Vocatus Pricing & Selling Blog

Pricing and selling powered by Behavioral Economics

How to boost the profitability of your product innovations

What happens if you cannot charge extra for expensive product innovations? Was it all for nothing then? Would there still be a chance for you to become profitable? We will show how to best monetize your product innovation using Behavioral Economics.

Truth be told, firstly not much happens most of the time—and the questions remain. This is because the sales department’s claim that there is no room for price increases is often simply accepted by management without any “evidence to the contrary.” However, such an approach is often costly and also premature, as we were able to show in the case of a medical equipment manufacturer. The following measures enabled us to increase our client’s price premium from 0 to 50% for a next-generation product:

#1 Customer segmentation

Even if development is rightfully proud of new features—the decisive factors are the features that create value for specific customers. For example, the managing director of a public hospital must ensure that the product is safe as a lack of patient safety could jeopardize the hospital’s reputation. While too many technical features may convince the head nurse in a university hospital’s intensive care unit, they may cause the hospital director to worry that the product is too susceptible to failure. The earlier you involve customers in product development, the more likely you will avoid expensive development work in the wrong place. This allows you to prioritize essential customer segments at an early stage and ignore others, at least in the first step. Learn more about segmentation in our blog post on customer typologies.

#2 Stories instead of features

When it comes to new products, sales staff tend to present all the features to every customer true to the motto “the more, the merrier.” The underlying assumption is that each feature adds a little bit of value and improves the overall impression of the product. However: Consumers base their overall opinion not on the sum but the average value of the features. In other words, offering too many features with only marginal benefits does not make the product more attractive but makes it less attractive. This means: The more features you show a customer, the greater the risk that he will decide against them because he does not need them.

Instead, you can win over customers with a convincing story that addresses the most crucial pain points of the respective customer and only refers to specific features on a selective and case-by-case basis. Identification tools and checklists help you find out what type of customer you are dealing with before and during the encounter. For example, we have developed “Sales Battle Cards” that suggest the most compelling story for each customer type to help sales representatives navigate through the sales conversation independently yet efficiently. Find out more about smart sales tactics in our article “Behavioral Economics in B2B selling: Higher margins despite the crisis”.

#3 Segment-specific pricing model and framing

The customer approach and the pricing model should be tailored to the customer’s needs and decision criteria. Some customers are better served with a rental or leasing plan, while others are more apt to make a one-time purchase based on the organization’s budget and billing logic (see our blogpost about the pricing model here). So, bear in mind that it is not always just the price level that has a decisive influence on a favorable purchase decision, but that other price dimensions can also make a valuable contribution.

And the framing must be right, too: For example, you can convince a nurse by putting the costs in relation to the work steps and work hours saved. The hospital pharmacist, on the other hand, would be relatively indifferent to this argument. It is much more important to him that the purchase of the product will save on consumable materials. In his case, you mention this very product advantage.

What to do in the future?

Integrate the customer voice into product development at an early stage, develop customer-specific sales dramaturgy, and think about suitable pricing models. This will enable you to monetize product innovations in the best possible way—and the questions will become superfluous.

We are happy to support you in elaborating these three critical measures in a way that is also suitable for your product. Because the approaches can differ in their characteristics depending on the industry, target group, etc. Please contact us at consulting@vocatus.de or via our website.

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Vocatus AG Preisstrategie Behavioral Economics
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