Embarking on a value discovery mission in applied science

In the early months of 2021, an interesting collaboration began with a leading European applied science institute. This substantial organization, grounded in strong technical and academic foundations, was exploring ways to augment its funding through commercial projects. With a team of over a thousand dedicated professionals, the institute was at the forefront of bridging science with societal solutions, often leveraging governmental funds but increasingly venturing into commercial territories.

Embarking on a value discovery mission in applied science

The challenge

I wasn’t directly contacted by the institute; my introduction came through another consultant undertaking a comprehensive reorganization of the institute. Given its considerable size, the institute undeniably possessed strong management and organizational skills. Yet, commercial thinking didn’t come as second nature to them. 

My involvement aimed to bridge the gap between the institute’s academic brilliance and the nuanced world of commercial success. The challenge was clear: inspire and guide the project management teams to move from a cost-plus approach – where prices are based on the hours worked – to embracing value-based pricing strategies. 

The setting

I had just one opportunity to work with the team, and because it occurred during the COVID pandemic, we had to meet virtually – a significant hurdle when trying to inspire people. I was dealing with highly intelligent individuals, exceptional project leaders capable of organizing remarkable projects. Yet, these were the same individuals who had to negotiate with clients, and they needed a nudge to elevate their thinking and approach to pricing projects. Since this was a one-time intervention, I found it necessary to nudge them slightly out of their comfort zones. 

A strategic approach

My strategy was to draw on experiences from other industries and spark their imagination by introducing the concept of value-based pricing with both relatable and more extreme examples. I developed different examples, escalating to prices 100,000 times higher than the most basic.

Two extreme examples: salt and water

Salt, one of the most ancient chemicals available, is ubiquitous enough to be used for de-icing roads. Yet, is it possible to sell salt at a premium? Remarkably, we find ourselves buying salt like fleur de sel – essentially just sea salt – from grocery stores for nearly five euros a pack, a price up to a thousand times its base cost. Similarly, water’s pricing spectrum varies widely, ranging from free flowing from a Swiss mountain stream, to about €0.0014 per liter for Dutch tap water, and skyrockets to thousands of euros per liter for melted glacier water from some remote polar region. The key to value pricing lies in understanding your customers deeply and implementing value-based pricing strategies effectively.

A series of these examples, initially not directly related to their business of selling R&D projects, served as our conversation starter. We then examined closer to home scenarios like consultancy, where pricing also varies massively. It’s possible to encounter extremely competitive rates for services outsourced to countries like India, contrasting sharply with the high fees charged by an interim CEO or an M&A consultant in the US or Europe. This discrepancy could represent a range of up to 100,000 times between the highest and the lowest price. 

The objective was to illustrate a critical point: the price for a project, even one that requires merely twenty hours of work, can far exceed its base cost if the solution it provides has the potential to generate significant returns for the client. For instance, if you assist your client in launching a new product with a market potential of $10 billion, wouldn’t it be reasonable to ask for 0.1% of that potential revenue? Suddenly, your fee assumes a completely different dimension.

Impact and reflections

This engagement, limited to a single virtual session due to COVID-19, planted the initial seeds for a potential shift in pricing strategy, yet it did not achieve the extensive impact I had hoped for. Did I manage to alter the mindset of a few individuals? For sure! A transformation of the organizational culture as a whole? That remained unachieved. It was a stepping stone, an introduction to a complex concept that would require deeper integration to fully realize its potential. For me personally, investing in this project was important. OK, I didn’t bring about a major change, but I gained a great deal of experience, and it resulted in a well-received essay. Turning experience and knowledge into something tangible is also incredibly valuable.

Ready to elevate your pricing strategy?

Whether you’re navigating the intricacies of applied science or any other industry, understanding and implementing value-based pricing is pivotal. As Peter4Strategy, I specialize in turning challenges into opportunities with a broad range of services. If you’re looking to explore innovative pricing strategies and discover new growth opportunities, I invite you to join me on this journey. Connect with me at peter.gommers@peter4strategy.com or +31-6-53361249, and let’s unlock the full potential of your projects and innovations.

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