The price you're worth: - DiVA portal

Linköping University | Department of Engineering and Management

Master Thesis, 30 hp | Industrial Engineering and Management

Spring 2020 | ISRN: LIU-IEI-TEK-A--20/03772--SE

The price you’re worth: A case-study of pricing in the TIC-market

Stefan Lindstedt

Kasper Vinberg

Supervisor: Mario Kienzler

Examiner: Thomas Rosenfall

Linköping University

SE-581 83 Linköping, Sweden

013-28 10 00, www.liu.se

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Acknowledgements We want to take the opportunity to thank all the people involved during the work of this

thesis, as it marks the end of a five-year journey at Linköping University and we could

not have made this without their contributions.

First and foremost, we want to thank our supervisor, Mario Kienzler, who has supported

and guided us throughout this process and provided us with invaluable feedback. His

investment in our thesis has not only made our life easier but has heightened the quality

of this work.

We would also like to direct a sincere thank you to our supervisor at Epsilon, who gave

us the opportunity to research and learn more about an important and interesting subject,

and for giving us all the prerequisites we needed to complete this research work.

Additionally, we would like to thank all the people we have come in contact with during

the process of writing this thesis, from the employees at Epsilon to the customers who

were kind enough to let us interview them.

We would also like to thank our opponents, Axel Leth and Nils Sjöstrand, who aided us

with the work through their engagement and feedback. Lastly, we would like to thank our

families and friends who have supported us throughout our studies at Linköping

University.

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Executive summary How to price your offering is one of the main managerial decision issues today and is

alarmingly often not grounded in necessary market and cost research. Pricing is a

complex topic, dependent on a multitude of internal and external factors, which makes

pricing practice and strategy alignment even more difficult. As a simplifying measure,

pricing practices are commonly categorized into three categories: cost-based,

competition-based and value-based pricing, of which value-based pricing is considered

the superior practice by scholars. Consequently, the issue of how to adopt value-based

pricing and how to actually price according to value is pertinent and a main focus of this

thesis. What comprises perceived customer value, how a firm creates and captures value,

and how a firm chooses to formulate the customer value proposition in order to

communicate the generated value are all questions that this thesis investigates and

attempts to answer. Furthermore, the effects of the customer-supplier relationship on

pricing and change management aspects of a transition to value-based pricing are also

investigated and analyzed.

In order to answer the research purpose and accompanying research questions, a

qualitative single case-study was conducted. The case company was a leading company

in the TIC-market, who just recently had started discussing implementing value-based

pricing and was therefore deemed as an appropriate case for this study. Empirical data

was gathered through semi-structured interviews with the employees as well as the

customers of the case company.

The analysis of the empirical data in conjunction with the theoretical framework led to a

revised analytical model that attempts to explain the relations and correlations of the

different concepts discussed in this thesis, as well as conclusions regarding the

aforementioned research questions. This study concludes that the common value drivers

are Quality, Delivery reliability, Delivery time, Price, Geographical location,

Relationship and communication, Customization. Additionally, the study concludes that

the alignment of pricing practice and strategy is heavily dependent on internal and

external awareness, and it is of utmost importance for a firm engaging in value-based

pricing to know not only their customer and market, but also their own capabilities and

strengths. Regarding how to formulate the customer value proposition, the study

concludes that it should be customized for the specific customer and have a resonating

focus with elements of points of difference. Lastly, the study details the challenges that a

firm transitioning to a value-based pricing practice might encounter, and the suggestive

solutions to these obstacles.

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TABLE OF CONTENTS

Introduction ........................................................................................................................ 1

Pricing today .................................................................................................................... 1

Market and pricing overview: Testing, Inspection and Certification-market .................. 3

Research purpose and questions ....................................................................................... 5

Theoretical framework ...................................................................................................... 7

Value ................................................................................................................................ 7

Perceived Customer Value ........................................................................................ 7

Value creation ........................................................................................................... 9

Value capture .......................................................................................................... 12

Value segmentation ................................................................................................. 13

Customer value proposition .................................................................................... 14

Pricing practices ............................................................................................................. 16

Cost-based pricing .................................................................................................. 16

Competition-based pricing ...................................................................................... 17

Value-based pricing ................................................................................................ 18

Pricing strategies ............................................................................................................ 19

Relationship Marketing .................................................................................................. 20

Customer loyalty ..................................................................................................... 21

Customer satisfaction .............................................................................................. 22

Change Management ...................................................................................................... 23

Analytical model ............................................................................................................ 25

Methodology ..................................................................................................................... 28

Scientific approach ......................................................................................................... 28

Research approach.......................................................................................................... 28

Case company ................................................................................................................ 30

Epsilon AB .............................................................................................................. 31

Epsilon’s challenge ................................................................................................. 31

Data-gathering methods ................................................................................................. 32

Interviews ................................................................................................................ 33

Interview guide ....................................................................................................... 34

Selection of interview subjects ............................................................................... 34

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Data analysis .................................................................................................................. 36

Quality control................................................................................................................ 37

Trustworthiness ....................................................................................................... 38

Authenticity............................................................................................................. 39

Research ethics ............................................................................................................... 40

Empirical data .................................................................................................................. 42

Customer value ............................................................................................................... 42

Why employees think customers choose Epsilon ................................................... 42

Why customers choose Epsilon .............................................................................. 43

Customer priorities in choosing TIC-supplier ........................................................ 45

Employees’ market perception ............................................................................... 45

Customers’ market perception ................................................................................ 46

Epsilon’s market-unique offerings .......................................................................... 47

Epsilon’s segmentation of customers...................................................................... 47

Previous experiences of incorporating value .......................................................... 48

Price ................................................................................................................................ 48

Pricing strategy and processes ................................................................................ 49

Consequences and problems of the pricing ............................................................ 50

The competitive pricing picture .............................................................................. 50

Communicating customer value and price ..................................................................... 51

Communication process .......................................................................................... 51

Communication performance.................................................................................. 52

Customer value proposition .................................................................................... 54

Value hinderances and enablers ..................................................................................... 55

Market unawareness................................................................................................ 55

Value enablers: Tools and guidelines ..................................................................... 56

Relations in consideration ....................................................................................... 56

Operations versus sales ........................................................................................... 56

The required organizational changes ...................................................................... 57

Analysis & Discussion ...................................................................................................... 59

What generates value ..................................................................................................... 59

Working with price......................................................................................................... 62

The bricks in the (pricing) wall ............................................................................... 62

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The value-based alternative .................................................................................... 63

Capturing value (and making money) ............................................................................ 64

The value capture dilemma ..................................................................................... 65

Conveying the message .................................................................................................. 66

Propositional imperfections .................................................................................... 66

The desirable approach ........................................................................................... 68

The bricks of change ...................................................................................................... 69

Training wheels of value ......................................................................................... 69

Minding the mindset ............................................................................................... 71

The supportive and effective environment ............................................................. 72

Gaining market consciousness ................................................................................ 73

Planning for change ................................................................................................ 75

Revisiting the analytical model ...................................................................................... 76

Conclusions ....................................................................................................................... 80

In light of the research questions.................................................................................... 80

Research question I: Value drivers ......................................................................... 80

Research question II: Practice and strategy ............................................................ 81

Research question III: Customer value proposition ................................................ 82

Research question IV: Challenges .......................................................................... 83

Practical implications ..................................................................................................... 85

Theoretical contributions................................................................................................ 86

Future research ............................................................................................................... 87

List of references ......................................................................................................................... 89

Appendix: Interview guide ........................................................................................................ 98

Interview guide for employees .................................................................................................. 98

Interview guide for customers ................................................................................................. 103

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LIST OF TABLES

Table 1: Selection of interview subjects ....................................................................................... 35

Table 2: Quality Control ............................................................................................................... 38

Table 3: Customer priorities ratings ............................................................................................. 45

Table 4: Value-based challenges and suggested solutions ........................................................... 86

LIST OF FIGURES Figure 1: Value driver categories Source: Own illustration, inspired by Figure 1 in Amit and Zott

(2001) ............................................................................................................................................ 11

Figure 2: Value capture process Source: Own illustration, inspired by Figure 6 in Töytäri (2018)

....................................................................................................................................................... 13

Figure 3: Pricing strategies framework Source: Own illustration, inspired by Table 1 in

Ingenbleek and van der Lans (2013) ............................................................................................. 20

Figure 4: Analytical model Source: Own illustration ................................................................... 25

Figure 5: Case-study design Source: Own illustration, inspired by Figure 16.1 in Bryman and

Bell (2011) .................................................................................................................................... 30

Figure 6: Customer priorities in choosing TIC-market supplier Source: Own illustration .......... 61

Figure 7: Revised analytical model Source: Own illustration ...................................................... 76

Introduction

This chapter aims to provide the reader with a solid understanding of the issue of pricing

in an industrial context and highlight the complexity of value-based pricing and

accompanying concepts. Furthermore, the industry which will be a main focus of this

thesis is introduced. Lastly, the research purpose and research questions are detailed.

Pricing today

One of the main managerial decision issues today is pricing (Katsigiannis, 2014), partly

due to pricing having an enormous impact on financial results, where a 5% increase in

price on average leads to a 22% improvement in operating profits (Hinterhuber, 2004).

Despite this, industrial pricing is commonly made without being grounded in necessary

market and cost research (Lancioni, 2005a). In addition, even though pricing is a vital

strategic decision (Piercy, et al., 2010; Lancioni, 2005b) it seldom gets the spotlight in the

boardroom (Ståhl, et al., 2018). Instead the pricing decisions are often done, with risk for

inconsistency, at lower levels in the organization without an understanding of the bigger

picture (Richards, et al., 2005).

However, with that being said, deciding how to actually price a company’s product or

service offering is a complex topic dependent on several inter-organizational as well as

external factors (Lancioni, 2005a). Consequently, as a simplifying measure, pricing

practices are commonly categorized into three categories: cost-based, competition-based

and value-based pricing (Indounas, 2009). These different practices are all driven by

differing internal and external organizational elements. Although, as these practices are

intended to be implemented for a particular product or service offering, businesses can

find themselves using a combination of the aforementioned practices (Hermann, 2015).

Furthermore, the usage of pricing practices is not considered mutually exclusive, as

managers often combine different types of cost, market and value-information when

setting the price (Kienzler, 2018a).

Chapter 1: Introduction

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Historically, cost-based pricing has been the dominating practice for many firms (De

Toni, et al., 2016). This practice calculates the cost of producing a product or service and

adds a markup in order to create a profit margin and arrive at a final price (Deshpande,

2018). As such, a consequence of using a cost-based pricing practice means ignoring

several external factors that could affect the final pricing decision. Competition-based

pricing faces similar issues, but in contrast to cost-based pricing it takes the market

situation into account. Firms using competition-based pricing make pricing decisions

based on information regarding market and competitor prices (De Toni, et al., 2016).

However, value-based pricing is increasingly gaining attention and is by many scholars

considered the superior practice (Hinterhuber & Liozu, 2012a; Kienzler, 2018a), despite

this only a limited number of firms emphasize value-based pricing practice in their

pricing (Kienzler, 2018b). Instead, most companies primarily focus on cost-based or

competition-based pricing, shown by Hinterhuber (2008) who concludes in a meta-

analysis that 37% of industrial companies price according to cost-based pricing and 44%

price according to a competition-based pricing. Value-based pricing instead aims to set a

price which reflects the perceived customer value of the product or service (Ingenbleek,

2014). As a result, the question of how to price the firm offering in a value-based context,

must be preceded by an understanding of what creates value for the firm’s customer.

Value creation is central to any organization as it concerns how to serve customers’

specific needs with a firm offering, in a way that generates firm growth, profit and

customer satisfaction (McNair-Connolly, et al., 2013; Lepak, et al., 2007). What exactly

compromises the term value creation, is widely discussed among authors (e.g.,

Tuomisaari, et al., 2013; Srivastava, et al., 1999; Treacy & Wiersema, 1993), although

with the common denominator that it adresses the elements of value in an offering.

Consequently, this thesis adopts the term value driver, introduced by Amit and Zott

(2001), which is defined as the general elements driving value in an offering. However,

focusing solely on value-creation is hardly enough, as firms must be able to capture this

value as well; that is, how the firm can convert the generated value into profit (Bowman

& Ambrosini, 2000; Tuomisaari, et al., 2013).

Once the idea of how to create and capture customer value has been conceptualized, the

question is how to properly reflect this value in the organization’s communication to the

customer, through the customer value proposition (Payne, et al., 2017). This is a crucial

and integral part of the value-creation process (Payne & Frow, 2005), which does not

only have a positive impact on customer’s value perception and satisfaction (Eggert &

Ulaga, 2002), but also enables enhancement of employee satisfaction and behavioral

commitment to the firm (Saura, et al., 2005). Payne et al. (2017) defines the customer

value proposition as a vital strategic tool used when a company communicates how it

aims to provide value for their customers. Similarly, Kambil et al. (1996) argue that value

propositions define how items of value, such as product or service features and

complimentary services, are packaged and offered to fulfill customer needs.

Moreover, grouping a firm’s customer portfolio into different segments based on their

perceived customer value has been proven fruitful in many regards (e.g., Dibb, et al.,


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2002; Taher, et al., 2016; Liozu, 2017; Hunt & Arnett, 2006) and should be considered by

all firms who want to improve relative firm performance (Liozu, 2017). Among the many

benefits, it helps the firm understand their customers better and treat them accordingly -

thus increasing their value and loyalty (Dibb, et al., 2002; Taher, et al., 2016), as well as

their satisfaction (Hunt & Arnett, 2006). By segmenting the customer portfolio based on

value, the firm is able to create tailored customer value propositions more effectively

(Nagle & Holden, 2002a), and thus realize more value (Hinterhuber, 2016; Goyat, 2011).

Additionally, Nagle and Holden (2002a) mention that value segmentation goes hand-in-

hand with pricing practices that are grounded in value. Although, constructing a value

segmentation scheme and reaping its many perks has proven to be a difficult task

(Hinterhuber & Liozu, 2012b; Liozu, 2017) – making it all the more interesting to

investigate.

Without proper implementation, education and adherence to new coupled organizational

pricing processes, as well as managerial recognition of the latter, a change in pricing

practice and strategy can be problematic (Hallberg, 2017; Hinterhuber & Liozu, 2017;

Kienzler, et al., 2019). This is especially true in the value-based context, as relevant

literature suggests that the need for top management support, implementation of

appropriate pricing processes and alignment of the sales force with value-based pricing

are among the challenges an organization may face (Nagle & Holden, 2002a). This could

be managed through change management initiatives (Kitsios & Kamariotou, 2017;

Oakland & Tanner, 2007), where authors (e.g., Crawford, 2013; East, 2011; Passenheim,

2010) have found communication and engagement of employees to be key pillars in its

success. Additional specific concerns surface in a value-based context, such as

establishing a value manager and a value proposition innovation process (Liozu, 2015).

Also, to extend the focus of value to be embraced by the sales force (Kienzler, 2018b),

thus improving customer insight and help identify and recognize the specific customer’s

pain (Töytäri, 2018), and treat it accordingly.

Market and pricing overview: Testing, Inspection and

Certification-market

The Testing, Inspection and Certification (TIC) market was, according to

MarketsandMarkets1, valued to $209,4 billion in 2019, with an expected CAGR2 of

4,91% between 2019 and 2024 (MarketsandMarkets, 2019). The market is considered

highly fragmented, where the three largest players accounted for less than 25% of the

total market share in 2017 (Leggo & Maunsell, 2017).

1 MarketsandMarkets is a leading global B2B research agency, currently serving the large majority of

Global Fortune 1000 companies.

2 CAGR is an abbreviation for Compounded Annual Growth Rate.


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On a global level MarketWatch3 suggests that the TIC-market could be segmented by its

different application areas, in which case it covers the textile, automation, automotive,

food and beverage, aerospace, and oil and gas industry among others (MarketWatch,

2020). Continuing, the market compiles a broad spectrum of services related to testing,

inspection and certification of materials and components.

Talking to an industry leader in the TIC-market, one also finds that the market provides

services regarding accident and hazard investigations, as well as risk and damage

analysis. Additionally, the offerings of the TIC-market partly constitute commoditized,

standardized and highly competitive services as well as more specialized, expertise-

demanding services4.

According to MarketWatch (2020), providing maintenance of safety, health and quality

requirements of their customer’s products is the overarching purpose the TIC-market

serves. As a result, the rising global awareness among consumers regarding health, safety

and quality, across industries, is one of the key drivers for the market’s continuous

growth.

Moreover, pricing in the TIC-market is an interesting topic and a critical issue. Similar to

other markets, what makes a suitable, and practically implementable, pricing practice and

strategy is heavily dependent on the offering being a service or product. Given that the

nature of the TIC-market is partly service-oriented, a need of delivering quality service is

essential for success and survival (Zeithaml, et al., 1996). Fornell (1992) demonstrates a

positive correlation between service quality and customer satisfaction. Additionally, that

customer satisfaction is a driver for future company profit and growth. Furthermore,

studies show that perceived customer value has a positive impact on, and is a direct

predecessor of, customer satisfaction (Oh, 1999). Taking in account the correlating

relationship between perceived customer value and customer satisfaction (Oh, 1999), and

the fact that high customer satisfaction is strongly related to delivering high quality

service (Zeithaml, et al., 1996), the value-based methodology arguably qualifies for being

a suitable pricing practice for service sub-segments of the TIC-market today.

Even though a large portion of the TIC-market consists of service-nature offerings, there

are also sub-segments that constitutes of more commoditized, standardized offerings with

less differentiation amongst competitors and higher competitive intensity. These types of

products or commoditized services are more in favor of a competition-based or cost-

based pricing practice and strategy (Amaral & Guerreiro, 2019).

3 MarketWatch is an American financial information website that provides business news and analysis, and

is a subsidiary of Dow Jones & Company 4 Information gathered through interviews with a market leader in the TIC-market


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Research purpose and questions

When considering the aforementioned aspects, it becomes evident that deciding on a

pricing strategy in industrial markets, especially in the context of the TIC-market, is a

source of confusion with a multiple dependency on a range of various external and

internal factors. Pricing practices, value drivers and value propositions are some of these

factors that need to be considered. Even in the context of value-based pricing, underlying

topics such as what actually comprises customer value, as well as how to formulate and

communicate this value in a plausible way emerges and demands thought. Additionally,

after a definitive pricing strategy has been conceptualized, what the challenges are for the

necessary changes, processes and mindsets to be durably adhered to across the

organization.

These questions, in the context of a company active in the TIC-market, will serve as the

purpose of this thesis. More specifically the purpose is:

To investigate how pricing practices and strategies can incorporate customer value and

what challenges this can entail.

In order to answer the research purpose, it has been broken down into four distinct

research questions outlined below, together with a brief description of what each question

entails.

Research question I: What are common value drivers?

This research question entails unfolding what drives value for the customers in the TIC-

market. What specifically creates value for a firm’s customers depends greatly on the

needs of that specific customer. This might result in an over-extensive list of value

drivers. However, value drivers cannot seldomly be aggregated into more general themes,

applicable for a wider range of customers. Subsequently, this research question aims to

uncover these themes.

Research question II: How can firms determine which pricing practice and subsequent

strategy to pursue?

This research question concerns how the inter-organizational configurations should be set

up in order to facilitate and simplify the process of engaging with a pricing practice and

pricing strategy, on a case-to-case basis. More specifically, to learn which the

determinants are that ought to be evaluated, in order to arrive at an appropriate pricing

practice and strategy for the specific case.

Research question III: How can customer value propositions be customized, formulated

and communicated?

As previously mentioned, what drives customer value often varies between individual, or

groups of, customers. How this value, once created by the firm, is communicated to the

customers is likewise an important issue that ought to be addressed. More specifically,


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this regards how created value can be translated into words and action that, in a

customized and captivating way, intensifies customers’ willingness to purchase a firm’s

offering.

Research question IV: What are the challenges in adhering to a determined pricing

practice and strategy?

An important, easily overlooked, aspect of introducing and implementing organizational

change is taking precautionary action in getting every employee on board with the

change. This is especially true in the context of altering the way of viewing pricing since

it often disrupts old and well-established ways of working. Challenges and obstacles such

as these, impeding the change, must be identified and addressed in order to effectively

execute the change.

Theoretical framework

The following chapter outlines the theoretical framework of this thesis. As this study aims

to investigate different pricing practices and strategies, and how these can incorporate

the concept of value, as well as the difficulties of implementing and adhering to a

conceptualized pricing strategy, the theoretical outline is grounded in theory relevant to

these topics. More specifically, the broader concepts dealt with are: Pricing practices,

Pricing strategies, Value and its sub-concepts in different aspects, Relationship

marketing and lastly Change management. The chapter concludes with how these

different concepts are assimilated and interconnected in order to respond to the

established research questions, summarized in a comprehensive analytical model.

Value

A central concept often surfacing when talking about pricing is value. What do customers

actually gain from purchasing a product or service? This section aims to give a theoretical

overview of some of the more common terms often associated with the broad concept of

value. Firstly, the section attempts to depicture the concept of perceived customer value,

what it is and how it can be measured. Secondly, on a more fundamental level explain

how value is created and captured by a firm, the determinants and different ways of

thinking. Furthermore, theory regarding how the concept of segmentation makes its way

into the value-sphere, and how firms can distinguish themselves by communicating this

value through their customer value propositions, is discussed.

Perceived Customer Value

When outlining the broad concept of value, it is beneficial to first understand how and

what customers actually perceive as value. Subsequently, the concept of perceived

customer value emerged as the defining business issue of the 1990s, and has continued to

receive extensive research interest in the present century (Sánchez-Fernández & Iniesta-

Chapter 2: Theoretical framework

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Bonillo, 2007). It has been proven that using the concept of perceived customer value

results in creating more satisfied customers, as well as also having a direct effect on

customer repurchase intention and loyalty (Akbar Aulia, et al., 2016). Therefore,

delivering superior value has become a vital strategic component for firms to be able to

gain a competitive advantage and long-term success (Asgarpour, et al., 2015).

Defining what constitutes customer value is difficult, as there are various types of value

dimensions depending on the nature of the product characteristics (Akbar Aulia, et al.,

2016). As such, there are a number of definitions outlining perceived customer value.

One of the most common definitions is provided by Zeithaml (1988) who defined value

as the consumer’s overall assessment of the perceived extracted utility of a product, offset

with what is given for it.

Woodall (2003) suggested that there are five distinct notions of value for the customer:

Net value, Marketing value, Derived value, Sale value and Rational value. Net value

means the balance of benefits and sacrifices, which essentially measures how worthwhile

the transaction is. Derived value, which is outcome-oriented and based on the notion of

use-value means that benefits are derived from consumption-related experiences.

Marketing value emphasizes the offerings perceived attributes and is more of a strategic

element of value. Sale value is heavily focused on price within a competitive

environment, where the best sale value is the option that carries the lowest price. Rational

value is based on a benchmark in price where the customer will compare the difference

between the price offered by the firm and the market benchmark.

Khalifa (2004) proposed an integrative configuration that included three complementary

models: Customer value in exchange, Customer value dynamics and Customer value

build-up. The author defines customer value in exchange as a benefits-costs model where

the customer is willing to engage in a business relationship if the perceived benefits

outweigh the sacrifices required. The customer value dynamics model reflects how a

customer evaluates an offering, in terms of both offering features and how the customer

is treated by the company (Khalifa, 2004). Customer value build-up model looks at four

factors to determine the total customer value, namely customer needs, customer benefits,

if the firm views the customer as a person or just a consumer, and also if the view of the

customer relationship is seen as a transaction or an interaction (Khalifa, 2004).

Traditionally, value has been likened to utility, as seen with the aforementioned definition

presented by Zeithaml (1988). This theory states that consumers derive value from the

difference in utility gained by the product or service and the disutility represented by the

price paid, which is too simple a definition for many scholars (Sánchez-Fernández &

Iniesta-Bonillo, 2007). This is an approach that views perceived value as a one-

dimensional construct, meaning that perceived value is a single overall concept that can

be measured by a self-reported item (or set of items) that evaluates the consumer’s

perception of value (Sánchez-Fernández & Iniesta-Bonillo, 2007).

Continuing, Callarisa Fiol et al. (2011) argue that perceived value encapsulates the

assessment made by the customer regarding the utility of a relationship with suppliers,


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and is derived from the customer’s perception of benefits and sacrifices in terms of

affective, emotional, social and rational or functional elements involved. This is an

example of an alternative approach that views perceived value, not as a one-dimensional

but rather as a multidimensional, construct that consists of various interrelated attributes

or dimensions that form a holistic representation (Sánchez-Fernández & Iniesta-Bonillo,

2007).

