Outotec (A): Project Capture

Outotec was a market leader in providing mining solutions to large mining companies. The company’s specialization and proprietary technology created value for its customers and helped the firm differentiate from its competitors. Yet, Outotec was not pricing or marketing its solutions in a way that took advantage of its distinct capabilities and value-add. Outotec used a cost-based (inside/out) pricing policy, which was the industry norm. As a result, operating profit was only 8% of sales and the CEO had promised the investment community improvements above 10%.
Outotec wanted to move from a cost-based (inside/out) to a value-based (outside/in) pricing and selling model to capture more profitable revenues and meet profitability targets the CEO announced to investors. But there were several challenges to this, which the case highlights for students to discuss and debate.
The main teaching themes of the case are as follows:
• To illustrate that value-based pricing is the preferable pricing plan, in theory; however, implementing value-based pricing presents significant challenges
• To show that implementing value-based pricing requires a firm to overcome buyer bargaining power
• How to effectively manage the sales process and effectively communicate value at the start of the sales process
• How to manage tension between sales and product line managers