Synopsis: – Chemical Additives Manufacturer – Pricing for Value
A manufacturer of chemicals used in production of truck tires developed a specialty “additive” that would improve the durability and fuel economy of the tires. Tire manufacturers showed interested for commercial truck tires, if it was priced about the same as other additives they might use if for some line of truck tires.
The chemical manufacturer asked QDI to determine what the value of the additive was and help them design a strategy to enable pricing for that value.
Exploration of the market showed the tire manufacturers saw two problems. First, the commercial tire market was very competitive with price competition driving down the differences between brands. Second, better fuel economy is very difficult to demonstrate because of variation in route, terrain, and driver behavior.
QDI looked to commercial tire users to understand the value of the additive. The clients early test data showed the additive provided a 10% increase in fuel economy over standard tires. QDI interviewed commercial trucking fleet managers collecting both expectations of what users would pay and what they had actually paid for other fuel efficiency improvements. Using this data QDI was able to create a demand curve for commercial truck tires what delivered 10% better fuel economy.
The interviews also confirmed that most trucking fleet managers did know their variation in routes and drivers would make it impossible for them to test whether the tires did deliver 10% better fuel efficiency.
The breakthrough was finding that the largest fleets in the country would be willing to conduct fuel efficiency tests and that their reputation for rigorous testing meant that other fleet owners would accept case studies from these fleets as proof.
Using the demand curve and breakthrough finding QDI helped the client develop a strategy that priced the additives as a function of the value they would create for a tire manufacturer. To ensure the tire manufacturer would capture this value, the strategy included granting the first manufacture to purchase the additive a one year exclusive.
By value pricing and using an exclusive introduction strategy our client’s additive revenue was more than 3 times greater than the original pricing.