Another model that exist that attempt to define what consumer value actually entails is

the PERVAL scale, developed by Soutar & Sweeney (2001). The model contains quality,

price, emotional value and social value as the four value dimensions, and 19 items, where

items refer to the questions asked to determine the importance of each of the value

dimensions mentioned. Walsh et al. (2014) provides definitions of these four value

dimensions, where they state that quality is the functional value and refers to the practical

or technical benefits obtained. Furthermore, price refers to how satisfactory a product is

offset with the cost, time and effort required to obtain the product. Emotional value is

said to refer to mental or psychological needs of consumers and the utility in terms of

feelings or affective states that the product can generate. Finally, social value refers to the

social utility, such as status or prestige, which can be obtained from purchasing and using

the offering. The PERVAL scale has been altered and built-upon by several scholars,

sometimes adding a value dimension and sometimes by altering the items in the scale

(Soutar & Williams, 2009). However, when altering the PERVAL scale, it is important to

keep the industry and offering in mind, in order to adapt the model correctly.

Taken together, the definition and concept of perceived customer value has been

frequently debated from its origin to the present century, made apparent from the above

outlining of the term. The different definitions presented by various scholars all choose to

look at perceived customer value from different angles, taking different dimensions and

factors in account. Some argue it’s a one-dimensional construct whilst others suggest it’s

a multi-dimensional one. However, the pervading theme among all these definitions, is

that the term concerns some type of customer-made evaluation of the offering; that is,

how much the customer feels it’s worth, offset to what is sacrificed for taking part of the

offering. One way of measuring perceived customer value, taking in account its complex

nature, is the PERVAL-scale, which this thesis has chosen to adopt. The PERVAL-scale

is seen as appropriate due to its general acceptance amongst scholars for evaluating

customer value, and because of the high degree of adaptability it carries, depicted above.

Value creation

Value creation is central to any economic enterprise, as it defines the organization’s

capability to serve customers and generate growth and profits (McNair-Connolly, et al.,

2013). However, what specifically goes into creating value is subject of heated discussion

and differs greatly among scholars (e.g., Lepak, et al., 2007; Tuomisaari, et al., 2013;

Skilton 2014; Srivastava, et al., 1999; Treacy & Wiersema, 1993)


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Lepak et al. (2007) defines value creation as the process of addressing vital customer

needs by offering a product or service that the customer uses for their own perceived

satisfaction. The authors add that the process of value creation will differ based on

whether value is created by an individual, organization or society. Likewise, Tuomisaari

et al. (2013) extends the previous definition by making note of service-dominant logic,

and argues that the process of value creation for the user is always an interaction between

supplier and customer. In other words – that value is a co-creation process.

A related view, presented by Skilton (2014), is that buyer value creation strategies will

depend on key supplier capabilities. Suppliers who control these key capabilities will

gain bargaining power over the customer. In turn, if the buyer does not depend on the

supplier capabilities, they can use cheaper and less capable suppliers. This leads to the

conclusion that strategic decisions regarding value creation and value capture (defined

below), determine the overall structure of sourcing for the particular offering (Skilton,

2014). Srivastava et al. (1999) partly concurs by arguing that supply chain management,

relationship management and product development are key processes in value creation.

Contrastingly, Treacy & Wiersema (1993) instead chooses to highlight product

leadership, operational excellence and customer intimacy as leading contributing factors

in value creation.

In conclusion, there is a disparity in what value creation exactly comprises. For this

reason, this study will adopt the aggregated term value drivers, as introduced by Amit

and Zott (2001), described as any source of value creation which is used to refer to any

factor that enhances the total value created.

When reviewing the literature regarding value drivers, two separate definitions emerge.

One of these defines a value driver as a factor that increases the shareholder value of the

company (L.E.K. Consulting, 2017; Rappaport, 1998). The second definition, introduced

by Amit and Zott (2001) and relevant to this thesis, concerns factors that increase value

for the customer. As examples of such, Amit and Zott (2001) highlight Efficiency,

Complementarities, Lock-in and Novelty, in the context of e-businesses, as overarching,

general and interconnected categories of value drivers, consisting of multiple value-

driving activities. Although this generalization of Amit and Zott (2001) derives from

research in the context of e-business, a number of the presented value drivers are non-

exclusive for e-businesses and even non-exclusive across industries. Hence, a revised

version of Amit and Zott’s framework, applicable in a more general context, is illustrated

below in Figure 1.


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Figure 1: Value driver categories

Source: Own illustration, inspired by Figure 1 in Amit and Zott (2001)

Weinstein (2012) and Johnson and Weinstein (2004) explain that customer value

demands extraordinary performance on four value-points: service, quality, image and

price. Service is described as the intangible value in the offering and quality is the

customers’ perception of how their expectations were met. Continuing, image is the

customers’ perception of the organization they interact with, and price is defined as the

price charged and that customers are willing to pay. These are to be seen as four broad

and general categories, encompassing a wide variety of value-adding activities and

features, which this thesis chooses to define as value drivers.

As companies must constantly search for ways to add value to their products and

services, Johnson and Weinstein (2004) discuss a number of value drivers in the context

of these four value-points. Additional features and benefits can increase the value in the

offering, for example Verizon adding special services such as voice mail and internet

access in an attempt to satisfy customer needs. Branding can help the company

differentiate its image and distinguish itself from competitors. Involving customers can

add value and strengthen relationships with customers and lead to a higher degree of

customization and choice, which is a value driver in and of itself, exemplified by The

Farm Journal which publishes over 1000 different versions of every issue to readers.

Continuing, enhanced quality is exemplified by Motorola and General Electric and their

pursuit of six sigma (and beyond) quality, and how being best in class should not only be

a goal, but an integrated part of the business culture. Exceptional service is exemplified

by Ritz-Carlton hotels and how the management urges its employees to move heaven and


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earth in order to satisfy their customers. Simplifying or bundling the offering is another

value driver that can lead to greater profits, exemplified by how Microsoft offers stand-

alone products, but also bundled products such as the Microsoft Office package, which

has led to a higher degree of customization and choice for the customers. Lastly, Johnson

and Weinstein (2004) mention technological leadership, and how this value driver can be

a great source of differentiation.

All the value drivers mentioned seek to increase customer satisfaction and add on value

in the offering for the customer. By developing, improving and delivering on these

activities and features, an organization can strengthen their competitive advantage

(Johnson & Weinstein, 2004).

Value capture

Continuing, creating value and defining value drivers are rarely enough without a plan for

capturing the generated value. However, before talking about Value capture, the terms of

Use value and Exchange value ought to be defined. Use value is defined as something

subjectively assessed by the customers, specific attributes or qualities perceived by

customers in relation to their specific needs. In contrast, Exchange value is defined as the

monetary amount paid by the buyer to the seller for the perceived value, which is only

realized at the point of sale (Bowman & Ambrosini, 2000; Tuomisaari, et al., 2013).

As a result, (Bowman & Ambrosini, 2000) defines value capture as the realization of

exchange value by economic actors, such as the firm, customers and employees, or more

simply put – “[…] profit is value captured by the firm” (Bowman & Ambrosini, 2000, p.

13). In a similar manner Tuomisaari et al. (2013, p. 554) defines value capture as “[…]

the exchange value of an offering minus the costs of production, i.e. the profit margin”.

Additionally, Bowman and Ambrosini (2000) state that value capture is determined by

the perceived power and bargaining relationships between buyers and sellers, meaning

that a higher customer bargaining power results in a lower value captured by the firm.

Porter (1980) states that a high bargaining power of buyers comprises several different

factors, among these are the buyer’s ability to substitute the offering and the total size of

the customer orders to the firm.

Taken together and consolidated, the above concepts of value capturing have been

depictured in Figure 2 below. The figure shows the individual terms in relation to one

another. WTP is an abbreviation for willingness to pay; that is, the amount the customer

is willing to pay for the offering. Standard price refers to a cost-based price with an added

standardized profit margin. Production cost refers to all associated costs in the process of

creating the offering. The gap between the standard price and the maximum WTP

represents the value that is generated from the offering, and that can be captured by the

firm. Subsequently, as captured value can be translated into realized profit, the model

shows the amount of profit realized or unrealized by the firm, in the context of the

specific offering. This generated value is made up of, with basis in the above theory, a


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combination of how much value the customer believes the offering brings (i.e. perceived

customer value) and the power bargaining relationship between the customer and the

supplier, as presented by Porter (1980).

To summarize, a high perceived customer value and low customer bargaining power

results in more value to be captured by the firm, and vice versa. However, a high

perceived customer value could also be offset with a high customer bargaining power,

resulting in a lesser amount of value to be captured.

Figure 2: Value capture process

Source: Own illustration, inspired by Figure 6 in Töytäri (2018)

Value segmentation

Taher et al. (2016) define Value Segmentation as something that helps businesses to

understand different types of customers, develop long-term relationships with them and

hence increase their value and loyalty. Similarly, Goyat (2011, p. 47) defines, what

arguably could be a synonym to value segmentation, Needs-Based Segmentation as the

act to “Group customers into segments based on similar needs and benefits sought by

customer in solving a particular consumption problem”. By grouping customers in this

way, managers are able to target customer segments with different value perceptions

(Nagle & Holden, 2002a), understand them and their needs better (Dibb, et al., 2002;

Taher, et al., 2016), and treat them accordingly. As a result, value segmentation can

function both as a driver for businesses to create more satisfied customers (Hunt &

Arnett, 2006), but also as a driver for higher perceived customer value (Akbar Aulia, et

al., 2016; Taher, et al., 2016; Oh, 1999; Amaral & Guerreiro, 2019). The necessity of

segmenting customers based on needs and values is further strengthened by Liozu (2017)

who states that segmentation has a positive relation with relative firm performance.

Taking the above definitions of value segmentation in consideration, one can imagine

that the concept would be compatible with a pricing strategy based on customer value.

This notion is agreed upon by Nagle and Holden (2002a) claiming segmentation to be

particularly important for pricing strategies emphasizing customer value. Similarly, by

Liozu and Hinterhuber (2013) who state that value-based pricing, among other things,


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implies aligning prices with differences in value perceptions across segments. Lastly,

Goyat (2011) and Hinterhuber (2016) affirm that businesses can provide higher customer

value by developing a market mix which addresses the specific needs and concerns of

different selected segments.

Although value segmentation seems auspicious, a study by Liozu (2017), where 144

managers in large firms were surveyed, indicated that respondents found segmentation to

be one of the biggest concerns in value-based pricing. This is arguably linked to what

Hinterhuber and Liozu (2012b) state regarding what makes segmentation challenging for

a business - namely the processes of obtaining unbiased information regarding

customer’s value perception. Using similar logic, Dibb et al. (2002) conclude that

businesses that manage to properly segment their customers into separate segments or

groups, may be able to capture more value than those who cannot. This is in line with

what Kienzler (2018a) describes as ambiguity aversion, which is a hindrance for adopting

a value-based pricing strategy, as defined in a previous subsection.

Moreover, by having proper value segmentation in place, a firm can reap extensive

economic benefits of using different bundling strategies for the varying segments

(Stremersch & Tellis, 2002). When bundling two complementary offerings, targeting a

specific consumer segment, where one offering has a higher perceived value than the

other, the lesser-value offering will enhance the value of the high-value offering (Yalcin,

et al., 2013). In this way a firm can decrease that specific segments’ price sensitivity and

increase their likelihood of purchasing the offering (Stremersch & Tellis, 2002). Notably,

this way of bundling two complementary offerings is well kindred with what Johnson and

Weinstein (2004) exemplifies to be value drivers for increasing the customers’ perceived

value, depicted in a previous subsection.

Customer value proposition

Payne et al. (2017) defines Customer Value Proposition, henceforth referred to as CVP,

as a vital strategic tool used when a company communicates how it aims to provide value

for their customers. Similarly, Kambil et al. (1996) argue that value propositions define

how items of value, such as product or service features and complimentary services, are

packaged and offered to fulfill customer needs. In contrast, Saura et al. (2005) choose to

highlight that CVPs can enhance employee satisfaction, psychological attachment, and

behavioral commitment to the firm.

Webster (1994) defines CVP as a statement of how the firm proposes to deliver value to

their customers in a superior way that differentiates them from their competitors.

Similarly, Kaplan and Norton (2001) define CVP as how an organization differentiates

itself from competitors to attract, retain and deepen relationships with target customers.

Hadinsah et al. (2018) builds on the aforementioned definitions by adding that a value

proposition is a clear, interesting and credible expression of the experience customers

receive from suppliers’ value-creating offering.


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Liozu (2015) claims that the CVP is at the heart of everything a company does for its

customers. Thus, it has a heavy impact on strategy. Kaplan and Norton (2004) concur by

stating that strategy is based on differentiated CVPs, as satisfying customers is the source

of sustainable value creation. Likewise, Hadiansah et al. (2018) argue that no firm can

assume to meet the expectations of every single customer, however the strategies

employed will determine what value proposition the company offers to meet these

expectations and win the customers’ loyalty.

Anderson et al. (2006) state that value propositions can be categorized into three separate

categories: All benefits, Favorable points of difference and Resonating focus. Below

follow the authors explain of the different categories:

Firstly, All benefits appear to be the most commonly used approach for managers when

constructing a CVP. This type of CVP basically lists all the perceived benefits the

company believes it can deliver to its target customers. It requires the least amount of

customer knowledge and competitors and is easy to construct. A disadvantage is the

benefit assertion, meaning that managers may list benefits that actually don’t provide any

value to the customer.

Secondly, Favorable points of difference recognize that the customer has an alternative to

one’s own company. This type of CVP lists all favorable points of difference an offering

has relative to the next best alternative in the market. It is a more complicated proposition

to construct and requires more knowledge and work, and can lead to value presumption,

meaning that the company assumes the points of difference will have value for the

customer, which will not necessarily be the case.

Lastly, Anderson et al. (2006) explain Resonating focus, seen as the most desirable

approach. These offerings focus on the few features that generate the most value for the

customer and convey the superior performance in a way that emphasizes a thorough

understanding of the customer’s priorities.

Liozu (2015) instead presents eight key dimensions to consider when creating and

designing a compelling value proposition, called “The 8 I’s of a Compelling Value

Proposition”. Following, the author explains the different components: (1) Integrative -

the CVP needs to include the most relevant part of the offering, such as products,

services, solutions and other intangible features of the offering. (2) Intangible - the value

proposition should consider both the tangible and intangible parameters of the offering,

but it should be framed as focusing on delivering an emotional and psychological

experience based on customer needs. (3) Indispensable - it is important for firms to

investigate just how much their customers depend on them, and how they would manage

without the supplier. (4) Innovative - most CVPs are created on the foundation of a new

idea, concept or venture, and as such customers have come to expect innovation from

their suppliers. (5) Inviting - how the company chooses to communicate the CVP is an

important aspect, as the CVP has to be inviting for both customers and employees to read

and operationalize. (6) Inspirational- a CVP should trigger a response from the customer

that excites them regarding the possibility of doing business with the supplier. It should


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also generate excitement in the work force. (7) Inimitable - perhaps the most critical

aspect, as the CVP should be unique and difficult for competitors to copy. (8) Impactful -

lastly, the CVP needs to really resonate with the customer and show just how much of an

impact or benefit the offering will provide the customer.

Taken together, the above demonstrates a lack of general consensus over the meaning of

what the term CVP constitutes. It is found to not only yield benefits from an external

customer point of view, but also as a strengthening tool for internal elements, such as

behavioral commitment to the firm. Moreover, consolidating the above CVP literature

displays many similarities in the definitions used. For example, seeing the CVP as

something putting the spotlight on differentiation amongst competition and clearly

defining the value of the offering for the customer. However, as in most cases dealing

with theoretical concepts, reality is seldom as black-and-white. As a result, it is not

unlikely that companies do not adhere to a single type of CVP, but rather use varying

mixtures of the different concepts.

Pricing practices

The importance of setting the appropriate price for a product or service cannot be

understated. Setting the price too low can lead to losses, whereas setting the price too

high can result in failure to receive orders (Ståhl, et al., 2018). These risks need to be

considered in order to mitigate financial shortcomings and stay competitive. Thus, a firm

can decide how to practice pricing of their product or service in a number of ways. This is

known as applying a pricing practice, and the most common ways of doing this is what

this section is about.

More formally, pricing practices are commonly defined as a set of activities executed by

managers that lead to a decision on price (Ingenbleek & van der Lans, 2013). Pricing

practices are commonly divided into three separate approaches: cost-based, competition-

based and value-based (Indounas, 2009; Nagle & Holden, 2002b). What pricing practices

a firm chooses to engage in is subject to product and market conditions (Ingenbleek, et

al., 2003), as such, Hermann (2015) states that businesses, offering a combination of

services and products, often uses a combination of the aforementioned practice. Likewise,

Kienzler (2018a) argues that the usage of pricing practices is seldom mutually exclusive

and that managers often combine different types of cost, market and value-information

when setting the price. The following section will outline the three different practices,

what defines them and what separates them.

Cost-based pricing

Cost-based pricing is the simplest and most popular practice used when setting prices,

and has historically been the most common practice employed, since it contains an

element of financial caution (De Toni, et al., 2016). The price is calculated using the cost


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of creating a product or delivering a service, such as direct material cost, direct labor cost,

and overhead costs, and then adding a markup percentage to create a profit margin in

order to arrive at a price (Deshpande, 2018).

A study on 187 UK-based companies and 90 Australian companies yielded three factors

that can affect a cost-based pricing practice: competition intensity, company size and type

of industry (Guilding, et al., 2005). Competition intensity hampers the range of the profit

margin that can be applied. Company size affects the ability to influence prices, while

type of industry can affect the capacity to identify the self-cost of a product or service. In

a study of managers in the US, findings revealed that cost-based practices rely on

experience, prior knowledge, gut and intuition, and thus do not have dedicated pricing

functions (Hinterhuber & Liozu, 2012a). Having good knowledge and understanding of

the company’s production process is therefore essential when using this type of pricing

practice (Ståhl, et al., 2018).

Advantages of using cost-based pricing include that data is generally available (Amaral &

Guerreiro, 2019), as well as being easy to use and easy to motivate price increases and

assures profits to the company (Deshpande, 2018). The major disadvantage is that it does

not take competition, customer needs and demands, and other market conditions, in

consideration (Amaral & Guerreiro, 2019; Deshpande, 2018; Avlonitis & Indounas,

2005).

There are several methods for calculating the cost of producing a product or delivering a

service, including the two traditional methods job costing and process costing, as well as

activity-based costing. Job costing is best suited when goods and services are produced

when receiving a customer order, according to specifications made by the customer, or in

separate batches (Skousen & Walther, 2009). In essence, the job costing method asks the

question: “What did it cost to perform this job?”. In the process costing method, costs are

divided into processes or departments and what material, labor, direct expenses and

overheads go into each process (Jha & Goda, 2016). It is mostly applicable for companies

with mass production and assembly operations. Activity-based costing, or ABC for short,

attempts to split production into different core activities and determine the costs related to

those activities, and then assign the costs to products based on how much the different

activities are required to produce the product (Skousen & Walther, 2009).

Competition-based pricing

Competition-based pricing makes use of information regarding market and competitors’

prices in order to motivate the specific price level applied (De Toni, et al., 2016). Prices

are decided and based on information regarding competitor prices (Sammut-Bonnici &

Channon, 2015). It informs the organization about how and how much competitors

charge for the perceived benefits in the offering (Ingenbleek, et al., 2003).


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According to a study on managers in the US, like with cost-based strategy, managers

mostly rely on experience, prior knowledge, gut and intuition when setting prices in a

competition-based practice (Hinterhuber & Liozu, 2012a).

An advantage with this practice is that the competitive situation is always considered,

while the main disadvantage, similar to cost-based pricing, is that demand-related aspects

are ignored (Hinterhuber & Liozu, 2012b). Applying a competition-based pricing practice

can also increase the risk of entering a price war with competitors (Hinterhuber & Liozu,

2012b). Adopting this sort of practice can also be dangerous as the company does not

have clear cost or profit information from its competitor who, in some cases, may be

working with very low margins (Nagle & Holden, 2002b). It is most applicable for

medium-market share firms that are competing with high-market share companies or for

companies working with products or services with low differentiation (Sammut-Bonnici

& Channon, 2015).

Value-based pricing

Another approach to pricing is the value-based pricing practice, which is considered

superior according to marketing scholars and pricing practitioners (Hinterhuber & Liozu,

2012a). Value-based pricing is a pricing practice in which the managers make decisions

based on the perception of benefits from the product or service being offered to the

customer, and how these benefits are perceived and weighted by the customers in

relationship to the price they pay (De Toni, et al., 2016). This definition of value-based

pricing takes customer needs in consideration, which is a major advantage. However, it is

more difficult to gather relevant data (Amaral & Guerreiro, 2019).

Findings from a study based on interviews with 44 managers in 15 US industrial firms,

revealed that firms using the value-based pricing practice make product-pricing decisions

based on formal market research, scientific pricing methods and expert recommendations

(Hinterhuber & Liozu, 2012a). Another study also revealed that companies that use a

value-based pricing practice and set higher prices tend to yield a greater profit margin

than their counterparts that use cost or competition-based practices (De Toni, et al.,

2016).

Even though value-based pricing has been proven to be a superior pricing practice

through empirical evidence, it still faces resistance from managers (Kienzler, 2018a).

Kienzler continues by listing five reasons why managers may be reluctant to convert their

pricing strategy to be based on a value-based pricing practice, namely: Perceived lack of

control, Herding, Fixed-pie bias, Ambiguity aversion and Egocentric fairness bias.

Firstly, he mentions a Perceived lack of control, meaning that a manager’s perception of

their control over pricing affect pricing practices. This is strengthened by Dolan and

Simon (1996) who claims managers often lack confidence in their ability to influence

market prices. Secondly, Kienzler (2018a) discusses Herding, which essentially refers to

a hive-mind form of thinking, where an individual will disregard certain information and


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instead choose to base decisions on what the majority does, and is thus more likely to

price their product according to market prices instead of making informed pricing

decisions. Fixed-pie bias is stated as the third reason, and is defined as the flawed belief

that the opposing actor in a negotiation, which in this context refers to the customer, has

an interest that is directly opposite to one’s own (Liu, et al., 2015). Additionally, when

negotiating prices, managers often view pricing as a zero-sum game (Hinterhuber, 2004).

Ambiguity aversion refers to how an individual prefers to avoid basing decisions on

ambiguous information. For managers, information regarding costs or competitors is

more readily available, whereas perceived customer value is harder to obtain and often

contains elements of uncertainty and ambiguity. Lastly, Egocentric fairness bias

fundamentally means that price fairness is biased toward the buyer’s perspective, and

managers are worried that their customers view prices calculated using a value-based

pricing practice, as unfair and difficult to motivate.

Pricing strategies

Noble and Gruca (1999) define a pricing strategy as the means employed to achieve a

pricing objective, and argue that the majority of pricing strategies imply a price level

related to costs, competition or customers. Nagle et al. (2011) mention that such a pricing

objective could be an increase in profitability. Other examples of pricing objectives

include sales and market share maximization, price differentiation, maintenance of

existing customers and long-term firm survival (Avlonitis & Indounas, 2005). The choice

of pricing objective will heavily influence the methods used to reach this objective, and

having a coherent pricing strategy is required if the firm wishes to make effective pricing

decisions (Avlonitis & Indounas, 2005). Achieving an improved profitability, for

example, concerns more than simply adjusting price levels, as several other factors

determine what a pricing strategy must entail (Nagle, et al., 2011). Internal and external

conditions, such as market share, costs, product differentiation, economies of scale and

market growth rate among others, are the determinants that decide which pricing strategy

is applied by managers to achieve the objective (Noble & Gruca, 1999).

Even though the concepts of pricing strategy and pricing practice can seem to be

interchangeable definitions of the same thing, they are in fact different from one another.

The terms are related in the way that pricing strategies are implemented through pricing

practices, however, an important distinction to make is that pricing strategies are seen as

observable in the market, while pricing practices are only observable within the

boundaries of an organization (Ingenbleek & van der Lans, 2013). Knowing what

particular pricing strategy an organization has applied, may help predict what price-

setting practice(s) the organization will engage with (Ingenbleek & van der Lans, 2013).

Although, implementing a pricing strategy is no simple task as it requires involvement of

many different departments within an organization, such as marketing, sales, finance and

capacity management (Nagle, et al., 2011). Nagle et al. (2011) continue by stating that a


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successful implementation of a pricing strategy is reliant on three aspects: an effective

organization, timely and accurate information, as well as properly motivated

management.

Noble and Gruca (1999) developed a framework for categorizing pricing strategies and

organized them into four pricing situations: New product, Competitive, Product line and

Cost-based. Examples of strategies included in the framework are: Price skimming, price

bundling, and customer value pricing. Ingenbleek and van der Lans (2013) build on this

framework by removing the cost-based pricing situation, as they argue that it is actually a

pricing practice, and adds strategies such as premium pricing to the pricing situations.

