Six Sustainability embedded Pricing Strategies

English: Transfer Pricing with a Competitive E...

Sustainability Embedded Pricing can play a major role in acting as a key differentiator from the competition. Here are 6 design for environment (dfe) pricing strategies that can be incorporated in products to deliver ongoing gains:

Premium Green Pricing

A number of surveys all over the world have repeatedly shown that a particular segment of the consumers is willing to pay extra price or premium on green products or products that have some sort of sustainable attribute in its supply chain.

But that segment is minute, educated and well-to-do section that may have an inclination to ‘flow with the times’ or like to be seen as green. But nonetheless, premium green pricing does exist and many other markets in the developing world also, especially India and Brazil are seen to be more environmentally conscious in their purchases.

Larger Quantity Pricing

Big size packaging is generally more environmentally efficient than their smaller counterparts as they require less amounts of material to pack a particular product. Even the products like laundry detergents that come in concentrate forms, which require water to be added at home by the consumers, are more eco-efficient than regular detergents as concentrates will require much lesser packing to deliver the same amount of liquid.

Complementary Product Pricing

Toner remanufacturing for printers is a typical example of complementary pricing strategy. Also, any product with a number of parts that can be recycled or remanufactured can implement this pricing.

Disposal versus Reusables System Pricing

A disposable product may cost more in some instances like in the case of diapers whereas a reusable product may cost more in other cases, like the use of refillable coffee containers sold by many coffee companies like Starbucks (reusable or recyclable product will only deliver economic benefits if there is a local recycling plant)

Take-back Pricing

Future disposal costs are embedded in the current price that the consumer will have to pay. It assumes future costs will be incurred for taking back a product. Sometimes a manufacturer asks the customer to share the price and ship the product at customer’s expense.

Rent/Lease Pricing

Consumer rents or leases a product for a preset period of time without actually owning it. This has 3 implications – managed take-back is already built in to it from the start, product upgrades can be had over time, and products with lesser degree of usage presents an ideal case for such type of pricing.

Interface Carpets is well known for rent/lease pricing. In India, recently, Mercedes Benz is starting the rent/lease for a 5 year period option for consumers desiring a luxury vehicle.

In the book, ‘Smart Pricing’ the authors describe the challenges facing traditional pricing strategies. More and more companies are developing the idea of intelligent pricing and are incorporating sustainability concepts into it. However, implementing sustainable design for environment strategies requires the buy in of the senior leadership to develop full-costing techniques that incorporates true costs of the products.

What do you think are other smart/sustainable/intelligent pricing strategies? Which of these strategies have delivered maximum gains?

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Comments

  1. To answer your question, I think it depends on the product.

    In my opinion, complex products such as cellular phones, computers and automobiles should only be rented/leased (so, rent/lease pricing). This would make sure that the manufacturer is responsible for the disposal of the product which would in turn put pressure on the manufacturer to design the product to be (relatively) easy to recycle and to include less toxic materials.

    Rather than “larger quantity pricing”, I would like to see a cost that is proportionate to the quantity of packaging (more packaging = higher cost) and inversely proportionate to the possibility of recycling the packaging (packaging isn’t recyclable = higher cost).

    And finally, I think that anything that is “disposable” should have an additional cost added (call it a tax if you must).

    • Thanks for your comment Joce…though it’s been quite a while since you commented! I like your idea of more packaging calling for a higher cost and un-recyclable product or a disposable one also to have higher costs. And the idea of taxing onself is bit like the 1% for the planet fund initiated by Patagonia founder to put aside 1% of pre-tax yearly profits aside (regardless of whether a company makes a profit or not). It’s for the enlightened who are willing to be uncomfortable for a right cause.

  2. “complementary” and not “complimentary product pricing” I think it was a typing mistake, wasn’t it? otherwise these strategies are very practical I think and will be very helpful thank you

    • Thanks for spotting the typo Paulin! Hope you found the sustainability pricing methods useful. Do you think there can be other ways by which companies can reflect sustainability pricing in their products?

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