Pricing strategy for infrastructure contracting firms

Pricing strategy for infrastructure contracting firms

Cycle stages of all available projects to the utility contracting firms

cycle-stages-of-available-projects

Fig. 1 Cycle stages of available projects – Infrastructures companies (UK) (Kotler, P.; Principles of marketing, p.44)

Most of the infrastructure (EPC) projects are won by a competitive bidding process among qualified contracting firms. Such projects are contracted on shared risk and reward basis to reduce time and cost (Subramanian, 2015). At the same time such projects secure profit level (earned by vendor) against scope changes, inflation or currency fluctuation.

A relationship between life cycle stages and pricing strategy should also be considered whist bidding for such projects. In order to achieve the balanced margin of 8 to 10%, there should be four different pricing strategies (tailored to cycle stages in each segment, table 1).

pricing-strategy-for-uk-1

pricing-strategy-for-uk-2

Table 1 Pricing strategy for PS (UK) (Kotler, P.; Principles of Marketing, p.44)

As listed in table 8, regardless of marketing channel, each project is classified based on contract value and PLC stage. It should be a part of early stage sales filter to make an informed go/no go decision.

For unproven technology, marketing-penetrating pricing is advocated to secure future growth and expansion. On the other hand, projects employing patented and proven technology, should adopt marketing-skimming pricing models.

High value projects of mature segments/technology should be targeted with value based pricing. Price elasticity is comparatively higher for such projects, so differentiation should be achieved by offering bundled services as per customer’s attributed importance.

Projects below £15m in mature segments should only be progressed if at least breakeven pricing is achievable. Price elasticity is very high for such orders/contracts/projects. However, the following aspects must not be overlooked.

  • Relationship with client
  • Future business opportunity

References:

Kotler, P. and Armstrong, G. eds. (2013). Principals of Marketing, 6th Edition, Harlow, Essex: Pearson Education Ltd.

Subramanian N., 2015b – Working paper, Pricing decision, Warwick Business School, unpublished.

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