The framework can be seen below in Figure 3, depicting the different strategies and

associated descriptions.

Figure 3: Pricing strategies framework

Source: Own illustration, inspired by Table 1 in Ingenbleek and van der Lans (2013)

Ingenbleek and van der Lans (2013) explain that the various strategies require a firm to

engage in different levels of value-based, cost-based and competition-based pricing. A

firm that chooses to emphasize value in their pricing practice must therefore choose an

appropriate strategy, emphasizing value, in order to reap the rewards. The framework

depicts popular pricing strategies that can be pursued by companies, and in what situation

a specific strategy may be most applicable. For example, customer value price strategy

can be applicable for a firm deciding to pursue a value-based pricing practice.

Relationship Marketing

Grönroos (1994) defines Relationship Marketing as activities meant to identify, establish,

maintain, enhance, and when necessary, terminate relationships with customers and other

stakeholders, at a profit. This definition is further acknowledged by Harker (1999)

claiming it to be one of the more beseeming ones for the term. However, a content

analysis consisting of 72 definitions aiming to resolve the issue of how to define the term,

presented by Agariya and Singh (2011), shows that a clear picture of what relationship


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marketing truly entails is yet to surface. Although, the same study concluded that the core

of all definitions orbits the acquisition, retention, loyalty and profitability enhancement

of, and through, customer relationships.

Hunt and Arnett (2006) state a number of benefits received by customers as well as

businesses when embracing the concept and activities of relationship marketing. Among

these are that the customer experiences a decrease in search costs as a result of the

customer not having to find a new supplier (Hunt & Arnett, 2006), which in turn

stimulates a higher perceived customer value (Woodall, 2003). Bakos (1997) continues

by claiming that low search costs can trigger buyers to look at other offerings presented

by the supplier, thus increasing total sales by the firm.

Furthermore, Hunt and Arnett (2006) argue that the customers’ perceived risk associated

with a market offering is lessened when being part of a business’s relationship marketing

activities. This reduced perceived risk consecutively leads to a higher perceived value for

the customer (Sweeney, et al., 1999).

Moreover, Nwakanma et al. (2007) state that by engaging in relationship marketing a

greater emphasis is put on listening to and communicating with the company’s

customers. Continuing, they argue this increases the effectiveness of understanding what

the customer actually wants, thus enabling a higher level of accurate customer

customization and helps to gain a competitive advantage. At the same time, a higher

customer customization ensures a better customer satisfaction (Hunt & Arnett, 2006).

Consequently, relationship marketing leads to a higher perceived customer value (Oh,

1999).

Besides increasing the overall perceived customer value, relationship marketing has been

found to affect price levels between customers (Ståhl, et al., 2018), as well as inclining

customers to be less price sensitive (Grönroos, 1994; Nwakanma, et al., 2007).

When talking about relationship marketing it is beneficially preceded by an

understanding of two intrinsic and integral terms, namely: Customer Loyalty and

Customer Satisfaction. These are therefore delineated below.

Customer loyalty

An integral part of the concept of relationship marketing is the term Customer Loyalty

(Ograjenšek & Gal, 2011). Edvardsson et al. (2000) define customer loyalty as a

customer’s inclination to make a repurchase from the same firm again. Similarly, Oliver

(2010, p. 432) defines customer loyalty as:

“[...] a deeply held commitment to rebuy or repatronize a preferred product or

service consistently in the future, despite situational influences and marketing

effort having the potential to cause switching behavior”.


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In contrast, Dick and Basu (1994) argue that customer loyalty should be defined as the

strength of the relationship between a customer; that is, how he/she perceives his/her own

bond to the firm, and the actual volume of purchase and re-purchase by that individual.

This is the definition that will be adopted throughout this thesis.

Customer loyalty is very important for many reasons, Heskett et al. (2015) claim it to be

the single greatest source of revenue growth and profit, which is strengthened by Thomas

and Tobe (2013) who emphasize that loyalty tends to be profitable since the expenses to

gain a new customer are much higher than retaining existing ones.

Authors Fornell (1992) and Chattopadhyay (2019) argue that customer satisfaction

(defined below) and customer loyalty have a direct positive correlation, such that if a

customer’s satisfaction is earned, the customer loyalty will tend to follow. Furthermore,

Oliva et al. (1992) argue that there are two critical thresholds when talking about the

linkage between customer loyalty and customer satisfaction. Firstly, when a customer’s

satisfaction reaches a certain high level, the customer loyalty increases dramatically. In

contrary, if the customer’s satisfaction declines to a certain point, loyalty instead

decreases dramatically. In between these two thresholds, loyalty remains relatively flat

(Olivia, et al., 1992).

Customer satisfaction

The second integral part of relationship marketing is the concept of Customer

Satisfaction. As with most concepts related to value, there are a number of different

scholar definitions for the term, and the different aspects of satisfaction make defining it

challenging, mostly since it relates to the entire consumption experience (Oliver, 1997).

Ograjenšek and Gal (2011) argue that customer satisfaction generally is an evaluation or

appraisal variable that concern the customers’ judgement of a product or service.

Similarly, Yi (1991) defines the term either as an outcome, where satisfaction is an end-

state resulting from the consumption experience, or as a process, where emphasis is on

the perceptual, evaluative and emotional process that contributes to satisfaction.

An important distinction to make is the one between perceived customer value and

customer satisfaction. Perceived customer value can occur at various stages in the

purchase process, while satisfaction is unanimously agreed upon to occur post-purchase

and post-use (Soutar & Sweeney, 2001).

Mutual for the pre-mentioned definitions is that customer satisfaction is of intangible

nature, and thus is not always readily available. Consequently, scholars have theorized

that satisfaction is a gap between the customer expectations and perceptions (Ograjenšek

& Gal, 2011). Likewise, that it is essential that an organization measures, keeps track of

and manages their customer satisfaction just like any physical asset (Ilieska, 2013).

One of the many reasons for measuring customer satisfaction, is to understand the

company’s performance in relation to the customer, how the company performs in


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comparison to competitors and identifying the most important customer service elements

(Biesok & Wyród-Wróbel, 2011). Continuing, Ilieska (2013) emphasize that good

customer satisfaction has a positive effect on profitability of practically any business, and

often leads to better word-of-mouth marketing, customer retention and loyalty.

Additionally, Biesok and Wyród-Wróbel (2011) states that companies who seek a

competitive advantage must provide unique and valuable terms to their customers, in

order to provide satisfaction to their customers in the form of feelings associated with the

entire consumption process, from pre-purchase to post-consumption.

There are several models for measuring customer satisfaction. One such model is the

ACSI-model5, a cause-and-effect model that takes customer expectations, perceived

quality and perceived value as satisfaction drivers, and customer loyalty and customer

complaints as outcomes of satisfaction (Fornell, et al., 1996; Ilieska, 2013). These

dimensions tend to surface in one form or another in other methods aiming to measure

customer satisfaction, for example CSAT6 (Seaman, et al., 2019).

Albeit, a myriad of different reasons can make a customer end up dissatisfied. Hill (1996)

attempts to explain that dissatisfied customers can be caused by five gaps: Promotional

gaps are caused by creating expectations in customers through marketing, which then are

not fulfilled. Understanding gaps is a result of when the firm has not grasped the

customer needs and demands. A Procedural gap occurs when the firm is not able to

translate the customer expectations into appropriate operating procedures. Behavioral

gaps are the difference between customer expectations and the firm’s performance,

meaning that the service delivered is different from the specification of the service. The

last gap, the Perception gap, is the difference between perceived level of service

provided and the actual provided service.

Change Management

Kitsios and Kamariotou (2017) define Change Management as the process of planning

and implementing change projects involving individuals, teams and organizations.

Oakland and Tanner (2007) similarly states that change management can be seen as

problem solving which leads an organization from a current state to a desired future one.

Meanwhile, research show that businesses with management not familiar to, or not

grasping of, new change projects, such as a new pricing strategy, can be an obstacle in its

implementation (Kienzler, et al., 2019; Hinterhuber & Liozu, 2017). Furthermore,

without proper implementation, education and adherence to coupled organizational

processes, as well as managerial recognition of the latter, new strategies can be in vain

5 ACSI is an abbreviation for American Customer Satisfaction Index and is an economic indicator that

measures customer satisfaction of consumers across the U.S.

6 CSAT is an abbreviation for Customer Satisfaction and is a score that indicates how satisfied a customer

is what a specific offering or company.


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24

(Hallberg, 2017). Moreover, authors Appelbaum et al. (2012) and Liozu (2015), argue

that when managers actually understand the change process, it is less likely to fail in its

implementation.

These aforementioned indictments points to the necessity of establishing a proper plan for

change management (Crawford, 2013), dealing with for example change of employee

mindsets (Bushe & Marshak, 2014), and continuation of created processes and activities.

Beckhard (1969) suggest a five-step process for a successful implementation of any

organizational change. Firstly, by conducting a diagnostic phase of the current situation

and the need for change. Secondly, formulation of a strategical implementation plan for

the change management process. The third and fourth step deals with education and

employee training of the implementation. Lastly, having an evaluation step of the

performed process. Similar to the last step of Beckhard’s (1969) five-step process, Lewis

(2011) and Senior (2016) point out that an important step in the change implementation is

to create processes for assessing and monitoring the change outcomes, both early on and

periodically. The authors continue by stating that, for managers, this implies that clear

goals and metrics for the change have to be defined and communicated throughout the

organization, together with all new processes affiliated with the change (Lewis, 2011;

Senior, 2016). Moreover, Lewis (2011) mentions that it is crucial that managers and

executives create a supportive infrastructure which enables the goals to be met.

Passenheim (2010) instead chooses to put emphasis on that the most important points in a

change management process is the people, who are at the very core of change, and that

they can be hard to handle. Similarly, Crawford (2013) chooses to lift communication as

a significant aspect of the organizational change processes, since it supports reduction of

uncertainty and helps employees and stakeholders understand that the change is both

necessary and achievable. Arguably, East (2011) concurs by stating that many changes

fail by inadequately engaging the workforce along the way. Combining the thoughts of

Passenheim (2010), Crawford (2013) and East (2011) indicate that communication of the

change to the people and engaging them is a vital step for a successful organizational

change. Fittingly, Bushe and Marshak (2014), as well as Lewis (2011), proposes focusing

on establishing narratives to affect organizational changes as they convey and

communicate the rationale and consequence behind the change. These narratives could be

stories of previous success or examples of encouraged cultural behavior

When talking about change management in a value-based context, certain key aspects in

the implementation phase surface. One of these, presented by Liozu (2015), is defining

who is in charge of value. Liozu argues that this responsibility, traditionally owned by the

marketing department, should be an executive responsibility. He continues by

emphasizing the need of having a clear, and formal, value proposition innovation process;

that is, having a structured approach to how the firm changes their value proposition and

preferably engages experts to manage the process and associated risks (Liozu, 2015).

In the context of an organization that stands before the challenge of adapting a value-

based mindset, Kienzler (2018b) accentuates the need of extending the focus of value to


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25

also include the salesforce of the firm. A similar need for a changed mindset can be found

in Hinterhuber and Liozu’s (2017) research, where they found that manufacturers and

retailers often apply price promotions driven by habits and imitation in a business-to-

consumer context. The more appropriate approach, when changing to a value-based

methodology, would be to teach the employees, and emphasize, focus on understanding

what the customers value and how to price in relation to their perceived value

(Hinterhuber, 2016; Nagle & Holden, 2002a).

Töytäri (2018) introduces a framework which includes a set of tools dealing with the

aforementioned, where he highlights the need of gaining customer insight. Töytäri (2018)

defines customer insight as getting a better understanding of, and mapping a customer’s

business processes, situation, goals, challenges and associated key performance

indicators. By doing this, Töytäri (2018) argues the customers’ pains will be easier to

identify. These pains reflect the perceived value (Woodall, 2003) and should with

advantage be used as a basis in the value-based pricing process (De Toni, et al., 2016;

Amaral & Guerreiro, 2019).

Analytical model

Based on the theoretical framework presented above, this thesis outlines an analytical

model that will attempt to explain how the presented theories relate and work together in

the context of this research. The aim of the analytical model is to aid the research process

and ultimately help in answering the research purpose and research questions. Following,

Figure 4, is a presentation of the model and an ensuing explanation of the different

components.

Figure 4: Analytical model

Source: Own illustration


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26

As previously mentioned, pricing practice and pricing strategy are two closely related

terms. The pricing practice will provide the foundation for what the pricing strategy

should accentuate (Ingenbleek & van der Lans, 2013). In order to decide what practice

and strategy to employ, a thorough analysis of internal and external conditions is required

(Nagle, et al., 2011). By performing an offering complexity analysis, the firm can obtain

this vital information that guide the decision-making process. The purpose of such an

analysis is to gain knowledge of how unique the offering is on the market and how

difficult it is to create and carry out.

Furthermore, evaluating the offering from the customer’s point-of-view, gaining

customer insight and identifying what drives customer value, can also aid the decision-

making, as it gives an indication if the offering is very valuable for the specific customer

(Töytäri, 2018; Woodall, 2003), which affects the pricing practice. For example, if the

customer expresses an urgency for fast delivery, this value driver could be exploited in

order to motivate a higher price. In order to gain customer insight and to identify

customer value drivers, the firm may benefit from, if not already established,

organizational change processes and tools. This as a means to help educate and adhere to

a value-based mindset and to make employees think in value-based terms (Hinterhuber,

2016; Nagle & Holden, 2002a; Töytäri, 2018; Hallberg, 2017). These change processes

must be permeating the entire organization, including managers, for it to be successful

(Kienzler, et al., 2019; Hinterhuber & Liozu, 2017).

The outcome of this first component of the model (i.e. Practice alignment) will be a

mixture of the three common pricing practices, with varying degrees of importance given

to cost-based, competition-based and value-based pricing, depending on the situation.

The offering complexity and customer value drivers could motivate a higher price (De

Toni, et al., 2016; Töytäri, 2018) than a cost- or competition-based price would arrive at,

and thus a value-based pricing practice can be more suitable for achieving certain pricing

objectives related to this (Avlonitis & Indounas, 2005). Likewise, if the offering is

deemed uncomplex and the number and strength of value drivers are seen as low, a

cost/competition-based pricing practice might be more suiting.

Once the firm has decided on a practice, it must then align the pricing strategy to fit with

the practice. The strategy is heavily dependent on the same components that make up the

foundation for deciding on a pricing practice, thus the offering complexity and value

drivers will influence how to align the strategy as well. The analytical model shows the

outcome of the subsequent strategy as being either cost/competition-based or value-

based. However, reality is rarely as black-and-white. Rather, a pricing strategy, similar to

a pricing practice, is often a mixture of cost, competition and value-based information.

Consequently, the analytical model presents what could be seen as a simplified and

generalized version of reality. Nonetheless, if the value-based approach is deemed

applicable, the firm must then calculate the customer’s maximum willingness to pay. In

other words, the monetary amount they feel is equivalent to, and representing of, the

value they receive from the offering.


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27

This means that the next step, in the value-based context, concerns establishing the

maximum monetary value the customer is willing to pay for the offering. Doing this

requires taking several aspects in consideration. One of which is a quantification of the

previously evaluated value drivers. This could for example be in the form of translating

the value drivers to quantified factors, to be multiplied with a standardized price.

Furthermore, incorporating this quantification of delivered value in the firm’s value

segmentation process can be beneficial in the sense that it can help the firm in future

willingness to pay (WTP) calculi, by providing time and effort reducing guidelines for

different segments.

When the firm has arrived at a price, they are ready to present the offering to the

customer through a Customer Value Proposition. The practice and strategy alignment will

influence and serve as the basis for the formulation of this CVP. However, there are

several other interconnected aspects that might be important to consider as well. For

example, which of the categories, mentioned by Anderson et al. (2006), the CVP should

resemble; that is, Resonating focus, Favorable points of difference or All benefits. If the

CVP adopts a resonating focus, this means that the firm highlights what creates the most

value for the customer in the offering. In addition, by having a resonating focus, the CVP

should also convey that the firm understands the customer’s priorities and will deliver a

superior performance (Anderson, et al., 2006). In contrast, Favorable points of difference,

as presented by Anderson et al. (2006), is more concerned with comparing the offering

with competing offerings, and thus may add an external market dimension to the CVP.

Furthermore, having a proper value segmentation in place also plays an important role in

this first aspect, in the sense that it may provide time and effort reducing, early-stage,

guidelines and advice for what creates value for a specific type of customer. Moreover, a

firm can reap extensive economic benefits by incorporating different bundling strategies,

based on this first aspect, for the various segments (Stremersch & Tellis, 2002), and use

this in future CVPs and business endeavors.

Lastly, the components of the analytical model are encapsulated by the fourth research

question, which concerns the challenges that may arise when adhering to a

conceptualized pricing practice and strategy. Essentially, this implies that all the different

components of the analytical model may surface challenges and obstacles that are of

interest for this study. Such challenges could for example concern the difficulty of

obtaining the relevant data needed for knowing what the customers’ value mentioned by

Amaral & Guerreiro (2019), prevalent in aligning a pricing practice and formulating the

CVP. Another example could be the difficulties that may arise when many different

departments need to be involved in an organizational change (as mentioned by for

instance Nagle et al. (2011)), such as changing the company culture or deciding on a

pricing strategy.

Methodology

The following chapter will provide an outline for the methodology used in order to

answer the research questions and purpose of this thesis. The chapter will outline the

scientific and research approach employed before giving a brief description of the case

company. Moreover, it will also provide a description of the research design and how the

data was gathered and analyzed, as well as an explanation of how the quality of the study

was assured.

Scientific approach

This study has adopted a scientific approach based on the epistemological position of

Positivism as described by Bryman and Bell (2011). The study interprets positivism as

encouraging the application of natural science methods to the study of the social world.

Furthermore, that positivism centers around several principles, as likewise described by

Bryman and Bell (2011). More specifically, this study sees that phenomena and

knowledge need to be confirmed by the senses in order to be warranted as knowledge.

Also, that generating testable hypotheses is the purpose of theory and that knowledge is

achieved by the gathering of facts. Moreover, that science must be conducted in an

objective, bias-free manner. This disposition of positivism, in line with theory presented

by Bryman and Bell (2011), fits well with this thesis as theory has provided a basis for an

analytical model that presents our hypothetical view of reality, and the gathering of

empirical data serves to confirm or reject the hypotheses.

Research approach

Traditionally, there are two types of research strategies that can be adopted when

performing a research study: a quantitative or a qualitative approach (Bryman & Bell,

2011). The major difference between the two methods is that a quantitative approach

employs and emphasizes measurements and calculations, while the qualitative approach

emphasizes words rather than quantification in data collection and analysis (Bryman &

Chapter 3: Methodology

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29

Bell, 2011). As this thesis sets out to investigate how to choose, adopt and maintain

appropriate pricing practices and strategies for a company in the TIC-market, through the

analysis of single case, the qualitative research strategy is deemed the most suitable since

the research will not concern quantification or the testing of theories, but rather have an

emphasis on words and generating new theories.

Moreover, Bryman and Bell (2011) argue that the quantitative method generally has a

deductive approach, and often entails the testing of theories. In contrast, the authors

describe the inductive approach to be commonly used in qualitative research, generally

focus on generating new theories. In other words, the inductive approach has theory as

the outcome of research, whereas the reverse can be said regarding the deductive

approach. However, Bryman and Bell (2011) are quick to point out that even though

these two approaches seem to fall on different sides of the same spectrum, research often

have elements of both as it is not as simple as saying that all quantitative research is

deductive, and vice versa. This was something similarly found in this specific study, as

this thesis arguably contains elements of both the inductive and deductive process.

Subsequently, this thesis adopts an approach, resembling to what Alvesson and

Sköldberg (2018) call the abductive approach, which is also compatible with the

epistemological position of positivism. This abductive approach contains elements of

both inductive and deductive methods, but is not simply a mix between the two, as it adds

new elements. Fundamentally, this study interprets a single case from a hypothetic

standpoint, which is then to be reinforced through new observations. Furthermore, as

empirical data is gathered and analyzed, the hypothesis and subsequent theory is adjusted

and refined in order to arrive at a predominant pattern, which aligns with theory

presented by Alvesson and Sköldberg (2018).

Furthermore, there are several types of research designs that can be applied to a study. As

this thesis concerns a single specific company in the TIC-market, the case-study research

design is deemed the most appropriate and applicable. The research questions of this

thesis provide an additional reason why the case-study research design is appropriate,

since Yin (2015) argues that questions that attempt to explain present circumstances,

more specifically how or why some social phenomena functions, increase the relevancy

of adopting a case-study method. Yin (2015, p. 31) states the following as the definition

of a case-study:

“A case-study is an empirical inquiry that investigates a contemporary

phenomenon in depth and within its real-world context, especially when the

boundaries between the phenomenon and context may not be clearly evident.”

Yin (2015) continues by listing distinct features of a typical case-study. One of which is

that a case-study can cope with situations where there are more variables of interest than

data points, which leads to a reliance on several sources of evidence where data needs to

converge in a triangulating manner. Furthermore, previous development of theoretical

propositions that guide data gathering and analysis is beneficial when conducting a case-

study.


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30

As this thesis concerns a single-case-study, it is of interest to discern the five different

types of cases presented by Yin (2015). These are: Critical case, Unusual case, Common

case, Revelatory case, and Longitudinal case. This case-study has the characteristics of a

critical case. The critical case is suitable when the researcher(s) have one or more

problem statements that establish the basis for choosing a case, that the researchers

believe will lead to a better understanding of when a hypothesis holds and when it does

not (Bryman & Bell, 2011; Yin, 2015). As this thesis has selected a case company,

currently facing the presented challenges regarding pricing, as the focus of the empirical

analysis, the case-study will offer an adequate understanding of the issue and help answer

the research purpose.

The actual design of this case-study was based on the qualitative research process

described by Bryman and Bell (2011), as well as methodology presented by Lekvall and

Wahlbin (2007). Additionally, since an abductive approach was applied to the research,

elements of the abductive process described by Alvesson and Sköldberg (2018), was also

included in the case-study design.

In Figure 5 below, the study disposition and its different stages are visualized.

Figure 5: Case-study design

Source: Own illustration, inspired by Figure 16.1 in Bryman and Bell (2011)

Initially, the general research questions and purpose of this thesis were specified in

conjunction with a supervisor from Linköping University and with the case company.

During this initial stage, several interviews were conducted with employees of the case

company, across hierarchical levels and departments, in order to fully grasp the issue and

what needed to be done. Next, theory relevant to the purpose and research questions, was

identified to serve as the foundation for the analytical model, which in turn aimed to

explain and answer the purpose and questions. Following, a gathering and subsequent

analysis of empirical data was conducted. Based on the empirical evidence, the analytical

model was adjusted, and corresponding theory was added, where necessary, to support

the final analysis and the ensuing conclusions.

Case company

As depicted in the introduction, companies in the TIC-market often fall victim to the

stated problem-definition and issue of how to price a firm’s offering. This is due to their


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31

offering-portfolio consisting of partly more standardized, commodity-classed products

and partly of more customer-specific, expertise-heavy service offerings.

A company currently facing challenges as those presented in the introduction is Epsilon

AB – a leading company in the TIC-market - active in the majority of the market’s

subfields. Consequently, Epsilon AB was deemed befitting to act as this case-study’s case

company.

Epsilon AB

Epsilon AB is the Swedish division and indirect subsidiary of the global TIC-market

leader with the same name. Recently, the global Epsilon group was acquired by private

equity company Beta. Today the group, according to Crunchbase7, has a global personnel

force amounting to 7 000 employees, serving approximately 30 000 customers in 200

locations, spread through more than 40 countries, with an estimated annual revenue of

about $940 million.

Epsilon AB, hereafter referred to as Epsilon, serves the Swedish TIC-market through six

different laboratories, targeting different TIC submarkets. These are: Materials Testing &

Inspection; Surface, Polymers and Composites; Fuel & Lubricant Testing; Plastic Pipes;

Metallic Materials and Certification.

Although each of these laboratories work in an autonomous manner, acting as their own

entities, serving different customers with different offerings and, more often than not,

with different needs, they operate with a central sales, marketing and management

function. This thesis will heavily gravitate to examine the predefined research question

and research purpose within the sphere of these aforementioned functions. As such, the

study delimits treating each laboratory on its own and instead examines Epsilon, as per

described above, as a unified entity.

Epsilon’s challenge

Epsilon faces pricing challenges similar to the ones presented in the introduction. Today,

in the majority of cases, Epsilon prices their broad range of offerings using a standardized

pricing list. This pricing list is updated and adjusted on a yearly basis, according to the

national Swedish pricing index PPI, to counteract inflation and general market trends.

