer demand.
A third example would be a pricing conjoint analysis. This one is a research method used to determine how consumers value different features of a product and how they trade off one feature for another when making purchase decisions.
Overall, pricing studies are a critical tool in the pricing practitioner's toolbox. They provide businesses with real-life data points that help them understand consumer behavior, preferences, and willingness to pay for sustainable options and business models. By leveraging pricing studies, businesses can set prices that are in line with consumer demand, maximize revenue, and promote sustainability.
The Third Drawer of the Toolbox: Pricing Analytics
Pricing analytics are a third component of the pricing strategist's toolbox, providing businesses with the ability to monitor the impact of pricing on customer behavior and measure the effectiveness of pricing strategies as quickly as possible.
Pricing analytics can be used to track changes in demand for sustainable products and services as prices change, allowing businesses to identify the optimal price point that maximizes revenue while also promoting sustainability. This data can be used to adjust pricing strategies in real-time, ensuring that businesses are always providing the best value to customers.
Additionally, pricing analytics can be used to monitor competitor pricing and identify opportunities for businesses to differentiate themselves in the market. By comparing pricing strategies and identifying areas where competitors may be underpricing or overpricing their offerings, businesses can adjust their own pricing strategies to gain a competitive advantage.
The Fourth Drawer of the Toolbox: The Test and Learn Methodology.
Test and learn involves creating experiments or trials to gather data on how customers respond to different pricing strategies or product features. This allows you to make informed decisions based on empirical evidence rather than assumptions or guesswork. By testing different pricing and product options, you can identify the most effective strategies for achieving your goals, such as maximizing revenue or increasing customer satisfaction. This iterative process of testing and refining can help you create sustainable products and services that meet the needs of your customers and drive business growth. By continually testing and learning, you can adapt to changes in the market and stay ahead of the competition.
In addition to creating sustainable products and services, test and learn can also provide valuable insights to the R&D and engineering teams. By collecting data on customer behaviors and preferences, the pricing team can provide valuable feedback to other teams about which features or designs are most appealing to customers. This information can inform future product development and help ensure new products meet market needs. By leveraging the insights gained through test and learning, the pricing team can contribute to the overall success of the organization and help create products that truly resonate with customers.
The Last and Fifth Drawer of the Toolbox: Innovative Eyes to Challenge and Re invite Business Models.
The fifth and final drawer of the pricing strategist's toolbox in a sustainable world is the ability to challenge and re-invite business models around sustainability. To successfully monetize sustainable products and services, pricing strategists must be capable of challenging the status quo and proposing new ways to approach pricing.
This means exploring innovative pricing models such as usage-based pricing or subscription-based pricing, which can help promote sustainable behaviors and reduce waste. It also means being open to rethinking existing pricing strategies and business models to ensure they align with sustainable principles.
Pricing strategists must be innovative in their thinking and willing to take risks to drive positive change. By challenging existing business models and embracing new approaches to pricing, they can help businesses to create sustainable offerings that meet the evolving needs and expectations of customers.
In conclusion, pricing is a critical tool for monetizing sustainability, but it requires a comprehensive and innovative toolbox. Pricing practitioners must be able to incorporate various pricing methodologies and analytics, as well as understand the circular economy and work closely with other areas of their company to ensure sustainable engagement. By having a seat at the sustainability table, pricing professionals can bring the very best monetization practices to make sure sustainability does not just become a compliance play with a strong internal cost focus. Sustainability can be a strong corporate differentiator. When monetized it can bring a real impact to the bottom line. To learn more about how to monetize and price sustainability, join us live for a PPS webinar on April 4th, 2023 at 10am US EST. Register here: https://www.crowdcast.io/e/pricing-for-the-planet-w/register
No idea where to start? Contact Fabien Cros, Co-founder of PricingForThePlanet.com