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How to Use a Value Based Pricing Strategy in Service Contracts

Service contract pricing is a hot topic of conversation for many companies these days.

Tunca Turkoglu, a Navetti consultant who has experience working on a myriad of projects, recently completed his Masters in Industrial Engineering and Management at the KTH University in Stockholm. His thesis centered around the application of value based pricing strategies in service contracts, and the sustainable advantages that they generate.

Please find a summary of the study below, as well as a link to the full document.

“This paper’s aim is to analyze value-based pricing strategies in service contracts and how they help companies generate sustainable advantages. Scoop of the analysis will be service contracts in manufacturing industry. A service contract could be defined as an intangible value proposition that includes but not limited to maintaining client’s machines continuously for a negotiated amount of time.

By working with a Swedish pricing consultancy firm Navetti AB, a descriptive research was conducted in an effort to answer the research question: “How to utilize a value-based pricing strategy in service contracts?”. By trying to answer this question, authors of this paper wanted to contribute to the developing framework of value-based pricing phenomena.

Results of this study indicates that certain steps need to be followed by service providers in manufacturing industry in order to utilize a value-based pricing strategy. Obscure perceived value of customers need to be realized and their value drivers need to be extracted, quantified and analyzed.

Findings of this study have implications both in theoretical and industrial perspective. From industrial aspect, service providers need to communicate with their customers deeply and analyze their value drivers, they also need to take cost-based and competition-based pricing strategies into consideration while utilizing a value-based pricing strategy. From the theoretical perspective, this study contributes to the field of pricing and price optimization part of industrial management.” 

How to utilize a value-based pricing strategy in service contracts: A descriptive case study of how a Swedish pricing consultancy company optimizes pricing of services for its customers