Beside this yearly index adjustment, no further general changes have been made to the

pricing list since its origination several years ago. Ordinarily, the different prices are

derived from calculating the hourly rate of the necessary machines used in the offering,

combined with the hourly rate of the technicians involved, and an added profit margin.

Thus, no external competitive, market or customer information is utilized when setting

7 Crunchbase is a global platform for finding business information about private and public companies


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the different prices. Consequently, Epsilon’s current pricing practice could be viewed as

resembling cost-based pricing. Additionally, as the costs that establish the basis of the

pricing practice were calculated several years ago, there is an uncertainty of whether they

even reflect the company’s current cost-situation.

As described in the previous subsection, Epsilon’s offering-portfolio consists of several

different services, with varying degree of standardization in production, expertise

required and uniqueness in market. Subsequently, the different offerings are not all

suitable to one unanimous pricing practice such as the current cost-based practice and

would therefore benefit from being based on other types of information, such as data

regarding competition or perceived customer value. As an example, Epsilon provides a

certain type of testing, not found with any other TIC-market company, thus making them

the sole firm able to provide this specific testing service on a global level. Yet, Epsilon

prices this service using the aforementioned cost-based approach. The example provides

a general conceptualization of the problems Epsilon currently faces regarding pricing,

and the great chasm of unrealized customer value that ultimately translates into lost

profits, that this results in.

However, as of late Epsilon has recognized this issue and has performed actions toward

applying a more value-based practice and strategy. One action being that Epsilon has

plans of establishing project groups with the aim of reworking their approach to pricing,

as well as reworking the price list in order for it to be more value-oriented. Additionally,

Epsilon has commenced educating their employees in adapting a more value-based

mindset, by hiring an external pricing expert who holds informative seminars and

workshops. Moreover, Epsilon has in a very limited amount of cases performed jobs

where they have tried to fully apply a value-based mindset.

Data-gathering methods

As a mean for this study to reach an academic level and properly contribute to the

problem-definition and research questions stated in the introduction, empirical data was

gathered. This data was mainly collected through a series of interviews, observations,

intra-company and market-available data. The market-available data used is primarily

derived from recognized market research institutions and provides market data and trends

of the case company market. The intra-company data mainly consists of internal

documentation regarding processes, sales ERP8-data and price-related calculi. This data

was accessed and collected, with permission, through the company’s computers, servers,

and system, but also through recorded customer satisfaction surveys.

8 ERP is an abbreviation for Enterprise Resource Planning and refers to the consolidated business system

used by the company


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Interviews

In contrast to quantitative information gathering, qualitative methods, such as interviews,

tend to have better prospects of explaining more complex and comprehensive aspects of

reality according to Bryman and Bell (2011), which is why this thesis as chosen to use

interviews as its primary source of empirical data. This since the interview subjects

could, when necessary, be asked to provide additional explanatory information to avoid,

and solve misunderstandings of asked question. Moreover, the interview-format adopted

by this study also enables the interview subjects to voice their opinion, comment, and

give immediate feedback on the performed interview questions. Subsequently,

interviewees can point out missed, potentially relevant, areas of interest, which is

similarly aligned with theory presented by (Bryman & Bell, 2011). Furthermore, the

appropriateness of this study’s adopted methodology of conducting interviews is

strengthened by Yin (2015), who points out that interviews are the most common way of

data-gathering in research case-studies such as this thesis. This, as it resembles guided

conversations more than structured queries, meaning the stream of questions is likely to

be more fluid than rigid.

This study has chosen to adopt an interview methodology closest resembling to what

Bryman and Bell (2011) describes as a Semi-structured interview. This as the study has

chosen to create a predefined list of questions, a so-called Interview guide, entailing more

specific topics to be covered in the interview. Additionally, even though more specific

questions are detailed, the adopted interview format enables a lot of room in responding

to the questions by the interviewee, and for spontaneous and unspecified follow-up

questions to be asked by the interviewer. Continuing, these predefined questions did not

have to follow a strict, identical order, rather the order was allowed to be altered if it

suited the context, and questions that were not originally in the interview guide, which

surfaced during the interviews, could be asked. Although, as Bryman and Bell (2011)

also recommends, the selected interview methodology is constructed so that, generally,

all predefined questions will be asked in a similar way, using similar wording.

Furthermore, a wide majority of the interviews were conducted by telephone or online

through various communication platforms (e.g., Microsoft Teams and Zoom), due to the

COVID-19 pandemic of 2020. As mentioned by Bryman and Bell (2011), telephone

interviews generally have a number of advantages such as it being cheaper and easier to

administrate. Although, in the case of this study, the most prominent perk was that it

allowed for remote communication. Even though telephone interviews bear with it

several downsides as well, such as being less suitable for longer interviews and when

talking about sensitive topics, as described by Bryman and Bell (2011), this had to be

overseen due to the prevailing circumstances.

Continuing, all interviews were audibly recorded to ease the process of transcribing and

increasing the accuracy of renditioning the interviews. This is stated by Bryman and Bell

(2011) and Yin (2015) as something that increases the study’s overall reliability as it

reduces potential errors in note taking. In addition, the interviews performed were both of


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34

longer and shorter nature, depending on the specific topic that was sought to be answered

and the specific interview subject. For example, the interviews with the employees were

of a longer duration since there were more questions to be asked in these interviews, in

comparison to the customer interviews. This methodology of altering the interview

duration could be likened to what Yin (2015) describes as Prolonged case-study

interviews and Shorter case-study interviews, where the prolonged case-study interviews

are characterized by being longer in duration in contrast to the shorter case-study

interviews.

Interview guide

As outlined in the previous subsection, this thesis has adopted the method of conducting

semi-structured interviews aligned with the theories presented by Bryman and Bell

(2011) and Yin (2015). In the context of creating the interview guide, this meant

establishing a pre-defined list of questions, divided into each of the study’s research

questions, to enable a sense of having a free-flowing conversation. This, whilst keeping

the guide flexible enough for switching the sequence of topics if the interview demanded

it. The formulated questions, in accordance with Bryman and Bell (2011), strive to give

insight to, and help answer, the defined research questions in a non-biased, non-leading

and not too specific way. Additionally, the interview guide firstly prompts queries about

background information of the interviewee, such as name, age, company position, years

employed and so on, in order to contextualize the interview. Lastly, the interview guide

was formulated in a language familiar and relevant to the interviewees while also

avoiding long, double-barreled and very general questions, in line with theory presented

by Bryman and Bell (2011).

Furthermore, as this thesis concerns a case-study dealing with a case company, interviews

were also held with interview subjects having a business relationship to the case

company, such as being its customers. This was incorporated in the outlining of the

interview guide as well, in the sense of asking and formulating questions in a delicate,

non-provocative way to minimize potential bad-will between the concerned parties.

Additionally, two differing versions of the interview guide were created. The first one

was created for the employees of the case company, covering questions relevant from an

employee point-of-view, relating to all of the research question (see appendix Interview

guide for employees). The second interview guide was created for the customers and thus

has a greater focus on questions relevant from a customer point of view, such as ones

connected to RQ1 and RQ2 (see appendix Interview guide for customers).

Selection of interview subjects

Before conducting the interviews, a selection of desired interview subjects was made in

order to map out which individuals, in the organization as well as among the case


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35

company’s customers, that were of interest. This selection was mainly based on finding

interviewees fitting for the analysis of the research purpose and questions whilst

achieving a diversity among the interviewees. For example, selecting employee

interviewees with varying backgrounds and roles within the case company and selecting

customer interviews with varying revenue towards the case company and years of being

in a relation with the case company. This methodology and emphasis on interviewee

selection is in line with Sjöström (2018) who argues that the selection of interview

subjects is a vital part of the qualitative research process.

Additionally, Robinson (2014) presents a four-point approach for qualitative research

sampling, presented below, which this thesis has chosen to adhere to.

(1) Define a sample universe by using and thinking in the terms of homogeneity and

heterogeneity to enable a complete picture of the observed milieu, as well as

setting the boundaries so that each member of the sample universe is befitting to

the research purpose.

(2) Decide on a sample size by considering what is ideal and what is practically

achievable in terms of answering the research questions within the current time-

constraint.

(3) Create a purposive sampling strategy to specify which individuals, within the

sampling universe, that are to be included in the sample.

(4) Finally, recruit participants from the selected target population to conduct the

interviews.

In conclusion, this thesis has adopted the thoughts of Sjöström (2018), and Robinson’s

(2014) four-point approach presented above. The interview subjects within the case

company were selected based on the thesis authors’ belief of who was able to provide

data in the best way for answering the research questions, combined with an aim to

receive a nuanced and complete picture of the situation. The same principle was adhered

to regarding the case company customers, where the assessment aimed to combine

different kind of customers, with differing needs and size, to achieve a complete picture.

Table 1 below depicts the different interview subjects by interviewee, number- and type

of interviews, and total time interviewed.

Table 1: Selection of interview subjects

Interviewee Number & Type Hours interviewed

Salesperson 1 1 personal interview,

1 telephone interview

2



2



2


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36

Salesperson 4 1 telephone interview 1



Sales manager 1 1 personal interview,


2

Sales manager 2 1 telephone interview 1

General manager 1 telephone interview 1

Operations manager 1 1 personal interview,


2

Operations manager 2 1 telephone interview 1

Customer 1 1 telephone interview 0,5


Customer 3 1 online interview 0,5






Data analysis

The gathered and presented data in Data-gathering methods was analyzed in accordance

to the presented analytical model. The analytical process was constructed and executed in

accordance with what Yin (2015) refers to as Pattern Matching, which he claims to be

the most desirable technique for case-study analysis.

The pattern matching which was performed concerned comparing empirically based

patterns; that is, patterns derived from the research findings – with one or several

predicted patterns, made before the data sourcing process, with its base in relevant theory

and aligned with theory presented by (Yin, 2015). Also, if two contrasting patterns are

found to be similar it is seen as a strengthening measure to the research’s credibility.

Moreover, after the interviews had been conducted, and field notes had been

systematically structured, the transcripts underwent a thematical analysis, in line with

theory presented by Bryman and Bell (2011). In this analysis the frequency of occurrence


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37

of certain words or phrases (themes) is determined, in the course of coding the

transcripts, and denotes the strength of an identified theme. Subsequently, research focus

is applied accordingly.

Furthermore, the analytical process conducted is to be considered an iterative process as

the original analytical model could be subject to revision if empirical findings prove it

necessary or more befitting, to better match reality.

Quality control

Bryman and Bell (2011) argue that two of the most prominent criterions for evaluation of

business and management research are Reliability and Validity. Reliability deals with

whether the result of a study is repeatable, while validity concerns the integrity of the

conclusions generated through the research (Bryman & Bell, 2011; Sjöström, 2018).

Nonetheless, Bryman and Bell (2011) state that these aforementioned criterions are

mainly geared to quantitative rather than to qualitative research. They argue that to be

able to get a fair assessment of the quality in a qualitative research study, the concepts of

validity and reliability, as per described above, need to be slightly altered. Subsequently,

as this thesis is a qualitative research study, the above discussions and recommendations

were adhered to and the study rejects using reliability and validity as quality assessment

measurements.

Instead, the study chooses to assimilate the concepts of reliability and validity by dividing

the terms into an internal and external component and assess these separately, in line with

theory presented by Bryman and Bell (2011). Bryman and Bell (2011, p. 395) define

external reliability to what degree a study can be replicated, which they argue is

problematic in a qualitative context since “[…] it is impossible to freeze a social setting”.

They define internal reliability as whether or not there is more than one observer for the

research and that these observers agree with each other regarding what they have seen

and heard. Moreover, Bryman and Bell (2011) define internal reliability as the degree to

which there is a good match between the researcher’s observations and their generated

ideas based on those observations. Lastly, the authors define external validity as to which

degree findings can be generalized across social settings.

In conclusion, the criterions of reliability and validity are deemed unbefitting for this

thesis, as this thesis adopts a qualitative research approach as outlined in previous

chapters. Instead, the thesis chooses to individually assess the internal and external

components of the above concepts. Although, even when dividing the concepts of

reliability and validity, according to above, the criterions are deemed hard to apply in this

specific thesis’ context. Therefore, this thesis adopts Guba and Lincolns (1994) proposed

alternatives for the concepts of reliability and validity described above - namely

Trustworthiness and Authenticity – furthered described below. For an overview of how

this thesis achieves the prementioned quality control criterions, see Table 2 below.


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Table 2: Quality Control

Criterions How it has been achieved in this study

Trustworthiness

- Credibility - Research have adopted common and relevant research practice

- Research practice theories have been triangulated

- Research approach have gone through iterative processes with

external auditing*

- Multiple interviews conducted

- Transferability - Thick introductory description of problematization and research

context

- Thick description of case company and observed milieu

- Dependability - Triangulation of sourced theory and information

- Research process have been an iterative process with external

auditing

- Confirmability - Applied common relevant research and data sourcing practice

- Best efforts of applying a bias-free approach

- Research have gone through an iterative process with external

auditing

- Research theories and methods have been triangulated

- Authenticity

- Fairness - Multiple interviewees per subfield and topic

- Sample universe picked with relevance, homogeneity and

heterogeneity in consideration

- Ontological authenticity

- Educative authenticity

- Catalytic authenticity

- Tactical authenticity

- Unknown if milieu members acted upon findings. Although, all

criterions have been made possible through research report and

findings being publicly available to all members of the observed

milieu.

* External auditing primarily concerns auditing from PhD supervisor and research opponents.

Trustworthiness

As previously mentioned, this thesis chooses to adopt Guba and Lincoln’s (1994)

definition of Trustworthiness as the qualitative research counterpart of, and an alternative


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39

for the more common terms, reliability and validity, often applied as quality criterions in

quantitative research. The author suggests the broad term is made up of four separate sub-

terms, namely: Credibility, which parallels internal validity; Transferability, which

parallels external validity; Dependability, which parallels reliability; and Confirmability,

which parallels objectivity. Below follows the authors’ explanation for each of the above-

mentioned sub-terms compromising trustworthiness. For a complete overview of how

this thesis attempts to saturate the Trustworthiness quality control criterion, see Table 2

above.

Credibility refers to which degree the research is carried out according to what is

commonly acknowledged as good practice in terms of methods and processes. Also, that

these methods, as well as the research findings, are publicly available for the social world

to understand, approve or reject.

Transferability is about the degree to which the research results can be used and

transferred to other milieux and contexts. Guba and Lincoln (1994) argue that this

criterion can be saturated by providing a thick description of the current research context

so that it, in some regard, functions as a database for making judgements.

Dependability aims to measure the degree to which records are kept of all executed steps

in the research process, in a publicly accessible manner. These records could for example

entail the problem formulation, interviewee selection, interview transcripts and data

analysis methods. Furthermore, that these records are audited by peers in terms of how

procedures have been, and are being, followed.

Confirmability is concerned with making sure that personal values and opinions, or

theoretical inclinations of the researcher(s), have not swayed or influenced the execution

process of the research, and the findings derived from it. The authors state that this

criterion, like Dependability, can be followed up by applying auditors who analyze and

confirm the objectivity of the research.

Authenticity

Authenticity is the second term described by Guba and Lincoln (1994), which together

with the aforementioned trustworthiness criterion, functions as this thesis qualitative

counterpart to the terms of reliability and validity. The authors divide authenticity into

five sub-terms, namely: Fairness, Ontological authenticity, Educative authenticity,

Catalytic authenticity and Tactical authenticity. For a complete overview of how this

thesis attempts to saturate the authenticity quality control criterion, see Table 2 above.

Below follows the authors’ explanation for each of the above-mentioned sub-terms

compromising authenticity.

Fairness concerns whether the research and research findings fairly represent the

viewpoints and reality in the observed social setting.


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40

Ontological authenticity deals with the question if the research helped members of the

observed milieu to better understand their own social setting.

Educative authenticity concerns whether the research has helped the members of the

observed milieu to better appreciate the perspectives of other members of the milieu.

Catalytic authenticity deals with if the research has acted as trigger or catalyst for

members in the milieu to act to change their circumstances or the context in which the

research is performed in.

Tactical authenticity concerns if the research has empowered the members of the milieu

to take necessary steps for engaging in change-making action.

Guba and Lincoln (1994) highlights that the idea of authenticity, as per described above,

is thought-provoking and has been found controversial but has not been influential.

Consequently, this thesis has chosen to not have the criterion of authenticity as a pillar

stone for quality control.

Research ethics

Ethical issues that may arise during the study, that need to be addressed, can arise in a

variety of stages and cannot be ignored as they are, as mentioned by Bryman and Bell

(2011), directly associated with the integrity of the research. Therefore, this thesis has

adopted the breakdown of ethical principles in business research, as presented by Diener

and Crandall (1978, as cited in Bryman and Bell, 2011). This breakdown consists of four

main areas which concerns whether there is: harm, a lack of informed consent; an

invasion of privacy; or a deception to participants. How these four principles were

adhered to by this thesis is delineated below by area.

Harm regards whether the research has inflicted harm such as physical harm, but also

harm to participants self-esteem, stress, harm to career prospects or future employment

(Bryman & Bell, 2011). In the case of this thesis, harm has been thwarted by keeping an

appropriate level of confidentiality towards the interview subjects in such a way that no

single individual could be identified based on presented data alone. Moreover, each

interview provided time for the interviewees to ask questions and revise their answer, if

wanted, thus ensuring that each interviewee felt comfortable with their provided answers.

Lack of informed consent involves assuring that each interviewee has a sufficient amount

of information regarding the research purpose and the research conductors in order to

make an informed decision whether they wish to participate in the interview or not

(Bryman & Bell, 2011). Additionally, that the interviewees are knowingly participating in

every data-gathering context, meaning that no covert notetaking is taking place. This

principle was adhered to, in this specific thesis, by opening every conducted interview

with stating the research purpose, the purpose of the interview and who the researchers


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41

were. Furthermore, that the interviews (where it was applicable) were going to be audibly

recorded and that field notes, capturing their answers, were to take place.

Invasion of privacy regards the interviewees’ right to privacy in their answering of

interview questions (Bryman & Bell, 2011). They should, for example, be allowed to

refuse any question on whatever grounds they feel justified. This was adhered to by this

thesis, as stated above, by allowing interview subjects to give their opinion on questions

asked or their answers throughout the interview. Additionally, likewise mentioned above,

all interviewees were sufficiently informed of the research purpose, process, and

interview format at the time of the interviews, to ensure no privacy was breached.

Lastly, Deception involves whether the researcher(s) represent their research as

something other than what it is (Bryman & Bell, 2011). This principle is thwarted by

taking actions as those presented above. Namely opening the interview with an honest

and informative outlining of the research purpose and the researcher(s). Additionally, that

all notetaking performed by the researchers were conjoint with interviewee consent.

Empirical data

The following chapter covers the empirical findings gathered through interviews with the

employees of Epsilon as well as customers of Epsilon. First, empirical data concerning

customer value and the interviewees’ respective perception of value is detailed.

Following, the empirical findings concerning pricing and communication is presented.

Lastly, issues and hinderances in adopting a value-based pricing approach are

presented.

Customer value

The following section concerns the empirical findings regarding customer value. The

section covers why customers choose Epsilon as a supplier and their current perception of

the company, as well as what the general determinants are for a customer’s choice of

supplier. Furthermore, the section covers the employees’ and customers’ view on how

Epsilon performs in the competitive TIC-landscape, in terms of value creating activities.

Lastly, the employees’ experience hitherto with incorporating value in the offerings is

detailed.

Why employees think customers choose Epsilon

When the employees were asked why customers choose Epsilon as their supplier for TIC-

market services, the answers were of various character. The large majority of employees

asked, mention that expertise, experience and know-how within the field are key drivers

for attracting customers and generating value. This can be conceptualized by the example

of one employee stating that “[…] customers are not primarily interested in buying 15

hours of work, but rather 15 years’ worth of expertise and practical experience”.

Additionally, there is a wide consensus among the employees that being able to deliver a

fully integrated solution for all of the customer’s TIC-related activities, consolidating and

Chapter 4: Empirical data

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reducing several potential suppliers into a single one, is deemed very important.

Likewise, the employees say that the immense width of Epsilon’s offering-portfolio

constitutes a high customer value. Continuing, some employees choose to highlight that

there is also a necessity of being service-minded. This was elaborated with that being

willing to communicate, offer information and advice, listen and bounce of ideas with the

customer, without it necessarily ending up in a business transaction, increases the

customer value.

About half of the interviewed Epsilon employees mention that one of the most important

factors for being picked as a supplier is because there is an existing relationship, dating

back for many years and that the customers have always bought from the same company

and continues to do so. Some extended this by arguing a good reputation and image in the

market increases the customer base, while only a small minority mention that the

geographical location matters greatly.

When asked a follow-up question whether this created value differed between different

types of customers, the employees’ perception is unanimous in the sense that it did. More

specifically, the employees added, in one way or another, that there are customers who

are only interested in isolated standardized TIC-services, where they can basically just

send away a test sample by mail and hastily get back a simple test result. In contrast, the

employees state that there are also those customers who want an increased technical

report, more thorough investigation, and more expertise consultation.

What follows was the question of what Epsilon does to increase customer value, besides

the core value they create with their offering. The answers heavily drifted towards two

major categories, individually large minorities, but together constituting a vast majority,

of all answers. The first and largest is that Epsilon provides good customization, not only

in the sense of offering technicalities but also regarding how to package different services

to better correspond to the customer needs and being flexible and open for customization

in payment and delivery terms. The second of the two categories concern that Epsilon

offers the opportunity to greatly quicken the service execution, prioritizing the customer’s

need before others, at the cost of an increased hourly rate. Additionally, among the

smaller minority answers were that Epsilon can in some regard provide an extended

technical report, richer in detail, associated to the offering as well as that Epsilon

sometimes provides volume and other discounts.

Why customers choose Epsilon

When the customers of Epsilon were asked about the general view on the collaboration

and relationship the customers had with Epsilon, the responses were uniformly positive.

Many of the respondents deem the relationship and collaboration as good, and many

added that they are in general very satisfied with Epsilon. Several of the customers

highlighted the expertise, experience and competency at Epsilon as especially pleasing

aspects and major reasons for why they selected Epsilon as a supplier. Additionally, some


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customers recognized Epsilon’s service and communication as being important. Further

explicated by some, that Epsilon provides good customization, reasonable pricing and has

a good delivery time for their services. The customers elaborated by saying that these

value generators depend on the situation and context. One customer exemplified this by

saying that if a customer desperately needs the service to be delivered in a quick manner,

doing so generates a great deal of value. A minority of the customers claim that the

geographical location plays an important role for the customer when picking their

supplier. Some customers elaborated their answer by saying that this geographical

location enables an easiness for collaboration, flexibility, and fast delivery times. Another

minority simply state that old habit is the reason for why customers have chosen to have

Epsilon as their supplier.

A majority of the customers feel that Epsilon is great at solving their own customer’s

issues and that the flexibility they have contributes to a satisfactory business relationship.

One respondent states that Epsilon has “[…] delivered and over-delivered”.

When asked how satisfied they are with Epsilon as a supplier, the responses are in

general very positive. Many respondents claim that they receive great service and always

receive what they have ordered. Additionally, two respondents say that they appreciate

the reports they receive with the service and feel that they receive extra information

beyond what was ordered. One respondent also states that they value the opportunity to

pay extra in order to receive the service quicker than they would otherwise and adds that

Epsilon is very understanding and really care for their customers.

The customers that were interviewed state that they purchase a wide variety of offerings

from Epsilon which often range from simple, reoccurring standard services to more

complex, one-time analyses and reports. Many of the customers state that they choose

Epsilon as a supplier because they can provide services not available with other suppliers,

as well as the more common services, which makes Epsilon a natural choice as the

customers prefer to have a supplier that can consolidate all of their TIC-related needs.

What followed was a question regarding what specifically generates value for the

customer in an offering such as the one provided by Epsilon. The large majority of the

customers, more specifically all but one, mention that what primarily generates value for

them is that Epsilon acts as a sounding board, giving advice and tips throughout the

course of the service or assignment being carried out. Continuing, they state that if the

service is delivered with a final proper and detailed technical reporting including

analysis, conclusions, and recommendations, this is also value generating. A large

number of these answers were elaborated with that this reporting must be formulated in

layman’s terms. Exemplified by one customer who said that is must be understandable

and interpretable without a technical background, and that Epsilon could elaborate on

their technical reporting even further than they currently do. One customer mentions that

this is crucial since they must “[…] be able to mediate {Epsilon’s} recommendation to

our own customer in an adequate and professional way”. Another customer emphasizes

this need by stating that “[…] we do not simply buy numbers on a paper, by sending a


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test sample through a black hole, rather we buy qualified conclusions and

recommendations from experts in the field”.

