Are pricing policies an impediment to the success of customer solutions?

In an era of declining pricing power and increased global competition, customized solutions appear to be an effective way to build competitive advantages without the debilitating effects of price competition. Solutions involve provision of an integrated combination of goods and services that are designed to meet a business customer's specific needs. Premium prices and higher margins can be extracted by solution providers, who now have considerable incentives to design and market innovative solutions for their customers. We examine the applicability of various pricing frameworks and pricing practices in the context of two industries — business process outsourcing and power generation equipments. Our interviews suggest that firms predominantly use traditional pricing strategies; new strategies for solution pricing are only emerging; and, successful firms are currently using hybrid pricing models. We find that the solutions that we observed among practitioners are not what theory would suggest as true solutions but what would be described by theory as bundled products. We also find that solutions are in the eye of the beholder, i.e., if customers can de-bundle offerings, they are not true solutions. We extend our findings to academic theory and to the practice of developing and pricing solutions.

Research highlights
► Although selling firms suggest that they practice solution selling, they are currently just bundling products and services.
► In the industries that we studied, customers and competitors can debundle solutions.
► Pricing of solutions is primarily driven by customer rather than the selling firm.
► The pricing of solution is based on traditional cost plus pricing or bundling.