eThesis - School of Business electronic theses

Today's challenges in pricing and marketing in B2B context are multi-fold. Pricing managers and marketers have to orchestrate complex undertakings in diverse markets, which increase the likelihood of mistakenly specified and priced products. As B2B companies face greater pressure and rampant commoditization, they seek new avenues for value creation and adapt a more customer-oriented focus. Many companies seek to formulate solutions that are individualized for solving complex customer problems by combining products and services in a way that the ensuing value is more than the sum of the offering components.

Because of this shift, many companies are developing value-driven activities, such as value-based pricing, to predict changes in their customers' value perceptions and adapt the products they offer to the expected future desired value. Since the prices of offerings must capture the value-added content of the products, the customer preferences and valuations for different product offerings have to be estimated. To achieve this, maximum willingness to pay (WTP) has to be truthfully assessed. Reflecting on these dynamics, the focus of the thesis is to measure WTP of four product option packages in a Finnish-based manufacturing company and investigate factors affecting the evaluation of the price and WTP. The product option packages and their pricing allows customers who have lower WTP to purchase only the core product and forego the optional items. As valid estimates of WTP precedes the development of an optimal pricing strategy, the prices for product option packages can be roughly estimated by the distribution of price points. In this thesis, WTP question setting derived from Van Westendorp's Price Sensitivity Meter is used to determine acceptable price ranges for the determination of optimal pricing policy in the case company.

The findings of the empirical study provide numerical WTP range estimates for the option packages that can be used as a basis for the pricing strategy. As the empirical findings and the obstacles identified demonstrate, value-based pricing is difficult to implement, as it requires a quite different approach from traditional reactive, industrial pricing because prices are tied to the realized benefits. In addition, the ambiguity of WTP evaluation is explored in practical and theoretical sense, and the main pitfalls are recognized to be misunderstood managerial expectations, framing effects, evaluation mode and price presentation format. Without successfully remedying the obstacles, industrial sellers cannot build the power to benefit from the value created and fail to pursue pricing decisions without adequate knowledge of the customer's WTP for their products. Consequently, their customers are unlikely to capture the value created.