Customer priorities in choosing TIC-supplier

The next question is derived from the assumption that customers choose their suppliers

based on a number of general parameters. From the pre-study and theoretical framework,

the categories that were chosen to be considered are: Quality, Delivery reliability,

Delivery time, Price, Geographical location, Relationship and communication,

Customization and Other. The customers taking part in the interview were asked to rate

these aforementioned parameters in regard to how important they are when purchasing an

offering as the one they purchase from Epsilon, on a scale between Very low to Very

High. For simplicity, these qualitative assessments were then translated to their numerical

equivalent, where Very Low is represented by 1, Low 2, Medium 3, High 4 and Very

high is represented by 5. Then the lowest, highest, average, median and standard

deviation value was calculated. The data shows the parameter Quality as the most

important factor for customers when picking TIC-suppliers, contrastively Price as the

least significant. For a full disclosure of the results of the customers priorities when

picking a TIC-supplier, see Table 3 below.

Table 3: Customer priorities ratings

Parameter / Measurements Average Std. dev. Median Highest Lowest

Quality 4,75 0,46 5 5 4

Delivery reliability 3,875 0,64 4 5 3

Delivery time 3,75 0,71 4 5 3

Price 3,1 0,83 3 5 2

Geographical location 3,125 1,13 3 5 2

Relationship & communication 4,125 0,64 4 5 3

Customization 3,75 0,89 4 5 2

Employees’ market perception

Subsequently, the employees were asked what specifically differentiates Epsilon from

competitors, from their own perception. The answers mainly point towards two points of

differentiation. The first being, as touched upon in previous subsections, that Epsilon

offers a market-unique width of TIC-related service, making them able to provide a fully

integrated solution to solve all of the customers TIC-related queries. Several employees

point out that this especially creates a competitive edge in the context of larger firms


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46

interested in consolidating multiple suppliers into a single one, for efficiency and cost-

reducing reasons. Additionally, a few employees argue that Epsilon’s business model of

focusing on width and depth rather than standardized, individual TIC-related service has

made them the best in the market at providing a consolidated offering. However, they

state that at the same time, this has come at the cost of Epsilon not always being the

cheapest option for any single service. The second point of differentiation, through the

voice of a large majority of the employees, is a superior business and technical expertise,

best conceptualized by one employee who says “There are few things we cannot do. This

attracts the larger customers.” In addition, a few employees add that this expertise is

also shown by the way that Epsilon can take on complex, undefined business endeavors

and solve them for the customer in a swift and accurate way.

Following was a question regarding how Epsilon compares to its competitors in terms of

service and quality. A large portion of the employees conclude that Epsilon is very

competitive and is outperforming its competitors regarding service. Secondly, regarding

the answers concerning quality, a vast majority of employees, more specifically all but

one, claim that Epsilon outperforms their competitors in the quality aspect.

Customers’ market perception

The customers were later asked to evaluate how Epsilon compares against competitors in

terms of quality, service, and image. Starting with Quality, the customers have an

analogous opinion of Epsilon delivering high-end quality. Only a single respondent,

although happy with the quality in a general sense, points out that the reported analysis in

some services, specifically regarding chemical testing, can be improved. Other answers,

only represented by a single interviewee each, include that the reporting can be more

customized and formulated in a language specifically directed towards a certain industry,

also that the graphical design in quotes and general marketing material can be enhanced.

Regarding how Epsilon compares in the market regarding Service, the majority of

respondents highlight that they believe that Epsilon provides very high-quality service.

These answers were explicated in various ways among the interviewees where some add

that the service consistently exceeds their expectations, and that you can always count on

Epsilon to fix the problem regardless of difficulty and complexity. Furthermore, the

answers state Epsilon is excellent at being flexible regarding customization and having

good customer communication. Among the minority answers, only provided by a single

or a few interviewees, was that Epsilon is very generous with content in their technical

reporting and that what they deliver is always exceeding the minimum requirement. Also,

they state, that although the service is good in general, Epsilon could work on answering

queries faster.

Moving on, when asked how Epsilon compares to competitors regarding their image only

two groups of answers emerged. The first, represented by all of the interviewed

customers, mean that Epsilon has an image of being a premium supplier, always


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47

delivering high quality services. This was elaborated in various ways where one customer

says that “[…] sending your tests and samples to {Epsilon} does not result in simply

receiving a standardized answer, but rather a thorough analysis with conclusions”.

Another customer exemplifies the claim by saying that by doing business with Epsilon,

“[…] you get to talk to experts when solving your problem, rather than just a machinist

knowing which levers to pull”. Several customers also elaborate the claim of Epsilon

being a premium supplier by stating that Epsilon always finds a solution and never get

stuck where competitors fail.

Epsilon’s market-unique offerings

The customers were asked whether the customers have any alternative suppliers for the

TIC-services they purchased from Epsilon. A large majority of answers concludes that

the services the customer purchases from Epsilon are in fact available with other TIC-

market companies. The second largest group of answers conclude that the customers do

not know if the services are available elsewhere for various reason, where one customer

says that they have not investigated alternatives since they are sufficiently happy with

Epsilon.

When the employees were confronted with the question whether Epsilon provides any

market-unique offerings, three differing groups of answers surfaced. The largest,

however still a minority among all employees, highlights that there in fact are such

services. More specifically, they state, Epsilon’s offering portfolio consists of several

isolated services which are unique on a national, European as well as global level.

Moreover, the second largest group suggested that Epsilon is unique in their way of

offering a fully integrated solution and being able to solve the entirety of a customer’s

TIC-related issues. Some employees elaborate that even though Epsilon cannot

necessarily perform every single sub-service themselves, they have sub-suppliers they

can make use of, resulting in the customer ultimately receiving a fully integrated solution,

from a single consolidated supplier.

Epsilon’s segmentation of customers

Furthermore, the employees of Epsilon were asked whether the company uses any kind of

segmentation for grouping their customers, and if they did, if this segmentation

incorporates customer value in any way. The largest group of answers, although deriving

from a minority of employees, state that the company does perform customer

segmentation based on sales volume. This is further explicated with that this

segmentation foremost concerns grouping the very largest of customers, rather than all

customers. Additionally, they continue by saying that these large customers are receiving

additional efforts in terms of visits, communication and follow-up. The second largest

group of answers, however only differing with a single answer from the largest group,


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state that the employee’s perception is that no segmentation is currently taking place. All

the employees who state that customer segmentation is currently taking place answer that

this does not incorporate value in any way but are positively inclined to the idea.

Previous experiences of incorporating value

Subsequently, the employees were asked to provide an example of when Epsilon has

incorporated value in an offering and how they went about doing so. The answers are

split, although three more generalized groups of answers emerged. The first one being

that the employees have succeeded in using a more value-based approach when they have

truly listened to the customer and asked questions about the core of their problem, and

their underlying problem. One employee elaborated that when doing so, it was unfolded

that the customer severely needed the service done as it would reduce significant costs.

The employee continues by stating that, as a result, the employee could charge a higher

price without the customer caring. Another employee explicates that after the employee

had asked questions about the customer’s problems, the employee made sure the solution

to these problems was formulated in the quote, together with a higher than usual price

tag. They employee continues by saying that this resulted in that “[…] the customer

accepted the price without second thought and even complimented us for caring and

solving their problem in an accurate way”.

The second group of answers concerns that a frequently occurring example of when

value-based pricing is used in Epsilon is when the customer needs the job or service done

within a short timeframe. The employees elaborate that when customers need the job to

be done fast, because they themselves have a nagging customer or because the customer

“[…] is bleeding money” by having their machine-park at a standstill, they are willing to

pay a much higher price. The third group of answers mention that they had encountered a

customer wanting a service which turned out, after some research and questioning, could

not be offered by any other TIC-company. As a result, as exemplified by one interviewee,

Epsilon could bump the price tag significantly without the customer giving it much

thought whatsoever.

Price

When Epsilons employees were asked to give their general view on pricing within the

company today, the answers depict a reality where pricing is done with inconsistency, a

lack of knowledge and being heavily focused on costs. Meanwhile, the customers state

that they think of Epsilon as an, at least, average priced supplier, whose services more

than often worth its price. Below follows a dissection of the empirical data gatherings of

the topic of price.


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Pricing strategy and processes

When the employees were asked if there are any defined pricing strategies in place within

Epsilon, the employees are in consensus that there is a lack of such established strategies

for pricing. Instead several employees argue that as of today, pricing is decided by the

individuals rather than by the organization and refers to the company’s price list as being

the only established form of strategy when pricing the offerings. The price list, they

explain, contains the hourly man- and machine rates required to perform a specific

activity or service and has an origin that is unknown, but probably dates back several

decades.

Although, several other employees claim that the organization has begun discussing

value-based pricing as a new potential strategy, they say that nothing has been formulated

as of yet. Additionally, both newer and older employees state that discussions regarding

pricing have been taking place more frequently and that management are pushing for the

organization to shift from the previous cost-based mindset, into a more value-based

mindset.

When asked about how the current pricing process looks, the employees mostly share

similar views and the process is described as follows: The salesforce receives an inquiry

from a customer, and the salesperson forwards the information to operations, where the

man- and machine hours required to perform the service are calculated. Then the

associated prices for these hours, found in the price list, are summarized into a price. The

salesperson then has the option to add a profit margin to this price. This margin is based

on experience, gut and intuition. Although, they continue, this process differs depending

on the employee, service and customer, as some standardized services can be calculated

directly by the salesforce and some of the larger, older customers have their own price list

which often includes discounts.

Moreover, from the interviews it surfaced that there are typically two categories of

offerings; those which are easy to price and those that are difficult to price. The difficult

to price offerings, the employees state, often consist of complex services, some of which

are unique on the market, and typically require more expertise and a greater collaboration

between operations and sales. Even though the employees agree with each other, when

asked, that it would be easier to price these more complex offerings according to the

value it generates for the customer, they feel that the offerings are all treated equally from

a pricing perspective. Similarly, the employees state that the market-unique offerings

they provide are not treated differently from a pricing perspective either. However, a

number of these answers are accompanied with a sentence or two highlighting an

understanding of the problem this indiscriminate pricing strategy composes.


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Consequences and problems of the pricing

A majority of Epsilon’s sales team mention that they are generally not aware of how the

other salespeople work with setting the final price. They continue by stating that this

constitutes the risk of having an egregious dependence on certain individuals, with a lack

of documentation of their work, such as if they were to leave, the organization would

suffer. Moreover, several employees mention that the damage of being without an

established strategy is worsened by the fact that certain individuals in the organization are

“[…] afraid of charging a higher price”, due to habit and concern over how customers

would respond. When the employees were asked a follow-up question, regarding whether

the employee believe that the company charges according to what the customer is willing

to pay, the answers unanimously pointed towards the employees having a perception that

they would be able to charge a higher price for the service they provide. A few

employees add that although some customers think Epsilon is expensive in monetary

terms, many of them believe the price to be fair in comparison to what they get. Several

respondents highlighted that this fear of charging a higher price constitutes the risk of

leading to a loss of potential profit and revenue.

Thereafter, the employees were asked about who has the ownership of pricing; that is,

who has the final say. The employees unanimously agree that the salesforce has the final

say, but that operations provide the basis for the price as they have the knowledge

required to calculate it. Most of the employees feel that operations have too big of a part

in the decision of pricing but argue that it is nonetheless necessary since the salesforce

are not knowledgeable enough regarding the services Epsilon provides, and the costs

associated with these services. Furthermore, one salesperson argues that operations

seldom try to raise the price beyond the production costs, as they are more concerned

with winning over the customer. In turn, another salesperson argues that even if sales

were to change the price, it would show a lack of internal trust if the salesforce would go

against the recommendations made by operations.

The competitive pricing picture

When the employees were asked to evaluate Epsilon compared to the market in terms of

price, one specific reason surfaced more frequently than others. This being that the

employees perceive Epsilon as not competitive in price when looking at offering isolated

and standard services, and that their strength lies rather, as mentioned in earlier

subsections, in offering multiple offerings as an integrated service. A few employees

explicate that this is due to Epsilon not being organized in a way, mostly in terms of

machinery and equipment, where offering specific isolated TIC-market services is cost-

efficient compared to smaller TIC-market companies. They state that these smaller TIC-

companies can specialize in delivering a single service and thus offer a lower price as a

result of standardizing their offerings and benefiting from economies of scale.

Furthermore, they add that customers only interested in getting their material analyzed or


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tested in the most basic sense, without getting technical statements, implications and

conclusions might find Epsilon more expensive than competitors. This, they explain,

since they do not care for the additional service that is an integral part of Epsilon’s

business model, and thus feel it is unnecessary to pay extra for. In contrast, the employees

mention that if you instead look at customers seeking fully integrated and more complex

solutions, taking part of more than a single TIC-service, Epsilon is widely considered to

be one of the cheaper market alternatives.

In turn, when the customers were asked to evaluate Epsilon compared to its competitors

in terms of price, the answers differed, although with a close-to-equal amount of

representative between each group of answers. The group of answers holding the highest

number of representatives disclose that Epsilon is about average priced compared with

competitors. The second largest group, differing with a single representative from the

largest group, claim that you get a lot for your money working with Epsilon. This is

explicated by one customer saying that they use a lot of different suppliers where Epsilon

is the best priced one by far. Another customer adds that “[…] {Epsilon} is not the

cheapest one, but also definitely not the most expensive one, seen to what you get for your

money”. The last two, equally large, groups of answers claim that Epsilon is cheaper than

equivalent competitors, or that they did not know how they compare to competitors,

respectively.

Communicating customer value and price

The following section concerns empirical findings regarding how Epsilon communicates,

both internally as well as towards its customers. Subsequently, how Epsilon and their

customers view their current performance in terms of communication and lastly,

questions regarding Epsilons current work regarding their customer value proposition.

Communication process

When the employees were asked about the general method of communication, the

employees in sales, state that they try to communicate with customers as much as

possible, and that the preferred method is by personal conversations either carried out

over the phone or by meeting in person. One employee states that verbal communication

is required in order to extract and communicate the value of the offering for the customer.

Employees in operations state that most communication with customers is carried out

through sales, but sometimes they have to talk with the customers in order to understand

exactly what services the inquiry requires. One employee of the operations team states

that these talks are often what the price calculi is based on. In turn, one employee in

management states that all communication is based on inquiries from customers and each

customer has a specific sales employee in charge of communication.


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When asked if the communication can differ at times, all employees agree that it

definitely can. That, depending on the type of customer, role of the contact person and

previous relationship with the customer, communication can differ. At the same time, a

majority of employees argue that the relationship with the customer influences the

communication. Several employees elaborate that the communication is customized

depending on the duration of the business relation and the size of the customer. Such as if

the customer is a new one, more focus is given to communicating the value Epsilon

provides and why the customer should choose them as their supplier, whilst a long-time

customer is already aware of what Epsilon can provide and does not need convincing to

the same degree. One employee states that, when communicating with a new customer, it

is especially important to convey how Epsilon can offer a fully integrated solution for the

customer and the value this generates. Another employee in management also states that

the larger customers have one salesperson responsible for them and are therefore given

more attention than smaller customers.

Looking from the customers point of view, they were all generally pleased with the way

Epsilon communicates. The empirical data show that the most common ways of

communicating are through e-mail and phone. Occasionally, depending on the size of the

customer and the degree of complexity of the offering, face-to-face meetings are held.

Communication performance

The following section depicts the employees’ and customers’ view on how Epsilon

performs in their communication. Both in general terms as well as regarding how they

formulate their generated value. Lastly, there is a short note on how Epsilon performs

relative to the market competitors.

Employee’s perception

The employees mention that, in a minority of cases, a lack of proper communication

towards the customer is the reason for customers choosing to seek out other alternatives.

Not only in the sense of customers not feeling that Epsilon cares, listens and takes an

interest in their problems, but also in the sense of Epsilon not being responsive enough

regarding incoming requests from customers. The latter is explicated as being “[…] a

result of tedious, bureaucratic processes” and insufficient internal communication within

Epsilon.

When probed about how the employees communicate the generated value of the offerings

to the customer, many employees feel that they are not great at doing it. The generated

value is not communicated through the quotations, and the majority of employees argue

that this is something that the organization can improve upon. A large portion of the

employees mention that this is one of the reasons for why customers choose other

suppliers. This as, when customers are unaware about the value Epsilon generates, they

might find Epsilon falsely more expensive than competitors, who simply offers less-value


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bringing services for a cheaper price. However, they add that when Epsilon later explains

what explicit value they generate, the customers more than often accept a higher price.

Continuing, when asked what specific changes are required by the sales team to better the

communication, the most reoccurring answer is that the communication between

customers and sales personal must increase. Both in terms of frequency but also in terms

of enhancement. More specifically, that the sales team must dare to be more curious, to

have more in-depth conversations with the customers, to listen to them and ask them to

elaborate on their issues and problems. Furthermore, to generally ask more questions and

to be more interested in finding out the customer values. Also, to allow the conversation

to take time and not rush it. Two employees in the sales force state that they have started

trying to understand the underlying need of the customer, and what the customer pains

are, in order to explain how Epsilon can solve these issues, but often fail to do so.

Following, the employees were confronted with a question about how Epsilon compares

to their competitors, in their own perception, in regard to service. Several answers

surfaced, where one relatively frequent one concerns that Epsilon is lacking in its service

communication and as a consequence probably underperforms, relative to their

competitors. Although, several employees add that this is something currently being

worked on. Contrastively, when the customers were similarly asked to evaluate Epsilon’s

performance in terms of service compared to competitors, the majority of respondents’

state that Epsilon is excellent in having good customer communication.

Customers’ perception

Regarding how the customers feel about the way Epsilon communicates, one customer

states that Epsilon really seeks to understand what the problem is, which is greatly

appreciated as it leads to a better solution and a better understanding of the exact

customer need. Similarly, one customer mentions that the communication is usually

appropriate and customized for the given situation. However, at the same time one

customer responds that they sometimes wish for more efficient communication and

suggests implementing video conferences.

When asked if the way Epsilon communicates the offerings resonates with what the

customer values (i.e. if Epsilon knows what the customer prioritizes), all but one

customer answer affirmatively. All customers feel that Epsilon’s way of presenting value

in the offerings differs from case-to-case and is something the organization can look to

improve. One customer added that Epsilon could be clearer with what value they are

creating for their customers and that they often do not emphasize the expertise and

competency they possess. Similarly, a large portion of answers state that additional value

could be created if Epsilon, after a finished, or during, a transaction, communicates

additional services they can provide; that is, further showcase how they can create value

for the customer with their expertise and how Epsilon can further help the customer in

terms of their needs. One customer added to this that, as of today, the customer must

themselves ask to receive additional information about Epsilon’s other offerings. Another

customer elaborated by saying it is of great value that Epsilon, while looking for a


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solution to one problem, can find other problems that might need attention, which the

customer originally was not aware of.

Continuing, the customer interviewees mention that one thing that would further increase

their customer value would be to get better feedback after completed transactions - to

evaluate what went well in the collaboration and delivery and what did not, by initiating a

feedback-loop. Such a loop could for example contain questions regarding if the

customer is happy with what was delivered, if something could have been done

differently or if something felt missing. Similarly, a minority of customers mention that

Epsilon would benefit from having anonymous customer satisfaction surveys, allowing

not only quantitative but also qualitative input of improvement, so that customers can

express themselves freely without having to worry about putting strains on the customer-

supplier relationship. Lastly, one customer argues that increasing and simplifying the

explanation of test results and analysis could be beneficial.

Subsequently, the customers were asked how Epsilon should find out what the customers

value in an offering. The largest group of answers concerned that, in order to get better

knowledge about what the customers value in an offering, Epsilon should simply be more

curious and ask questions. Continuing, they state that before initiating a service

transaction, Epsilon should try to build a proper understanding of the problem by having

discussions with the customers. Also, not to be satisfied with only learning what the

outspoken problem is, but rather dig deeper and get to the root of the problem. One

customer exemplifies this by adding that Epsilon might ask what the customers of the

customer value and what their problem is. Additionally, several customers mention that

Epsilon should have a continuous dialogue with the customer, even when there is no

current undergoing transaction, to be able to sniff out future, unforeseen or previously

unnoticed problems and offer a solution for these proactively. The customers were later

asked whether Epsilon ever brings up what they do better than their competitors, to which

all of the respondents respond by saying that they do not.

Customer value proposition

In order to understand how the current customer value proposition within Epsilon looks

like, the employees were asked to specify which of Anderson et al.’s (2006) three

categories of customer value propositions that most closely resemble the one that the

organization employs today. A majority of the employees argue that they have a

Resonating Focus, while a minority of the employees state that they use the All Benefits

approach. Additionally, a few of the employees state that they incorporate elements of the

Points of Difference approach. However, a reoccurring statement from the employees is

that the organization lacks the market and competitor knowledge to fully convey the

Points of Difference to a customer. However, all employees state that even though there

are resemblances to the aforementioned theories, there is no established routine or

process for the customer value proposition as of today.


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When asked to evaluate the customer value proposition process, one employee states that

the current process works, but it would be better if it was more controlled by

management. Another employee adds that the lack of established routine is problematic

because of the company’s wide variety of customers, where some are only interested in

the price while some are more interested in the solution itself. Thus, they argue it could

be difficult to implement a standardized way of presenting the customer value

proposition. Another employee highlights the need for more education and guidance in

order to properly adjust the offering for the customers and employ a Resonating Focus.

Lastly, a sales manager states that a clearer structure, and material one could send over to

a customer, should be put into place in order to convey the customer value proposition

more efficiently and effectively.

Value hinderances and enablers

The following section concerns empirical findings regarding current issues and obstacles

Epsilon need to overcome to be able to implement a more value-based approach to

pricing. The section highlights questions regarding the organizational changes required

and key topics that need to be addressed in order for the organization to adhere to a

conceptualized value-based pricing practice and strategy.

Market unawareness

Many answers to the questions, asked to Epsilon’s employees, regarding what

differentiate Epsilon from their competitors, how Epsilon compares to their competitors

in terms of quality, service, image and price, and finally if Epsilon provides any market

unique offerings could not be answered due to market unawareness. As it stands, the

empirical data show no competitive analysis is conducted by the organization.

The employees also referred to the lack of market and competitive knowledge during

discussions of what general changes are required in order to fully embrace the value-

based mindset and approach to pricing. A majority of the employees state that Epsilon

must perform some kind of competitive analysis to get a grip on the market they are

currently operating in and to get an understanding of what Epsilon is good at, seen to the

different offerings provided by the company, but also compared to the TIC-market as a

whole. Additionally, what Epsilon offers which is unique on the market and which

offerings are exposed to competition. One employee elaborates by saying that this could

partly be achieved by a sit-down between management and operations, where Epsilon can

map their offerings.

This issue is also mentioned by a customer who states that, even though he considers

Epsilon to be an innovative company, “{Epsilon} can do more and should seek to gain a

better understanding of the market in order to be more proactive instead to reactive to

customers."


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Value enablers: Tools and guidelines

When asked how the employees, as of today, find out what the customers’ value in an

offering such as the one provided by Epsilon, the answers are relatively analogous. The

majority of the respondents say this is a difficult task and that no standardized process is

in place as of today. Additionally, a large portion of the employees elaborate that it would

be beneficial to have “[…] some kind of tool to find out the customer value and the

customer’s pains”, whether it is a checklist or a standardized questionnaire. When probed

further, many of the respondents wish for more guidelines that could help them in the

process of finding out the value during conversations with the customers, but also as a

proactive measure. One employee in operations specifically wishes for some kind of pre-

study assessment of the mission at hand by the salesforce, so that this can be transferred

in turn to the operations team to help evaluate and diagnose the problem.

The employees were then asked which difficulties they believed would surface, in regard

to the customers and their opinion, when implementing value-based pricing at Epsilon. A

large portion of the answers concern that one problem that might surface is incoherent

pricing for the same offering, offered at different points in time or by different sales

personal and that some kind of tool for keeping track of historical pricing ought to be put

in place in order to mitigate this risk.

Relations in consideration

Another risk that surfaces during discussions regarding the implementation of a value-

based mindset, concerns the relationship with the customers. Some employees state that

even though they are able to charge a higher price, it is associated with risk in doing so,

since it might make the customer feel like Epsilon uses their vulnerable situation and thus

puts a strain on the customer-supplier relationship. This is explicated by several

employees who mention that when starting to charge more in accordance to the generated

value, it is important not to take advantage of an exposed situation and overcharge the

customer just because you can. According to the employees, this could lead to a loss of

business endeavours, as some customers only care about the price. Although, the same

employees also state that this mostly concerns, revenue-wise, small customers.

Operations versus sales

The empirical findings also reveal another frequently mentioned issue. As stated by one

employee, this key issue is that “[…] the organization has a sales department and an

operations department that both deal with sales and things that are typically out-of-scope

for that specific department”. The employees are mostly in consensus regarding the

subpar collaboration and communication between the operations and sales departments,

which leads to longer response times and margins being depleted. Many of the employees

argue that the collaboration between the two departments must improve for a value-based


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pricing practice and strategy to be implemented successfully and that they must start

working more synchronized and share information and knowledge between one another.

