Tag Archive | Peter Drucker
April 10, 2013  

The Pricing of Social Innovation

SocialInnovation

Over-design & over-price products / services

Whether destined for emerging markets or developed markets, firms make similar mistakes when designing and pricing social innovations. First of all, they miss opportunities to respond to customer needs by over-engineering their offerings or making them too complex. Secondly, they over-price these offerings, thinking that customers will be willing to pay for “green” or sustainable products or for products that serve social needs in developing or under-developed markets. In other words, they over-design or over-price their products or services.

Sustainable value for social innovation

Sustainability has received a lot of attention in recent years. Recent concepts of sustainable value for social innovation have been explored and introduced by experts such Cooperider, Ross Kanter, Laszlo or even Peter Drucker. They characterize sustainable offerings as designed around user needs, right-engineered for the sophistication of local markets, widely accessible to the target markets, simple in nature and presenting little trade-off with respect to quality. In other words, products and services that fall in the social innovation sphere, carefully crafted to local markets and subject to advanced, needs-based segmentation approaches. Johnson & Johnson, for example, has been very successful at entering the larger Indian hygiene market by designing simple and basic products that respond to the needs of a large market, and priced based on local willingness-to-pay. Apple is now thinking about a “strip-down” version of the iPhone for emerging markets.

Local-local strategy to enter emerging markets

Many companies have entered emerging and developing markets by adopting a local-local strategy: local products designed for local customers. They have embraced the fundamentals of the value-based pricing methodology: careful market segmentation, assessment of willingness-to-pay for value drivers, pricing based on this willingness-to-pay, and communication to the market of the sustainable value messages. Value-based pricing in that case does not mean high or premium prices. It means pricing sustainable and social innovations based on the local customers’ willingness-to-pay. Many companies complain they cannot get additional premium in emerging markets for their “green” or sustainable technologies. They are looking at this the wrong way. By over-designing their offering or mis-calculating willingness-to-pay, they over-price innovations and miss their market target.

 Value-based pricing for emerging markets

It means using the fundamentals of value-based pricing for emerging markets and for environmental offerings. Cell phone companies do it successfully on the African continent. GE and Interface have transformed their business models around sustainability and eco-imagination. Other Fortune 500 companies are extremely successful in the BRIC (Brazil, Russia, India, China) countries. The challenge resides in two critical elements of the innovation process: 1) right-engineering performance based on user needs; 2) pricing based on customer willingness-to-pay.

Join the value-based pricing revolution!

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