Module-based pricing

Sammanfattning: Modularity has the possibility to fulfil a wide range of customer requirements by using relatively few input components. The benefits of modularization from an engineering perspective have been confirmed repeatedly by multiple researchers, but less attention has been drawn to the question of how to effectively price the large number of variants of top-level configurations. In terms of pricing, a common approach is to add a contribution margin to the production cost, but there are problems associated with this method. In general, there should be possibilities to: i) base price on value, not cost (i.e., price structure); ii) ensure consistency in pricing between configurations (i.e., pricing policy); and iii) maintain the prices over time (i.e., price maintenance). Contribution margin on production cost approach does not effectively fulfill these three criteria. This thesis aims to contribute to filling this research gap by introducing the concept of module-based pricing: a top-level configuration’s list price should be the sum of the prices of its modules. The model, MBPN, developed in this thesis minimizes the difference in the outcome of any existing and a new, modular based model as a neutral starting point. The model uses applied least squares method with an option to set variable limits on the module prices to achieve e.g., value-based module pricing. The results present a case of a successful transition from a contribution margin on production cost approach to module-based pricing for a configurable product.