What is more, one customer states that, as of today, there is a substantial gap between

salespeople and technicians, in terms of technical expertise, and that this occasionally

constitutes a problem as the customer can have a hard time adapting its language to be

more befitting for the non-technical salesperson. Additionally, they state that this gap can

result in costly delays if Epsilon’s technicians need to step in and translate the request or

query to the salesperson.

The required organizational changes

What followed was a question concerning what changes is required for implementing a

value-based pricing mindset and practice within Epsilon. First, the question was asked in

a general sense, then what specifically was required by management, the sales team and

the operations team, respectively.

Management

Concerning changes required by management, the largest group of answers, represented

by a vast majority of employees, is that managers must create and foster a supportive

environment in which a value-based mindset can thrive. The employees explicate that

this implies managers allowing individual transactions to be lost, as the salespeople and

technicians can “[…] play around and learn the ropes of how to price according to

value”. Also, that managers must make certain that all employees understand that a

transition towards a value-based mindset is in place, and why a value-based mindset is to

strive for in the first place. Additionally, one relatively large group of answers mention

that in order for the sales personnel to be able to learn the ropes of value-based pricing

and get started, proper tools and education ought to be provided by management. The

employees elaborate that such tools would help and guide the sales team to find out the

customer’s pains, values, and the underlying problems.

Sales

When the employees were asked what specific changes are required by the sales team, a

common reoccurring answer is that the sales team must, given a supportive environment

from management, not be afraid to lose business proposals when learning the ropes of

value-based pricing. One employee explicates by stating “The salespeople must not be

afraid to enter price-related negotiations when charging according to value. To not fold

straight away but instead focus on formulating and communicating the generated value

for the customer”. The employee continues by saying that they instead must take the

opportunity to evaluate and investigate why the customer did not go through with the

proposal. For example, whether it was an issue of price or that they simply did not feel

that their needs were met.


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Operations

Lastly, when the employees were asked which specific changes are required by

operations, the answers all converged to the same topic. Namely, that operations must

realize their own expertise, experience, and wide knowledge and to “[…] not be afraid to

in some regard boast about these skills”. Additionally, that they must dare to start pricing

according to the value they generate instead of “[…] following production costs and

hourly rates to the letter”, and to not be afraid of setting a price which is not entirely

cost-based but rather based on subjective value.

Analysis & Discussion

This chapter attempts to analyze and discuss the empirical findings in conjunction with

the theory detailed in the theoretical framework. The chapter first looks at what

generates customer value and how the employees’ and customers’ perception align with

established theories. Secondly, the issue of working with price and how to capture and

realize value is analyzed. Thereafter, the empirical findings regarding value

communication and conveying the company’s value to customers is analyzed.

Additionally, the changes required to implement value-based pricing are analyzed,

preceding the last section of revisiting and revising the analytical model according to the

empirical findings.

What generates value

As described in the theoretical framework, a multitude of definitions exist for what

perceived customer value entails. According to the empirical findings of this study, the

employees and the customers of Epsilon share similar views regarding what generates

customer value, although their opinions differed in some respects. Both sets of

interviewees indicate that expertise, quality, communication, flexibility, customization,

price, width of the service offerings (fully integrated solution) and relationship-building

activities contribute greatly to the customer value. Arguably, many of these answers can

be likened to a utility aspect in an offering, and as such it is in line with Zeithaml (1988)

who defined value as the consumer’s overall assessment of the perceived extracted utility

of a product, offset with what is given for it. However, defining value as utility seems to

be a simplified version of reality, as stated by Sánchez-Fernández and Iniesta-Bonillo

(2007), as utility is almost as broad a concept as value. The empirical findings show that

while certain value-driving aspects of an offering can be shoehorned into a utility factor,

these aspects are rather more compatible with multi-dimensional definitions of value due

to the differing nature of the value drivers.

As stated in the theoretical framework, Zeithaml’s definition is a one-dimensional

construct of customer value, and the empirical findings can be categorized into several

value dimensions commonly found in definitions of value as a multi-dimensional

Chapter 5: Analysis & Discussion

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construct (e.g., Callarisa Fiol, et al., 2011; Soutar & Sweeney, 2001). The PERVAL

scale, which attempts to define customer value, developed by Soutar & Sweeney (2001),

includes quality, price, emotional value and social value as four value dimensions, and is

mostly consistent with the empirical findings. Quality and price are definitely common

answers from both employees and customers. The emotional value component can be

seen in answers relating to the business relationship and communication between buyer

and supplier, as it affects the utility in terms of feelings and affective states generated by

the offering, which is what defines emotional value according to Walsh et al. (2014). The

social value dimension, as defined by Walsh et al. (2014), is not apparent in the empirical

findings. However, this is not to say that it does not exist, only that it does not feature to

the same extent as the other three value dimensions in this study. On the other hand, as

stated by Soutar and Williams (2009), the PERVAL scale can be altered and value

dimensions can be added or removed, depending on the industry and offering at hand. As

such, the social value dimension can potentially be seen as not relevant, in the light of

this study’s findings, in the context of the TIC-market.

The empirical findings are also in line with theory presented by Amit and Zott (2001),

who argue that value drivers can be categorized into Novelty, Lock-in, Efficiency, and

Complementarities, see Figure 1. The large majority of customers regarded Epsilon as an

innovative company which is a major component of the novelty aspect in Amit and Zott’s

model. The lock-in aspect was also apparent as customization and customer relations

were frequently brought up as drivers of value. Moreover, one customer mentions that the

possibility of having Epsilon as a reference supplier is a great benefit for the customer,

which ties into the positive network externalities aspect of the lock-in category.

Transaction reliability is also seen to be of great value to the customers, exemplified by

the high prioritization of delivery reliability and delivery time when choosing a supplier,

seen in Figure 6. Efficiency is likewise a reoccurring theme in the empirics, where speed

and limiting of search costs is mentioned by a majority of customers as value-driving. As

explained by Hunt and Arnett (2006), this could be the result of prosperous customer-

supplier relationships, as many of Epsilon’s customers do not feel the need to look for

other suppliers since they are satisfied with Epsilon. Furthermore, Epsilon’s wide

selection range of service offerings is frequently mentioned as something greatly

appreciated by customers as this means an opportunity for a qualitative fully integrated

solution. This notion of being able to bundle complementary offerings is similarly

mentioned by Johnson and Weinstein (2004) as being a driver for increased perceived

customer value. As for the complementarities aspect, the empirical data surfaced several

aspects that Epsilon carries out between services. For example, the majority of the

customers state that they really value the advice and recommendations Epsilon provide,

and that their ability to act as a sounding board is greatly appreciated. Many of the

customers explain that the reporting is also of great value and elaborated that it is

important that it is customized for the reader so that they can understand and pass on the

information to their own customer if needed.


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Furthermore, the customers of Epsilon were asked to rate their priorities when selecting a

supplier, which are to be seen as indicators for what drives their value in a business

relationship and transaction. The results, presented in plaintext in Table 3: Customer

priorities ratings, have been organized in Figure 6 shown below to emphasize their

relative importance.

Figure 6: Customer priorities in choosing TIC-market supplier


As the figure shows, quality was highlighted as the most important aspect to consider

when choosing a supplier. Relationship and communication with the supplier received the

second highest rating, further strengthening the view of customer value encapsulating

customer relations and an emotional or affective component as described by, for instance,

Callarisa Fiol et al. (2011). Delivery reliability, delivery time and customization all

received similar high ratings, while geographical location and price were deemed to be

the least important aspects for buyers when selecting a supplier in the TIC-market.

All of the value creating activities and aspects that emerged during the interviews can

either be categorized according to Amit and Zott’s (2001) four wide-spanning categories

of value driver or the through the use of the PERVAL-scale presented by Soutar &

Sweeney (2001). However, categorizing value drivers in this way is arguably not

pragmatic nor intuitive for firms embarking on a value-based journey, as a theoretical

understanding of the concepts is prerequired and thus constitutes a palpable theoretical

barrier for practical usage. Instead, these value drivers are beneficially translated and

formulated in the language of the customers. Suggestively by categorizing them

according to the seven parameters customers consider when selecting a supplier, as

presented above.

Quality

Delivery reliability

Delivery time

PriceGeographical location

Relationship andcommunication

Customization

Customer priorities in choosing TIC-market supplier


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Taken together, the empirical data provide support for what several scholars claim

constitutes value, as well as frameworks detailed in the theoretical framework (e.g.,

Callarisa Fiol, et al., 2011; Soutar & Sweeney, 2001; Soutar & Williams, 2009; Amit &

Zott, 2001). What this suggests, is that Epsilon and their customers’ view on value

corresponds well with definitions of value provided by the scholars mentioned above.

However, the definition of value given by Zeithaml (1988), and similar one-dimensional

value definitions, is rejected on the grounds of it being a too simplistic view on value.

Continuing, more practically in the case of Epsilon, these results taken together are

indicative of a customer base which is greatly susceptible to value-based pricing. As

such, highlighting the aspects that the customers prioritize with a supplier; that is, the

drivers of customer value, could be motivation for an increase in price. This is

strengthened by the fact that quality, which the customers rate as the most important

aspect in an offering, is also what customers and employees alike regard as Epsilon’s

biggest strength. At the same time, price is deemed as the least significant parameter,

making a transition to value-based pricing, and an accompanying increase in price, even

more compatible.

Working with price

From the empirical data it became evident that Epsilon is very dependent on a cost-based

practice and strategy for setting prices. The empirical findings show that most pricing

decisions are based on gut, intuition, and experience, and that there are no dedicated

pricing functions in place. This is coherent with what Hinterhuber and Liozu (2012a)

found in their study of how organizations with cost-based pricing practices make

decisions. This claim is further strengthened by the empirical findings regarding the

current process of setting a price, which is stated to be based on a standardized price list,

with prices derived from hourly man and machine rates, to which the salesforce then adds

a profit margin, which can be likened with how Deshpande (2018) describes cost-based

pricing.

The bricks in the (pricing) wall

The employees highlight the lack of market knowledge as an issue in the pricing, as they

are mostly not aware of market prices or competitors at all. As the organization lacks this

competitive knowledge, competition-based pricing has been unfeasible. Another issue

mentioned by the staff was that pricing is carried out by the individual salesperson, which

creates a dependence on certain individuals in the organization. Furthermore, the

employees state that the pricing process does not have any managerial involvement.

These issues are in line with how Richards et al. (2005) and Ståhl et al. (2018) describe

the common current state of affairs regarding pricing, where these vital strategic

decisions are made, not in the boardroom or by managers, but at lower levels in the

organization which creates a risk for inconsistency in pricing. In the case of Epsilon, the


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issues with the current, highly individual way of pricing, is reasonably symptoms of a

lack of an established pricing strategy, expressed during the interviews. This, since a lack

of a pricing strategy can arguably be seen as having the opposite effects of actually

having such a strategy, which according to Ingenbleek and van der Lans (2013), can

predict which price-setting practice is collectively employed by the organization.

Therefore, a lack of strategy rather implies a fostering of individualism and dispersion in

pricing, as seems to be the case with Epsilon.

Noble and Gruca (1999) define a pricing strategy as the means employed to achieve a

pricing objective, which in Epsilon’s case is an increase in profitability. Meanwhile,

Avlonitis and Indounas (2005) claim that having a thought-out and coherent pricing

strategy is required if the firm wishes to make effective pricing decisions and achieve

their pricing objectives. By not having a proper pricing strategy according to the

definitions above, pricing complex offerings differently, in a more value-based manner,

becomes a difficult task. This could explain why Epsilon price all of their offerings, both

complex and competitively exposed services, using the same cost-based method, as stated

in the empirics. These findings directly contradict prior literature by Hermann (2015) and

Kienzler (2018a) who argue that firms often use a combination of pricing practices when

setting prices.

The value-based alternative

The interviews with the employees revealed that value-based pricing is a practice the

organization wishes to pursue and that it is, in their own perception, practically

achievable by the firm. This is made obvious by the fact that several employees state,

through the interviews, concrete examples of when a more value-based approach to

pricing has been applied. Additionally, how this resulted in an increase in revenue and

profit compared to their normal approach, which is in line with theory presented by, for

instance, De Toni et al. (2016).

A transition towards value-based pricing is an intricate matter, requiring a lot of change.

The employee interviews make clear that all concerned departments feel they must make

general changes in order to implement value-based pricing successfully. This is in line

with Noble and Gruca (1999) who argue that the pricing strategy is determinant on a

number of internal and external conditions and Nagle et al. (2011), who state that

implementing a pricing strategy requires involvement of many different departments

within an organization, such as marketing, sales, finance and capacity management.

Continuing, even with all changes in place there are nonetheless, as stated by Kienzler

(2018a), typically five reasons why value-based pricing may face resistance from

organizations, namely perceived lack of control, herding, fixed-pie bias, egocentric

fairness bias and ambiguity aversion. The empirical findings are mostly in line with

Kienzler’s theory, as the interviewees detailed several concerns over implementing value-

based pricing, which are in accordance with the reasons mentioned. The perceived lack of


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control was not apparent in the answers, as employees state that they lack the market

awareness that this issue can stem from. By not knowing how the majority of the market

chooses to price offerings, there can be no perceived lack of control as defined by

Kienzler. Herding was also not as apparent in the empirical findings, due to the same

reason as above, namely that the employees are mostly unaware of how the majority, in

this case both the other employees within the firm working with price, as well as the rest

of the TIC-market, make pricing decisions. However, as the pricing has remained in its

current state where the traditional and historical way of using a cost-based pricing

practice has not been altered, one can argue that the individual still chooses to employ a

hive-mind form of thinking where certain information is disregarded in favor of the

traditional, old way of pricing.

The topic of fixed-pie bias surfaced during interviews with the salesforce, who often state

that many of their customers are simply interested in a lower price and a better deal, and

disregard other aspects of an offering. However, when talking to Epsilon’s customers this

turned out not to be the case. Rather, the customers, through the interviews, tell the story

of being more concerned with receiving high-quality service, than of price, where price in

fact is seen as one of the very least significant factors for customers when choosing a

supplier. Continuing, egocentric fairness bias can arguably be seen as often apparent in

conjunction with the fixed-pie bias, as many employees worry that a higher price would

be harder to motivate for customers and could lead to a loss of business endeavors.

Lastly, ambiguous aversion is apparent within Epsilon as the employees are often unsure

how to price according to value and often regress to the safer option of basing prices

according to costs. This is made apparent by a majority of the employees highlighting the

difficulty of obtaining the relevant information needed to make an informed decision on a

value-based price, and frequently mention the need for more guidelines and tools in order

to feel more comfortable in pricing according to value.

Capturing value (and making money)

The empirical data show that employees in fact believe that they could charge a higher

price for their offerings than they currently do, while keeping everything else constant. In

other words, the employees’ perception is that the customers are at times willing to pay

more for the same offering than they currently do. This can be seen as being further

supported by empirical data gathered from Epsilon customers, who when asked how

Epsilon compares to market competitors regarding price, said that they get a lot for their

money buying from Epsilon. Additionally, that Epsilon is definitely not the most

expensive one relative to what you get for your money. These comments reasonably point

towards the customer feeling they get more than what they pay for with Epsilon. Taken

together, this is arguably what Bowman and Ambrosini (2000) and Tuomisaari et al.

(2013) would refer to as unrealized value by the firm and thus an opportunity of being

able to capture more value. In other words, an opportunity to generate more revenue and

profit.


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Bowman and Ambrosini (2000) continue by explaining that what constitutes the amount

of value to be captured, is the amount of perceived customer value from the offering and

the amount of customer bargaining power. This relation is such a one that a high

perceived customer value and a low customer bargaining power results in more value to

be captured (Bowman & Ambrosini, 2000; Tuomisaari, et al., 2013). Looking at the

customer bargaining power, as presented by Porter (1980), in the case of Epsilon and its

customers, the empirical findings suggest that this power is occasionally low. This since,

during the interviews, it surfaced that a substantial amount of the services provided by

Epsilon are unique on the market, if not only on a national level, a European or even

sometimes a global level, and that a large portion of the customers purchase such

services. Additionally, that the concept of providing a fully integrated solution,

consolidating all of a customer’s TIC-related needs, is also unique and is what mainly

attracts the large revenue customers. This points towards customers, in these cases,

having no substitute for the offering they acquire from Epsilon, and it is thus indicative of

a low customer bargaining power (Porter, 1980). As such, Epsilon is in a seemingly

opportunistic and favorable position of realizing more value, and thereby profit, from a

large portion of existing customers.

The value capture dilemma

Hitherto, the positive sides of value capturing have been investigated. However, as

always, there are two sides to a coin. Even in the case of the customer bargaining power

being low, thus enabling more profit to potentially be realized by Epsilon, the employee

interviews shed light on one issue that might emerge. This being that the customers might

feel as though Epsilon takes advantage of their vulnerable situation, which might put a

strain on the customer-supplier relationship and potentially even damage it. This can

lower the customer’s perceived value and, according to Dick and Basu (1994) and Akbar

Aulia et al. (2016), negatively affect the customers’ loyalty and re-patronization. Thus,

potentially deter future business endeavors and ultimately lead to reduced revenue and

profit to be realized by Epsilon. Similarly, the employees mention that when transitioning

towards a more value-based process, the risk and issue of losing business endeavors with

customers greatly concerned with price surface, as prices tends to increase as a result of a

value-based transition (De Toni, et al., 2016). However, Grönroos (1994) and Nwakanma

et al. (2007) suggestively highlight a solution mitigating this potential risk, which

concerns the fact that having a healthy customer-supplier relationship and conducting

relationship marketing activities can prompt customers to be less sensitive in terms of

price. Ergo, transitioning to a value-based pricing mindset and practice can on the one

hand yield more realized revenue and profit to the firm, but can on the other hand surface

imminent threats, such as dissatisfied customers and missed business endeavors. Dealing

with, or at least diluting, the value capture dilemma might entail indulging in

relationship-nourishing activities to create healthy customer-supplier relationships and

thereby reduce price sensitivity.


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What is more, Porter (1980) mentions, besides substitutes covered in the last subsection,

a second source of customer bargaining power. This one is beneficent from the

customers’ point of view and regards if the customer contributes to a large amount of

total revenue to the firm. As it happens, Epsilon employees express the existence of such

large revenue customers, meaning that the value to be captured in these cases, following

Porters (1980) definitions, is seemingly lower than in the cases described previously.

Instead of trying to capture the remaining unrealized value of these customers, who buy

in larger volumes and who Epsilon’s revenue is dependent on, the empirical data tell the

story of Epsilon showing fear for charging a too high price and instead offers discounts

and increased service to these customers. This as a means of adding to the perceived

customer value, which corresponds to theory presented by Johnson and Weinstein (2004),

and making the big customers less inclined, in the employees’ perception, to change

supplier to a market competitor. Subsequently, Epsilon arguably fortifies future big

business transactions and the revenue that follows, but at the hitherto undiagnosed cost of

draining any potential value and profit that might have been realized.

Conveying the message

As stated in the theoretical framework, the CVP can be used as a vital strategic tool for

when a company communicates how it will attempt to provide value for its customers

(Payne, et al., 2017). The empirical findings made it apparent that the CVP is not always

used strategically at Epsilon, as the respondents claim that there is no established strategy

that guides the formulation of the CVP. Although, the empirical data show that the

communication is often customized depending on the customer, such as with a new

customer where more focus is given to communicating the value Epsilon provides and

why the customer should choose them as their supplier. This shows that the foundation

for using communication as a strategic tool is already somewhat in place and indicates

that the step towards formulating a strategic and customized CVP is not far off.

Propositional imperfections

A majority of the interviewed employees state that they are not great at communicating

generated value to the customers, which is in parallel strengthened by the interviewed

customers who claim that the value Epsilon communicates to them differs between

transactions and is something Epsilon should look to improve. The empirical data show

that the generated value is not communicated through quotations or the CVP, and the

employees argue that this can be a reason why some customers choose other suppliers,

since customers might find Epsilon too expensive and wrongfully select another supplier

based on the assumption that they provide the same value for a cheaper price. This is

arguably a reasonable assumption from Epsilon as common CVP definitions (e.g., Kaplan

and Norton, 2001; Webster, 1994) often touch upon how the customer can gain superior

value from a company seen to their competition. Therefore, if Epsilon’s competitors more


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adequately present and communicate their value to the customer, the customer is

reasonably more inclined to choose them over Epsilon. Continuing, as Epsilon does not

have a formalized strategy where they detail their generated value, it becomes difficult to

differentiate themselves from competitors and convey their superiority to customers. As

prior literature suggests, having a coherent pricing strategy is required if the firm wishes

to make effective pricing decisions (Avlonitis & Indounas, 2005), and the absence of

such a strategy can explain why Epsilon fail at communicating the generated value of an

offering and why customers might be inclined to choose another supplier.

Albeit, the employees agreed that if they in fact explicate the generated value, the

customers are often inclined to choose them as a supplier, and even accept a higher price,

which aligns with the above CVP definitions. Moreover, the notion of customers agreeing

to a higher price when faced with a higher generated value is similarly a believable

outcome as it corresponds well with the conclusions presented by De Toni et al.’s (2016)

study of companies basing prices on value.

Another aspect of the CVP that many of the customers felt was insufficient, was the focus

given to complimentary services and other value-bringing services that Epsilon can

provide. As one customer exemplified, Epsilon’s ability to find and solve problems the

customer was not previously aware of, is something that would be of great value to them,

in order words: to be more proactive instead of reactive. Amplifying the degree of

importance of this notion is that not only one, but two of Johnson and Weinstein (2004)

suggested drivers for value regard this exact topic. Namely, the bundling of

complementary offerings as well as offering additional features and benefits.

Inadequately adhering to this subject puts Epsilon at the potential risk of failing to trigger

new sales opportunities. This resonates with Bakos (1997) sentiment; that the triggering

of new sales opportunities can be an outcome of when a firm sufficiently communicates

its offering portfolio in an existing customer-supplier relationship. Thus, failing to do so

can result in potentially significant opportunity costs for the firm. This expressed concern

by the customers highlights the need to adhere to CVP theory presented by Kambil et al.

(1996), who claim that the value propositions should define how items of value, such as

complimentary services, are packaged and offered to fulfill customer needs.

The empirical findings also showed that there is a dissonance among the employees

regarding how the current CVP is formulated. As stated in the empirics, a large majority

of the employees mention that the current CVP most closely resembles a Resonating

focus, while a minority argued that they use the All benefits approach. Arguably, this

dissonance can stem from the lack of an established strategy, as discussed earlier. What is

certain, however, is that the lack of formal guidelines has made the formulation of the

CVP into an individual task that changes depending on who you ask.

Continuing, a large majority of the employees state that a resonating focus is what they

want to achieve with the CVP, which according to Anderson et al. (2006) is the most

desirable category of CVPs. Achieving a resonating focus in the CVP is reasonably

dependent on the employees’ understanding of the customer and the market conditions,


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as it is of utmost importance to know what the customers actually care about (Anderson,

et al., 2006). Furthermore, many of the employees added that, due to the lack of

competitor and market knowledge, the points of difference approach is difficult to

implement, even though it is suitable. This is, as touched upon earlier, because many of

the employees believe customers might choose another, cheaper alternative simply

because they are not aware of the benefits of choosing Epsilon even though the generated

value may be higher. The interviewed customers all state that Epsilon does not mention

what they do better than their competitors, and the favorable points of difference aspect

in the current CVP can therefore be said to be absent and uncompliant with definitions

provided by, for example, Webster (1994) and Kaplan and Norton (2001).

The desirable approach

The empirical data and prior literature by Anderson et al. (2006), Webster (1994), and

Kaplan and Norton (2001), strengthens the notion that the desirable CVP is formulated

with a resonating focus, while also lifting certain important points of difference in order

to convey what differentiates a company from its competitors. Adding points of

difference to the CVP might make the customer more inclined to choose Epsilon as a

supplier if they are more aware of what Epsilon brings to the table compared to their

competitors and can further justify a higher price tag. As value-based pricing is based on

the perception of benefits being offered to the customer in comparison to the price they

pay (De Toni, et al., 2016), a CVP highlighting the most important value-bringing aspects

of an offering, in conjunction with what separates Epsilon from other suppliers, will thus

most likely increase the customers’ affinity toward Epsilon.

