Pricing Strategy for Carbon Re’s Cement Decarbonisation Software

Client

Carbon Re

Challenge

After a successful first customer trial, Carbon Re needed to develop a pricing strategy for its service to convert pilot projects into long-term revenues.

Key questions that had needed to be addressed were:

• What are the underlying principles driving pricing? E.g. how can you make it easy for customers to sign up to drive sales? How can you ensure customers value what they pay for? How can Carbon Re earn the appropriate level of value?
• How to ensure customers feel they limit their risks but can also gain from the upside?
• How to make pricing consistent with brand?
• If pricing were related to savings, what is the appetite to pay higher amounts?
• How do regulations and incentives (carbon pricing) affect pricing level in each market?

Solution

CLT had worked with Carbon Re to clarify their objectives, both tactical and strategic, for an effective pricing strategy.

We interviewed a number of providers of similar services in other sectors, and a number of people with deep understanding of the cement industry, to identify the range of factors that might be considered in a pricing strategy, and to assess potential customer perceptions of these factors. These interviews also identified the importance of good account and relationship management to support pricing – most customers wouldn’t buy even if the price was “perfect” if they weren’t happy with their relationship with the supplier, especially for a new entrant like Carbon Re.

CLT also identified the pricing strategies used by Carbon Re’s competitors and then developed a model of the various elements that could be combined into a pricing strategy. A spreadsheet model was developed to calculate the potential returns for Carbon Re from different combinations of these elements.

A matrix of assessment criteria was then used to optimise vs customer requirements. Pricing structures evaluated included:

• Flat subscription fee – nominally based on savings, but not performance-based
• Performance-based
• Sliding scale e.g. tapered by savings, volume of CO2 saved, no of plants
• Hybrid

We considered set-up costs, discounts, tiered approaches, and licences as well as whether customers perceived Carbon Re’s solution as software or as an energy saving technology.

The outputs – pricing structures and levels – were tested with 2 cement companies, and a workshop was held with Carbon Re to evaluate the assessment criteria, pricing levels and mechanisms to trade off maximising price vs speed of rollout.