Prior literature highlights a structured approach when formulating the CVP, which in turn

highlights the benefit of keeping Liozu’s (2015) eight key dimensions for designing a

compelling CVP in mind. These key dimensions correspond well with the idea of

creating a CVP with a resonating focus and favorable points of difference. For example,

one dimension is that it should be inimitable, meaning the CVP should be unique and

difficult for competitors to copy, while another dimension is that it should be impactful,

meaning it should really resonate with the customer and show just how much of an

impact or benefit the offering will provide the customer. The employees state that

Epsilon’s wide array of customers requires the CVP to be customized and that it might be

difficult to implement a standardized way of presenting the CVP. However, as stated by

Kaplan and Norton (2004), strategy is based on differentiated CVPs, and satisfying

customers is the source of sustainable value creation. As stated by Hadinsah et al. (2018),

no firm can assume to meet the expectations of every single customer, however the

strategies employed will determine what value proposition the company offers to meet

these expectations and win the customers’ loyalty in the majority of cases.

What the theory and empirical findings indicate, is that a customized CVP is in the best

interest of both the customer and the supplier. However, this does not mean that the CVP

should constantly be altered for every transaction involving a specific customer. As


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entailed in the empirics, all interviewed customers state that Epsilon’s way of presenting

value in the offerings differs from case-to-case, which is not optimal. By customizing the

CVP according to the customer instead of the specific transaction, this issue can be

mitigated. Such that, as described in the empirical data, a new customer is faced with a

broader picture of what Epsilon can offer, whilst a more mature customer instead receives

a CVP more focused on what they need in that specific situation.

The bricks of change

Transitioning from a more traditional outlook and way of pricing, to a new practice and

strategy, where decisions are based on customer value, can be a vast and intricate

organizational change. This can be adequately summarized by Hallberg (2017) who states

that a proper implementation, education and organizational adherence to new processes,

concerning such a change, is eminent for its ultimate success.

The following section outlines an analysis of changes, actions and processes that are

suggestively required within the organization for a successful transitioning to a more

value-based mindset and pricing. Firstly, enablers and tools for helping employees in the

transition is covered, followed by subsections covering the importance of changing the

overall employee mindset as well as the organizational environment and culture.

Thereafter, the plausibly imperative subject of gaining market consciousness is brought

up and is preceding the last topic of how a transitional change, such as one towards

value-based pricing, should go about in more practical terms.

Training wheels of value

A consensus among relevant authors (e.g., Hinterhuber and Liozu, 2012b; Kienzler,

2018a) is that one persisting challenge, accompanying the act of incorporating value in a

firm’s business activities, is the process of obtaining unbiased information regarding

customers’ value perceptions. The empirical data show that this obstacle matches the

reality of the case of Epsilon as well, where several employees argue that even though

they have tried to find out what the customers value, they often fail to adequately do so.

Resolving such an issue cannot be stressed enough as an essential prerequisite of

applying value-based pricing (and arguably any value-incorporating activity) is

understanding what the customer values, strengthened by prior literature presented by, for

instance, Hinterhuber (2016) and Ingenbleek (2014).

The empirical data show, when the employees were asked how they find out about

customer value as of today, that there is no current process in place, and that finding out

the customer value is generally seen as a difficult task. A large portion of the employees

elaborated that it would be beneficial to have some kind of checklist, general guidelines

or standardized questionnaire to help them in this task. The need for a training wheels-

like tool to deal with finding out customer value was arguably likewise recognized by


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Töytäri (2018), who presents a framework including a set of tools for gaining what he

calls customer insight. Gaining customer insight is about acquiring a better understanding

of, and mapping a customer’s business processes, situation, goals, challenges and key

value drivers, and to ultimately reveal the customer pains (Töytäri, 2018), which are,

according Woodall (2003), reflective of the customer’s perceived value. In Epsilon’s

case, a set of tools as described above, should seek to map out key information as

described by their customers when asked about how Epsilon should find out what the

customers value in an offering. More specifically, they state that to find out about the key

information, Epsilon must ask more questions and be more curious, in order to build a

solid understanding of the core, and underlying, problems of the customer’s issue. The

aim of these tools, in the form of questions or guidelines, could in other words be to find

out, for example, concerns regarding the customer’s nagging customer, a time-sensitive

deadline, costly production standstills or additional required service.

Successfully implementing a set of tools such as the one described above, would by its

definition increase a firm’s generated value towards its customers. Consequently, this

would result in creating more satisfied customers, which in turn fuels an increase of

customer repurchase intentions and loyalty (Akbar Aulia, et al., 2016), and a competitive

advantage (Asgarpour, et al., 2015). Additionally, the empirical data strengthens what

Hill (1996) describes as the understanding gap, which means that not understanding the

customers’ needs and wants can result in dissatisfied customers, and thus the

aforementioned tools can assist in mitigating this gap. Furthermore, given that Epsilon

adopts a value-based pricing approach, this set of tools would also enable setting a higher

price (De Toni, et al., 2016; Ingenbleek, 2014), and in turn generate greater profits (De

Toni, et al., 2016).

Lastly, the employees similarly express a need for a second tool, this one with the

purpose of making the risk of incoherent pricing for the same offering redundant, offered

at different points in time or by different salespersons. Put differently, some kind of tool

which keeps track of historical pricing through time, which the employees can go back to

for reference and guiding. This issue of inconsistency in pricing is similarly highlighted

by Richards et al. (2005) and Ståhl et al. (2018) as a possible symptom of pricing not

being a topic carried by management. Rather, it is a subject that is dealt with at lower

levels in the organization, by employees who are not necessarily aware of the bigger

picture. Thus, the issue of resolving the incoherency problem highlights the need for a

new pricing strategy, based on value, to include a component dealing with historical

pricing.

This “Historical pricing tool” could also be created to incorporate value segmentation of

the customer base. This is currently absent at Epsilon, although the employees were

positive to the notion of starting to incorporate value in their segmentation process.

Developing value segmentation could prove beneficial when transitioning to a value-

based strategy as segmentation is particularly important for pricing strategies

emphasizing customer value (Nagle & Holden, 2002a). Additionally, Liozu and

Hinterhuber (2013) state that value-based pricing implies aligning prices with differences


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in value perceptions across segments, thus strengthening value segmentation as a valid

addition to Epsilon’s historical pricing tool as it will facilitate a more efficient pricing

process.

Minding the mindset

The empirical data highlight that one of the key actions that must take place, for Epsilon

to successfully transition to a more value-based way, is that managers must make certain

that all employees understand that a transition is in place, and why it is something worth

striving for. This cruciality of communicating the change is likewise highlighted by, for

example, Passenheim (2010) and Crawford (2013) who argue that it is a vital step in

order to engage the people of the organization, and succeed in an organizational change.

Besides communicating the change, an overall change in mindset is arguably a

prerequisite for a successful transition, agreed upon by Bushe and Marshak (2014) as

well as by Lewis (2011). The need for a changed mindset, within Epsilon, is made

apparent by the empirical data where it emerges that, as of today, employees are afraid of

entering price-related negotiations when basing prices on value. More specifically, that

employees today fold straight away when questioned about the price instead of standing

their ground and specifying the generated value of the offering. These examples of

Epsilon’s behaviour arguably resemble the resistance behaviour egocentric fairness bias,

described by Kienzler (2018a), in the sense that employees do not feel they can properly

motivate the value-based price. Instead, employees seem to invariably base prices on

costs, which might be explained by them feeling it is safer and easier to motivate, which

aligns with prior literature presented by Deshpande (2018).

Continuing, the employees suggest, as a means of solving the aforementioned problem,

that the salespeople must start focusing on conveying the value that is generated for the

customer and investigate the root cause of any lost proposal, to evaluate if it was an issue

of price or an inaccuracy in meeting the customer’s need. A similar wanting for a sort of

feedback-loop after completed transactions, as the one described above, is found in the

empirical data from the customers. The customers state that it would benefit both Epsilon

and themselves, and function as a mean of finding out what went well and what could

have gone better. These are all arguably fruitful solutions to the stated problem as it

would result in establishing a mindset emphasizing the uncovering of what the customers

value and communicating this value in a CVP, in line with relevant CVP authors (e.g.,

Kambil, et al., 1996; Payne, et al., 2017). Additionally, as Saura et al. (2005) conclude,

adhering to such a mindset might also yield the additional benefit of enhancing the

employees’ behavioral commitment to the firm, which can help make the new behavior

and mindset more durably lasting.

Furthermore, as a means of dealing with changing mindset, Bushe and Marshak (2014)

and Lewis (2011), suggest focusing on establishing narratives within the firm, to convey

and communicate the rationale behind the change and its ensuing consequences. In


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Epsilon’s case such narratives could, for example, deal with previous transactions that are

deemed successful in a value-incorporating point-of-view, such as the ones described in

the empirical data. Presumably, these success-stories would not only encourage and

motivate employees in embarking on their own attempts of incorporating value, but also

fundamentally manifest its applicability and potential within the firm. Moreover, as

Kienzler (2018b) puts it, this new mindset should be, especially for employees dealing

with sales activities, established with its roots in value. This notion is shared by

Hinterhuber (2016) and Nagle and Holden (2002a), who shed light on the importance of

educating and teaching the employees the mindset of focusing on understanding what the

customers value and how to price in relation to their perceived value, for a value-based

pricing implementation to be successful.

The supportive and effective environment

A vast majority of the employees of Epsilon state that, besides educative measures of

learning how to use value, management must foster and create an environment in which a

value-based mindset is encouraged and supported. The employees elaborate on this by

stating that managers must allow individual transactions to be lost and for the sales and

operations teams to play around with the pricing to get the hang of it. These measures

may very well be fruitful, as it strengthens claims by Lewis (2011) and Senior (2016)

who point out the crucial need for managers and executives to create a supportive

infrastructure to be able to meet organizational goals, such as transitioning to a value-

based practice and strategy.

Furthermore, an arguably important component of the forthcoming transition to a value-

based mindset is correlated to what Nagle et al. (2011) state are two of three key aspects

in successfully implementing a new pricing strategy, namely an effective organization,

and timely and accurate information. The empirical data suggest that Epsilon is currently

inadequately complying to these aspects. Firstly, the employee interviews surface the

issue of both the sales and operations department dealing with activities which are not

their primary responsibility. Such that operations can be seen doing sales activities and

vice versa. Secondly, there is a significant consensus among the employees that there

currently is a subpar collaboration and communication between operations and sales, and

that they must start working more synchronized and share information and knowledge

between one another. In addition, that this ultimately results in longer response times.

This last notion was shared by the customers who said that they occasionally face

bureaucratic processes with multiple contact persons to solve their issues, and that this

leads to costly delays. These findings are indicative of an organization not operating at

full effectiveness, and where timely and accurate information is not a guarantee, neither

within the organization or towards the customers. Furthermore, it highlights the need of

involving several different departments within Epsilon in the change process, which

strengthens Nagle et al.’s (2011) claim that implementing a pricing strategy requires

involvement of several departments within an organization.


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Gaining market consciousness

During the course of the interviews, a lack of market and competitive knowledge within

Epsilon surfaced multiple times. Such lack of knowledge was for example an

unawareness of competition in general and competition among specific offerings and

offering uniqueness. As a result, many of the employees were unable to answer certain

questions. This lack of market knowledge also makes itself noticeable from a customer

point-of-view, where one customer states that “{Epsilon} can do more and should seek to

gain a better understanding of the market in order to be more proactive instead to

reactive to customers." This statement is indicative of the customers seeing Epsilon as

not being up-to-date with market trends, and is directly opposed to what Amit and Zott

(2001) describes as a novelty value driver. Hence, it can rather arguably be seen as a

value inhibitor, making customers less inclined to do business with Epsilon as their

perceived value is decreased (De Toni, et al., 2016).

Similarly, the empirical data show another symptom of market unawareness, this one in

the shape of a currently vast discrepancy between how Epsilon believes they perform

regarding service communication and how their customers actually perceive their service

communication. Such a discrepancy can easily lead to costly, time-consuming, and

misguided actions from Epsilon in trying to resolve an issue which in fact does not need

resolving. Additionally, it can make Epsilon’s communication regarding what value they

can generate for the customer inefficient and inaccurate. This since the CVP should

reflect not only how the firm aims to deliver value towards the customer, but also how

this value differentiates them from competitors (Kambil, et al., 1996; Kaplan & Norton,

2001; Webster, 1994). Thus, if Epsilon themselves do not know which value they

generate and what they are good at, communicating it will prove to be difficult.

Furthermore, such a discrepancy can bring with it a bad reputation, negatively affecting

Epsilon’s brand, and make Epsilon’s attempts of branding towards the customer

inadequate. This is best exemplified by Johnson and Weinstein (2004) who argue that

branding is something that can help the company differentiate its image and distinguish

itself from competitors. As this driver is undeniably reliant on the company having

knowledge of the competitive landscape, in terms of what the competitors do and does

not do, it is as of yet unachievable for Epsilon.

Moving on, besides being an essential component in a range of value driving activities,

competitive awareness and knowledge is imperative for applying competition-based

pricing, as seen by various relevant authors, for instance Hinterhuber and Liozu (2012a)

and Ingenbleek et al. (2003). This becomes relevant by the fact that even though Epsilon

offers a number of market unique offerings, arguably more suitable to be priced based on

value, they offer competitively exposed offerings as well. These offerings like all others,

as suggested by the empirical data, invariably and inattentively follow a cost-based

pricing practice. This suggests that competitively exposed offerings provided by Epsilon

might very well benefit, in the sense of an increased price, from being priced according to

a competitive-based pricing practice and strategy, instead of only being derived from

costs. In turn, this results in Epsilon facing the risk of missing out on a great deal of


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potential value to be captured and realized as revenue and profits to the firm. This since,

as stated by relevant authors (e.g., De Toni, et al., 2016; Sammut-Bonnici and Channon,

2015), competition-based pricing is about looking at competitors’ pricing for a similar

offering. Thus, if competitor prices turn out to be higher than what Epsilon charges for

the same type of offering, Epsilon can reasonably motivate an increase of their price, and

by doing so increase their revenue and profit.

What is more, as reality seldom is as black and white in such a way that an offering is

priced solely with its base in either cost, competition or value, the necessity of having a

fundamental market awareness further amplifies. This notion is shared by Ingenbleek et

al. (2003) who argue that arriving at a pricing practice to use is dependent on several

factors. Likewise, Kienzler (2018a) argues that the usage of pricing practices is seldom

mutually exclusive and that managers often combine different types of cost, market and

value-information when setting the price. Thus, having a basic and proper understanding

of the market arguably enables and paves the way for a firm to set prices to the best of

their ability, and is consequently something that might be worth striving for in Epsilon’s

case as well.

Taken together, a lack of market awareness constitutes an imminent threat and arguably

impedes a company such as Epsilon in a wide range of ways. It can turn potential value

drivers into something better likened to value inhibitors, reducing value instead of

increasing it, and it can misshape a firm’s value proposition so that it inaccurately

communicates a firm’s generated value. Furthermore, it can be seen as blinding a firm

from being able to adhere, see and ultimately price with the market in mind and to the

best of a company’s ability, potentially resulting in a loss of revenue and profit. Hence, in

order to mitigate and manage the risk of being market unconscious, the firm could strive

for becoming market conscious, by for example conducting a market analysis. This can

be achieved either by the company itself or by reaching out for external expertise.

Suggestively, this all raise the question of why Epsilon currently lacks market awareness

in the first place. The empirical data and subsequent, suggest that Epsilon as of today, as

well as historically, has been operating under a pricing practice and strategy closely

resembling a cost-based one. This notion may be evidential of why no current market

analysis has taken place, as authors (e.g., Amaral and Guerreiro, 2019; Deshpande, 2018)

state that neither competition nor market conditions are considered when conducting

cost-based pricing. Thus, Epsilon might have found it practically unnecessary to keep or

obtain such information in the past. In addition, as Amaral & Guerreiro (2019) conclude,

it might also be the case that a firm, such as Epsilon, have had difficulties in obtaining

relevant data needed for other pricing practices, such as the one needed for value-based

pricing. This could lead to what Kienzler (2018a) refers to as ambiguity aversion and

thusly made Epsilon feeling more content and safe using a pricing practice dependent on

data more readably available, which is the case with cost-based pricing (Amaral &

Guerreiro, 2019). What makes this assumption further applicable in Epsilon’s case, is that

the employees highlight this exact difficulty of obtaining relevant information for other

pricing practices, during the interviews.


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Planning for change

Organizing a change such as the one moving from a more traditional mindset regarding

pricing, where prices mostly are derived from costs, to a one where value plays a central

role, requires a great deal of planning and thought, evident by previous analytical

sections. Beckhard (1969) presents a five-step process for successfully implementing a

change such as the one described. Subsequently, what follows is an analysis of how

Epsilon stands relative to each of Beckhard’s five-steps.

The first step presented by Beckhard is about conducting a diagnostic phase of the current

situation and the need for the change. The empirical data suggest that this is currently

underway at Epsilon, as they have started thinking in more value-based terms and

recognized the costs of their current way of working as well as the benefits, aligned with

relevant theory, a change to value-based pricing would yield. Such as; being able to

charge a higher price (De Toni, et al., 2016), increasing customer satisfaction, loyalty and

re-patronization (Akbar Aulia, et al., 2016; Dick & Basu, 1994) and tie stronger

customer-supplier relationship. Beckhard’s second step deals with the formulation of a

strategical implementation plan for the change. Overlooking the empirical data, this is

arguably something that is lacking within Epsilon as of today. From the interviews it is

clear that no plan for the change has as of yet been formulated, much for the reason that

Epsilon does not really know what to focus on and how such a change would go about, in

greater detail than what is depicted in the previous step. Thus, in order to successfully

implement the change, Epsilon arguably needs to establish a proper change management

plan, in line with theory presented by, for instance, Crawford (2013). Although, what

Epsilon in fact has stated and recognized as a vital and necessary component for being

successful with the change, is creating helping tools and conducting education for the

employees in their training of obtaining a more value-based mindset. This can be seen as

correlated to Beckhard’s third and fourth step which deals with the aforementioned;

namely educating and training the employees for and in the change, likewise with

Hallberg’s (2017) claim of education being a necessary part of being successful in a new

strategy. Hence, there is reason to believe that this step will serve as no obstacle once

Epsilon reaches it. Lastly, Beckhard mentions that the fifth step of his five-step process is

having an evaluation step of the performed process. As Beckhard’s first four steps are

prerequisites for this final step, this is something yet to be conducted within Epsilon, but

all the same it is an important part of the change process to consider.

Lastly, after having successfully executed and implemented a change towards a more

value-based mindset, pricing practice and strategy, the need of someone in charge of the

emerged processes arguably arises. This need of establishing a value manager, or the like,

is highlighted by Liozu (2015) as being a key aspect of value-based pricing. Having such

a person would yield a structured approach to how the firm changes and deals with value,

their value propositions, and formulations of value. Liozu also adds that a firm might

benefit, at least in an initial stage, from engaging with experts to manage the associated

processes and risks of the change, before the company itself has had time to establish

such a manager. The idea of reaching out for, and establishing, expertise within the field


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of value can likewise be found with Hinterhuber and Liozu (2012a), who claim it to be

one of the many sources when basing price on value. This is something that is all together

missing within Epsilon today, evident by the empirical data which show that there

currently is no defined or formal owner of neither the customer value proposition

processes nor the pricing strategy or process.

Revisiting the analytical model

The empirical findings and subsequent analysis provide support for a revision of the

initial analytical model. The analytical model did not need major revisions, although

some alterations were deemed necessary. The new revised model can be seen in Figure 7

below, along with accompanying explanations and motivations for alterations and new

additions.

Figure 7: Revised analytical model


As mentioned in the original analytical model, the pricing practice and strategy will be

influenced by a foundation of various internal and external conditions. Finding out and

mapping these different factors was earlier described as being the outcome of a so-called

Offering complexity analysis. Which, more specifically, had the purpose of outlining the

offerings’ uniqueness in the market and how difficult it is to carry out by the firm.

However, the empirics and subsequent analysis suggests that the offering complexity

analysis is more intricate and complex than originally thought, and that it therefore

should not simply be treated as a merged, one-dimensional subject. Instead, it is justly

divided into two natural subdimensions, highlighting their individual importance

separately. These two subdimensions, as depicted in the revised analytical model in

Figure 7, are Firm awareness and Market Awareness. As the name suggests, the first of


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these two subdimensions seeks to become aware of the firm’s internal competencies and

expertise, in order to understand if incoming requests by the customers can be performed

at all, and if it can, which effort must be put into the request. That is; how complex is the

offering requested by the customer? What level of knowledge, know-how and experience

is required by the operations team to perform it? Generally speaking, what are our

strengths, and what are we good? Continuing, market awareness, the second

subdimension, instead sheds light on the importance of understanding the market the

TIC-company is operating in. More specifically; which offerings are considered rare and

unique? Which are considered easy, simple, and standardized? What is it that attracts the

customers specifically to the company’s offering and in turn, what makes customers less

inclined to do business with the company? What are we doing better than the

competitors? Understanding and investigating these two subdimensions will give clarity

to the true complexity of the offering. Subsequently, these two subdimensions will

provide a solid foundation on which decisions regarding pricing practice and strategy can

be based upon. It will be indicative of not only what the company excels at, in general as

well as in relation to their competitors, but also about the competitive arena at large.

What is more, the degree of value that the offering has the potential to realize and the

amount of customer bargaining power.

Furthermore, the original analytical model shows that the second of the two

subcomponents to aligning the pricing practice is looking at the customer value drivers.

This subcomponent has, in a similar fashion to the offering complexity analysis, been

explicitly branched into two subdimensions of its own. Namely, “identify” and

“evaluate”. What in essence differs the revised analytical model from the original one, in

this matter, is the separation of the two processes constituting the value driver

subcomponent. Where, in the original analytical model, the two were described as a

combined, simultaneous happening with the purpose of evaluating and identifying what

drives customer value. However, from the empirical data and subsequent analysis it has

become obvious that seeing the value driver subcomponent as one-dimensional is subpar.

This since the empirical data surfaced that there are, on the one hand, a number of value

drivers which are shared among the customers of the case company and are deemed more

important than others on a whole. However, on the other hand, not all of these were of

equal importance for each customer. Rather, how important a certain value driver is could

be a matter of situation, context, and business industry. Hence, the two - identify and

evaluate - must be separate processes for each individual transaction when investigating

which practice is best aligned with the current context the case company is facing.

Moving on, like its predecessors, the empirics and subsequent analysis suggest that the

willingness-to-pay component of the original analytical model is not sufficiently

elaborated and is rather a multi-dependent component. As stated in the original analytical

model, one important aspect is the quantification of the generated value of an offering.

Through the empirical data, it became evident that the employees require a helping tool,

or as the revised analytical model calls it, a quantifying tool to help in this process. In

order to extract the maximum monetary value a customer is willing to pay, certain value-


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driving aspects of an offering could for example be attributed to a specified percentage

increase in price from the standardized price list. What is more, the empirics and

subsequent analysis show that a major factor for concern among the employees of the

case company, was the risk of inconsistent pricing. If a firm were to be inconsistent with

their pricing, customers might react negatively and be more inclined to question the

suggested price of the offering. This suggests the incorporation of the second aspect of

the WTP-component in the revised analytical model, namely a “consistency tool”, which

entails getting a historical pricing perspective. This sort of tool could mitigate the worry

for an incoherent pricing process and would ultimately also affect the maximum

monetary value a firm can extract from a customer. As previously mentioned, this

consistency tool could beneficially incorporate a value segmentation of the customers in

order to facilitate a more effective and efficient pricing process.

Moreover, the customer value proposition component of the analytical model has

remained largely the same, however the empirical findings provide support for a more

detailed break-down of this final aspect of the model. Based on the gathered and analyzed

data, the CVP should be formulated with a resonating focus in mind, while also

highlighting key points of differences from competitors. As stated by the case company’s

employees and customers alike, the case company frequently fail to communicate the

value they generate for the customer and are often unaware of what the customer

prioritizes. By formulating a resonating focus in the CVP, this issue can be mitigated, and

the firm’s customers will be more likely to accept a higher price for a service if the firm

manages to properly convey the key value aspects of an offering. With the previously

discussed tools for identifying and evaluating value drivers, a resonating focus will be

more easily accomplished. Furthermore, the CVP should contain a points of difference

aspect, where firms can state what separates them from, and makes them superior to,

competitors. As stated by several employees of the case company, this has not been

possible previously because of the lack of market knowledge, but with more focus given

to the issue of market unawareness, the points of difference will surface and can be

incorporated into the CVP to further motivate a higher price to the customers.

The empirical data and analysis also show the importance the customer relations have in

the CVP. When setting the final price, it is important to keep the customer relationship in

mind. This since a firm who acts purely to maximize its captured value, on the

customer’s behalf, by exploiting its bargaining power, might find themselves putting a

strain on the relationship with the customer, and could potentially lead to a loss of future

business prospects. Furthermore, the relationship can also alter the contents and language

of the CVP as stated by De Toni et al. (2016), who claim that the relationship a firm has

with the customer will impact the formulation of the CVP. For example, a potential

customer known, through earlier interactions, for being risk-avert should be fronted with

selling points emphasizing risk reduction. This further highlights the importance of

knowing your customer, and the firm’s ability to customize the offerings and decide

which value drivers are to be given the most emphasis in order to increase perceived

customer value (Hunt & Arnett, 2006). The empirical data additionally show that a


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reliant, long-term customer is treated differently in comparison to a new potential

customer, and thus the relationship seems to have a proven impact on the communication

between a firm and its customers.

By including a customer relations aspect in the CVP, it can also contribute to the

customer feeling as if they are being treated more as an individual person or entity rather

than just an arbitrary transaction, which increases their total perceived customer value

(Khalifa, 2004). Additionally, it can lead to healthier customer-supplier relationship and

can, as stated by Grönroos (1994) and Nwakanma et al. (2007), incline customers to be

less price sensitive which could prove vital when implementing a value-based pricing

practice.

Lastly, the new additions to the analytical model also influence the scope of the

challenges and obstacles that may arise when adhering to a conceptualized pricing

practice. This as the new additions present new challenges such as how to become aware

of the firm’s internal capabilities and the external conditions of the market, understanding

how customer relations will affect the final price and how to set up helping tools for the

employees, such as the quantifying and historical pricing tools mentioned above.

Conclusions

The following chapter will attempt to synthesize the analysis and draw conclusions

regarding the research purpose through the accompanying research questions.

Furthermore, the practical implications and theoretical contributions of this study will be

detailed. Lastly, suggestions for future research are discussed.

In light of the research questions

The purpose of this study was to investigate how pricing practices and strategies can

incorporate the value concept and investigate the difficulties that may arise from

implementing and adhering to a conceptualized pricing practice and strategy. Following,

the findings of this study are detailed in an attempt to answer the specified research

questions derived from the research purpose.

Research question I: Value drivers

The first research question concerns what the common value drivers are for a company in

the TIC-market. To start, the study concludes that the common value drivers are Quality,

Delivery reliability, Delivery time, Price, Geographical location, Relationship and

communication, Customization and can be seen as the general value drivers, applicable in

a wide variety of situations and contexts. What is particularly interesting in the context of

this case-study, is the low rating given to price. As such, this study concludes that it is an

indication of the opportunity for implementing value-based pricing. This since the

customers prioritize quality over price and thus may be willing to pay more if the quality,

and the other value drivers, are sufficient to warrant an increase in price.

The study also surfaced specific value drivers that can be categorized into the seven

previously stated value drivers. Examples of these include expertise, flexibility, width of

the service offerings (fully integrated solution) and relationship-building activities. The

empirical data suggest that, while the customers shared many of the value drivers, some

were given more emphasis than others and were not of equal importance to all. However,

Chapter 6: Conclusions

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the study also concludes that how important a certain value driver is, is a matter of

situation, context, and business industry. For example, if two different customers both

view delivery time as an important value driver, but one of the customers is willing to

pay for even faster delivery while the other customer is not, this value driver has a

different relevance.

Research question II: Practice and strategy

The second research question of this thesis concerns how firms can determine which

pricing practice and subsequent strategy to pursue, when faced with a customer business

request. More specifically, which processes and determinants that should be set up and

evaluated to arrive at an appropriate pricing practice and aligned strategy for the specific

case.

From the empirical data, subsequent analysis and revised analytical model, the sequence

of events, processes and actions that adequately answer the second research question of

this thesis is concluded to be described as follows:

Firstly, a firm needs to understand which pricing practice best aligns with the specific

case it is faced with. To do this the firm must become aware and knowledgeable about

their own internal expertise and competencies; what is the firm good and not good at?

What specific expertise does the firm possess? Moreover, they must become aware and

map out the market conditions surrounding the offering, and get to know their customers;

which offerings does the firm possess that are unique? Which are not unique? What in

general and specific terms drives customer value? Obtaining this information, in the

context of the case company of this thesis, can be done through an offering complexity

analysis and identifying and evaluating value drivers, as per described in the revised

analytical model. The outcome of this first step is, simplified for this thesis’ purpose,

either a cost, competition, or a value-based pricing practice.

Secondly, the firm must align the derived pricing practice with a subsequent pricing

strategy. The theoretical framework and analysis suggest that this strategy beneficially

takes in account the elements which induced the practice in the first place, as well as that

it should be coherent with the firm’s specific economical goals. For example, if the

pricing practice that was deemed appropriate in the specific case was a value-based

pricing practice, since the offering appeared to generate a lot of value for the customer,

and the firm’s economical goals are to maximize its profit, the subsequent strategy should

be formulated accordingly. The study further concludes that an important aspect of this

strategy formulation, given that the preceding practice is a value-based one, will be to

quantify and translate the offerings generated value into monetary terms, representing the

customers’ willingness to pay for the offering.


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Research question III: Customer value proposition

The third research question entails how a customer value proposition can be customized,

formulated, and communicated. This question was pertinent in this case-study as the

employees and customers of the case company alike feel that there is no established

routine for the formulation of the CVP and the value an offering generates is not

sufficiently communicated to the customers.

The importance of conveying the generated value of an offering surfaced several times

during the study. The study concludes that, for a supplier in the TIC-market, the wide

variety of customers demand a customizable customer value proposition. As previously

established, the customers will prioritize different aspects of an offering, and it is in the

best interest of the supplier to be aware of this prioritization and adapt the customer value

proposition accordingly. At the same time, due to the wide variety of services in the TIC-

market, the study concludes that the CVP must also take into account the competitive

landscape, as some services are more competitively exposed than others. Thus, the

concluding solution of how to formulate the CVP, according to the findings of this study,

is to adopt a resonating focus with elements of points of difference, further elaborated in

the revised analytical model.

Furthermore, the study surfaced the importance of keeping the customer relations in mind

when customizing the CVP, and the study concludes that the relationship with the

customer heavily influences the communication from the supplier. Depending on the

customer relationship, certain aspects of the CVP need to be adjusted, whether it is the

technical language, what value drivers that will resonate with the specific customer or

what points of difference that are important to convey. The relationship can also

influence the actual monetary pricing of an offering in certain situations. This as the

customer might feel that they are being taken advantage of if charged a higher price,

simply because they receive greater value from the offering. In conclusion, this must be

taken into consideration, so to not put too much of a strain on the customer-supplier

relationship and potentially lose future business endeavors.


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Research question IV: Challenges

The final research question regards the question of what the challenges are in adhering to

a determined pricing practice and strategy. That is; which are the challenges and

obstacles impeding a change of pricing practice and strategy, such as one transitioning

from an arbitrary state to one based on value, that must be addressed in order to

effectively succeed in the change.

The study concludes that five main topics are beneficially addressed in order to be

successful in a change such as the one described above. These are as follows:

1. Customer insight and pricing inconsistency

One of the main challenges that surfaced when implementing a change towards adapting

a more value-based approach was that of finding out what the customer in fact values in

an offering, in other words, gaining customer insight. More specifically, what questions

the employees ought to ask and which information they should seek to unravel to find out

the customer’s wants, needs and pains.

Another significant challenge and risk when moving towards value-based pricing is

concluded to be inconsistency in the pricing. That is; that the same offering could get

different monetary prices from one time to another, depending on which employee did

the pricing, and that this gives of an unprofessional vibe.

The study concludes that both concerns could be appropriately addressed, mitigated, and

reduced at the establishing of supportive tools for the employees to take use of. One set

of tools that deal with the standardization and guidance of finding out what the customer

values; which questions to ask and what information to unravel, and the other dealing

with being aware of, and conforming to, historical pricing to mitigate pricing

inconsistency.

2. Changing the mindsets of employees

As practices and strategies change, so must the mindset of the employees. The study

concludes that an imminent issue of transitioning to a more value-based approach will be

to get every employee on board with the change and understand the change. Moreover, to

reject old mindsets and behaviors imprinted from old practices and strategies and instead

start focusing on communicating and talking in terms of generated value.

The study concludes that this challenge can be managed through proper communication

of the rationale and consequences of the change from managers. In addition, establishing

narratives, highlighting previous successful cases of pricing with a base in value, to boost

morale and manifest the concept’s applicability.


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3. Establishing a supportive and effective environment

Even with tools in place and mindsets changed, the study concludes that a firm needs to

establish and foster a supportive and effective environment in which the firm’s

employees can learn the ropes of the change. That is; being able to fail without individual

repercussion and succeed with applause. This, in an organization which communicates

effectively and accurately, without unnecessary time and energy-consuming bureaucratic

processes.

Dealing with this issue is concluded to be a two-pronged solution. Firstly, the firm must

make sure there is an engaged management function who makes sure a supportive

environment and infrastructure is practically in place. Secondly, the firm must scrutinize

their own organization to identify communicational flaws and subpar collaboration

structures and processes.

4. Gaining market consciousness

The study concludes that another crucial challenge that must be addressed for a firm

transitioning to value-based pricing is the one of becoming market conscious. That is; the

firm must become aware of the competitive landscape in which it operates in. It must

straighten out the potential question marks of which its competitors are, both in a general

sense as well as regarding individual offerings, and how these competitors operate in

terms of price, objectives, and focus. This to be able to adequately run their own

operations, understand what themselves are good at and communicate their value to their

customers, to the best of their ability.

The study concludes that this crucial challenge can be addressed by conducting a

thorough market analysis of the market the firms operates in. This can be done entirely or

partly by reaching out for external expertise, or by making internal efforts, in mapping

out the firm’s expertise, unique offerings and their competitors.

5. Planning the change

Lastly, the study concludes that a challenge, arguably pertaining any change, is the

question of how the change is to go about. There are a number of essential steps that

needs to be taken into account. Ranging from concretely mapping out what it is the firm

wishes to change, formulating a strategic plan for the change, to the ownership of

emerged subsequent processes.

The study concludes that successfully planning the change and establishing value and

process owners will result not only in an easier transition but also in the continuous

adherence and maintenance of the change. In conclusion, a complete plan for the change

with selected process owners should be stipulated before actually initiating the change.


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Practical implications

The findings of this study reveal that, in the context of the TIC-market and the case

company, there is a significant amount of unrealized value to be captured, which

indicates that a value-based pricing practice and strategy is in fact compatible and worth

striving for. The study concludes that there are a number of areas that need to be

addressed in order for a successful value-based transition to take place.

The study concludes that one of the most difficult, and important, aspects of value-based

pricing is actually knowing what your customers want and need. This thesis reaffirms this

notion held by scholars in the field, but also argues that a possible solution to this

problem is establishing helping tools for the employees to find out about customer value.

By having standardized guidelines for asking customers about what they value, while

also keeping historical pricing in mind, pricing according to value is made significantly

easier.

What comes next is conveying the value to the customers through the firm’s CVP. In

order to formulate and communicate the CVP, this thesis concludes that a firm must be

aware of internal and external conditions such as their internal capabilities and how the

market for the particular services looks like. This study concludes that the CVP should be

formulated with a resonating focus with points of difference. This requires knowledge

about what the customer values as well as firm and market awareness, in order to

successfully convey a customized CVP that highlights the most important aspects of an

offering for a specific customer, and what the firm is superior at compared to

competitors.

The study also surfaces several challenges that a firm applying value-based pricing might

encounter. Two of the most important challenges to keep in mind are a changed mindset

and an effective organization. The issue of changing the mindset within an organization is

important to address as communicating the change and getting everyone on board is vital

for a successful transition. This could partly be solved by engaged management who

creates supportive infrastructure where the employees feel safe to learn the ropes of the

new processes. Additionally, by creating descriptive narratives, success stories if you

will, that depict the benefits and potential of value-based pricing. As for the challenge of

creating an effective organization, the firm must scrutinize their existing processes and

structures for flaws. This will enable the firm to establish better collaboration and more

effective communication between the different departments within the organization. For a

complete picture of the challenges that surfaced from the study and suggestive solutions,

see Table 4 below.


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Table 4: Value-based challenges and suggested solutions

Challenges Suggestive solution

• Gaining customer insight and pricing

inconsistency

• Tools for finding out customer value

(Standardized questionnaire, roadmap etc.)

• Tools for being aware of historical pricing

• Changing the mindsets of employees

• Communicating rationale and consequences

of change

• Establish narratives or success-stories

• Establishing a supportive and

effective environment

• Engaged management that establishes a

supportive environment

• Scrutinization of own organization for

flaws and subpar communication structures

• Getting market consciousness

• Internal mapping of competencies

• Conduct market analysis, by external or

internal efforts

• Planning the change

• Complete plan for the change before

initiating the actual change (including

establishing process owners)

Theoretical contributions

As this study aimed to investigate how value can be incorporated in a company’s pricing

processes, ranging from what generates value to general challenges when basing price on

value, this study has contributed to the academic area of value-based pricing. Firstly, the

study adds to the notion, held by many scholars, that the concept of value is immensely

complex and intricate. This is exemplified by the fact that the study is indicative of that

understanding what actually constitutes value for a particular customer is as difficult as it

is fundamental for value-based pricing and concludes that what generates value widely

differs between customers.

A more tangible theoretical contribution is the revised analytical model, which can be

seen as a new way of viewing and breaking down the chain of events leading to a value-


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based price and also how to convey the value behind this price to customer. The study

provides new ideas for what a firm can consider when pursuing a pricing practice and an

aligned strategy, exemplified by the offering complexity analysis, emphasizing the need

for both internal and external knowledge and awareness. Additionally, the study sheds

new light on the importance of treating the customer value proposition as a strategical

tool for value-based pricing, extending its traditional usage, for example by incorporating

an aspect relating to the customer-supplier relationship. Furthermore, the study expands

upon theory regarding the CVP presented by Anderson et al. (2006), by departing from

their view that the CVP can exclusively be categorized according to one of three different

CVP categories, and instead chooses to advocate the use of a mixture of the categories.

Lastly, the study concludes and depicts a reality where the investigated case company is

strictly dependent on a cost-based pricing practice and has a close to non-existing

awareness of its competitive situation. This despite the case company being a mature

company that has operated, on a global scale, within its industry for several decades.

These facts could serve as another theoretical contribution made by this study, as it

showcases that an industrial company, such as the case company, has a very

unconventional and theory-contradictive way of pricing their offerings. This is

conceptualized by prior literature, for instance Guilding et al. (2005), through a major

study of 187 UK-based companies and 90 Australian companies, which points out

competition intensity as being one of three factors that affect cost-based pricing.

Although, as no competitive data is present within the case company, competitive

intensity is undeniably not a factor affecting their cost-based approach. Moreover,

another contradictive example can be found in prior literature by Hinterhuber (2008),

who in a large meta-analysis shows that the dominant pricing practice within industrial

companies, more accurately 44% of companies, price according to competition-based

pricing. Consequently, the study highlights and concludes that one cannot simply assume

that an arbitrary industrial company is aware and makes use of competitive data as a part

of their pricing practice, as seen in prior literature.

Future research

During the course of this study, several interesting aspects for future research surfaced.

This study partly has its limitations in the shape of a restricted amount of interview

subjects. For future similar single case-studies, it would be of interest to interview even

more employees and customers in order to provide a further holistic view on the pricing

situation and achieve an arguably more truthful picture of reality. In this study, the

interviewed customers were suggestions from the employees at the case company, and it

would be interesting to see if there are any discrepancies in comparison to the customers

who were not chosen for interviews. Additionally, it would be beneficial to interview

customers who are no longer customers with the case company, to see if their view on

value, and the case company in general, differs from current customers. Furthermore, this

study has adopted a simplified, black-and-white version of reality, where a firm’s pricing


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practice and strategy is based on solely one information aspect; value, cost or

competition. As reality seldom is as simple and one-dimensional, future studies would

beneficially examine the use of several of these aspects simultaneously when pursuing a

pricing practice and strategy. These limitations could have affected the results and limited

the ability to generalize the study’s findings.

Moreover, it would be interesting to expand the limitations of this study and look at the

TIC-market in general, to see how other TIC-market companies compares and get an

understanding of the generability of this study. This would create a better depth and

understanding of value-based pricing within the entire industry. Due to the same

reasoning, it could also be of interest to expand the scope of a future study even further

and look at different industries to get a conceptualized broader view on the subject of

value-based pricing.

Additionally, the concept of value segmentation would be of interest for future studies. In

this thesis, value segmentation did not surface as an essential component of value-based

pricing. However, researching the effect of value segmentation in a future study could

lead to a different conclusion and could serve as a befitting complementary study to this

one.

Another aspect that could be applicable for future studies is to investigate the effect this

thesis’s ideas and suggestions will have, an evaluating study if you will, over time. This

study has discussed several issues that arise when changing into a value-based pricing

practice and strategy, and the solutions are based on theory and empirical evidence.

Testing the solutions and suggestions practically would prove an interesting topic for

future research.

Lastly, this study has had a qualitative research approach, and as such it could be

beneficially supplemented with quantitative research, for example focusing on the

determined value drivers of this study and delve deeper into this area. With an

accompanying future quantitative study, the authenticity and trustworthiness of the

research could increase.

89

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Appendix:

Interview guide

Introductory information for the interviewee

To simplify and increase the quality of the data-gathering, the conducted interviews are

going to be audibly recorded and transcribed, given the approval of the interviewee.

Throughout the interview, the interviewee will have the opportunity to revise or correct

any misunderstandings that might occur. Additionally, after each interview, the gathered

material will be summarized and presented to the interviewee in order to give the

interviewee an opportunity to confirm that there have not been any misunderstandings. To

ensure no confidential or sensitive information is shared, the case company will approve

the content of the interview guide in beforehand.

The length and type of interview (face-to-face or remote by phone), will vary depending

on the availability of the interviewee and other practicalities such as geographical location.

However, the length of the interview will not exceed two hours. Lastly, to ensure

exhaustion of each answer, the mindset of asking another “why” was adapted.

Bellow follows an outline of the interview structure. The interview will be divided into

sections where each section contains a series of questions or events attached to it. These

sections will be based on, besides the introductory and concluding section, the presented

research questions.

Interview guide for employees

Section 1: Introduction

• Brief presentation of the interviewers and research purpose

• Permission for recording, transcribing and note-taking of the interview

• Reiterate anonymity and confidentiality of interviewee and interview answers

• Brief presentation of work thus far

• Presentation of the interview agenda (i.e. each section that follows)

Interviewee background

• Name

99

• Role/title

• Years with Epsilon

• General view on pricing today

Section 2: Pricing in Epsilon today

• How do you work with pricing your offerings today?

• What does the process look like?

• Does it differ? How and why?

• Differ by customer (size, new vs old, etc.)

• Differ by services (special vs standard cases)

• Who makes the decisions regarding pricing?

• Are managers involved?

• Who has the final say?

• Do you have any outspoken strategies regarding pricing today?

• Are you aware of how the other sales management employees work

regarding pricing?

• What do you think about the current way of working (routine)?

• What works well? Why/why not?

• What, in your opinion, are the problems today? Why?

• Can you provide a concrete example?

• What are the consequences (missed profits/revenue etc.)?

• What is the ratio between hard to price vs easy to price offerings?

• Is it difficult to distinguish between the two types?

• If you don’t know how to price an offering:

• What do you do?

• What are usually the reason(s) why you are not sure how to price

the offering?

• How should Epsilon work with pricing in your opinion?

• Ex: Would it differ between type of customer or other aspects?

100

• Could your ‘solution’ be implemented with the resources available at

Epsilon today?

Section 3: Value drivers

• Why do customers choose Epsilon as their supplier?

• If not, why not?

• What are the general points of difference that separate Epsilon from its

competitors?

• Does Epsilon provide any unique market offerings?

• Are these treated differently, from other offerings, in a pricing perspective?

• In a general sense, what does Epsilon offer that generates value for the customers?

• Does this differ between type of customer?

• Does this differ between cases?

• How do you find out what the customer values and what do you do with the

information?

• How does Epsilon work with increasing customer value?

• Do you consider Epsilon to be innovative? (Novelty aspect in Figure 1)

• Compared to the rest of the TIC-market, where do Epsilon stand regarding:

• Service

• Quality (Throughout process of offering creation to delivery)

• Image (customers’ view of Epsilon, “what are Epsilon known for?”)

• Price (Expensive vs cheap)

• Do you believe you price according to what the offering is worth? Why, why not?

• Are there cases where you feel that you do not price the offering according

to the customers’ max. willingness to pay?

• Is there a relation between easy and difficult offerings, and pricing

according to worth? (Incorporating value in the offerings)

• Who owns the process?

• Who decides what the offering is worth? Managers, technicians, sales

force?)

101

• Who has the final say?

• Has the mindset, in terms of thinking about value, changed during your time with

Epsilon?

Section 4: CVP – communication with customers

• How do you communicate with your customers?

• Does it differ? Why and how? Examples?

• Is it customized?

• Type of customer (size, share of wallet, new vs old etc.)

• Specific customers

• Type of service

• Does the relationship matter in how you communicate your offering?

• In what regard?

• How do you communicate the generated value of the offering to the

customer?

• What type of CVP do you have? Resonating focus, points of difference, all benefits

or a mixture? (Show hand-out)

• Is it an outspoken/established routine/process?

• Does it change? Why and how?

• Who owns the process (decides what should be emphasized etc.) and has the final

say?

• In your opinion, does the process work well today?

• If not, why not?

Section 5: Value-based pricing challenges

• Introductory description of value-based methodology

• Could this be implemented in your work?

• Why, why not?

• What organizational changes do you believe a change, to a more value-based

thinking like this, would require for Epsilon?

102

• What would be required by management?

• Sales force?

• Technicians?

• What are the difficulties with implementing a value-based mindset regarding the

customers?

• Customer loyalty?

• Customer satisfaction?

• Relationship with the customer?

• If you were to decide, how would you find out about what drives value for the

customer and customer pains?

• Do you have any case examples of when you have applied a value-based approach

to pricing?

• When a colleague or Epsilon has applied a value-based approach to

pricing?

• Do you work with segmenting your customers in any way? How, or why not?

• Does this segmentation incorporate value in any way?

• If yes, what are the benefits of segmenting?

• What potential hinderances do you foresee for implementing and adhering to a

value-based approach (Intraorganizational)?

• For manager: What do you believe would be a good way to integrate a value-

based mindset into the work force? What activities etc.?

• For manager: What actions do you take / will take to enable an environment

where a value-based method could work? Also, to engage employees to adhere to a

value-based mindset?

Section 6: Concluding the interview

• Present summary of interview answers

• Ask for confirmation of correct understanding and interpretation

• Open up for questions, or own thoughts related to previous discussions

• Ask for permission to contact interviewee at later date if necessary

103

Interview guide for customers

Following is the interview guide for interviewing customers of Epsilon.

Section 1: Introduction

• Brief presentation of the interviewers and research purpose

• Permission for recording, transcribing and note-taking of the interview

• Reiterate anonymity and confidentiality of interviewee and interview answers

• Brief presentation of work thus far

• Presentation of the interview agenda (i.e. each section that follows)

Interviewee background

• Name

• Role/title

• Years as customer of Epsilon

• General view on collaboration and relationship with Epsilon

o Has it changed?

o How satisfied are you with Epsilon?

Section 2: Value drivers

• What offerings do you purchase from Epsilon?

o Are the services you purchase available with other suppliers?

• Why do you choose Epsilon as a supplier? If not, why not?

o What are their biggest strengths?

o What are their biggest weaknesses?

• What are the parameters you base your decision of supplier on and how do you

rank these according to importance? (Quality, delivery precision, delivery time,

price, geographical location, relationship and communication (response time etc.)

with supplier, customization, other)

• What is your opinion of Epsilon in terms of:

104

o Service

o Quality

o Image

o Price

• What do you value in an offering? (Such as the one you purchase from Epsilon)

• What value does Epsilon create for you today?

o What are they doing that creates additional value?

o How important are these factors for your company?

• What could Epsilon do to increase value in their offerings?

• How, in your opinion, should Epsilon learn about what you value in an offering?

• Do you consider Epsilon to be innovative?

Section 3: CVP

• How do you communicate with Epsilon?

• What is your opinion about the way Epsilon communicates their offerings?

o Can they improve on anything?

• Does their way of communicating their offering resonate with what your company

values in an offering? Simply put, do they know what you prioritize?

• Does their way of presenting the offering differ between transactions (case-to-case)

or is it always the same?

• Do they bring up what they do better than their competitors?

• Compared to competitors, what do you think of Epsilons way of communicating

their offering?

• Are you aware of the level of complexity in your requests?

Section 4: Concluding the interview

• Present summary of interview answers

• Ask for confirmation of correct understanding and interpretation

• Open up for questions, or own thoughts related to previous discussions

• Ask for permission to contact interviewee at later date if necessary

The price you're worth: - DiVA portal

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