Pricing & Packaging Strategy
Although marketing and sales are important functions to create market push, many companies overlook the impact on packaging and pricing to create market pull. Many companies leave value on the table because they treat pricing and packaging as an afterthought.
Pricing is one of the most important levers market leaders utilize in their Go-to-Market strategy, particularly in relation to the product lifecycle where one might consider penetration pricing or price skimming based on business objectives and market conditions.
Pricing is frequently an underutilized tool to grow revenue and increase EBITDA. When a strategy is effectively deployed, it can accelerate growth.
- What It Is – Match the business objectives of the growth strategy to the pricing strategy.
- Why It’s Important – Aligning the pricing strategy to the growth strategy will enable companies to accomplish growth objectives. A pricing strategy in conflict with a growth strategy does not work. Seemingly complementary business objectives can be contradictory when it comes to pricing. To succeed, companies must understand the relationships, make trade-offs and prioritize the business value that the pricing strategy will facilitate in both the short and long terms.
- How to Use It – An effective pricing strategy is designed collaboratively with other commercial functions and is interlocked on an ongoing basis.
Creating customer-facing offerings using portfolio of solutions in a way that meets customer needs effectively, creates market pull and enables ease of buying. Use a creative combination of available features, how they are combined and priced. Examples include bundling, menu based offering, solutions, etc.
- What It Is – Packaging creates options for customers that align their value drivers with company revenue and profitability drivers.
- Why It’s Important – Clear, easy to understand packages make the buying process easier for customers. As a result, win rates increase and cycle time decreases.
- How to Use It – Effective market (competitive and customer) listening paths help create packages that are unique in the market and create competitive advantage.
Market leaders choose pricing metrics that align with customer value drivers. They set list prices that reflect product value and competitive positioning. They decide on discounting guidelines and governance that capture differences in customer value and react to market dynamics.
- What It Is – This includes overall price levels, discounting guidelines, and tiered pricing.
- Why It’s Important – Price levels must be in line with competitors, but be sufficiently profitable for the Company. Changes in overall price levels may be selected for strategic reasons (such as reaching scale), but need to be elevated to the executive team.
- How to Use It – Discounting guidelines and governance are enforced through a revenue desk process that delegates authority to the individuals closest to the customer, while creating visibility to the process.
Provide sales enablement and marketing communication to support price realization. Establish tracking mechanisms to monitor price realization and provide actionable feedback.
- What It Is – The necessary process and infrastructure to ensure that the pricing & packaging strategy is executed.
- Why It’s Important – Cadence, communications, and coaching ensure ongoing pricing review and integrity. This transparency allows companies to identify the sellers with best pricing performance, and drive those learnings through the organization.
- How to Use It – Disciplined enablement ensures that pricing goals are realized, within the context of the overall commercial strategy.
Extracting a price premium requires offerings that drive value for Customers, but this must also be clearly articulated to influencers and buyers.
- What It Is – Maximize wallet share and drive up the customer’s willingness-to-pay by market segment with compelling messaging.
- Why It’s Important – Communicating value to buyers is critical to capturing market value. Customers may know that solutions are better than competitors. Competitors may even know it. But if customers don’t, they won’t pay more for the solution.
- How to Use It – To get the price premium that commanded by solution differentiation, companies need to reinforce that positioning through value messaging in all communication touch points with the buyer.
Price Management (Renewals)
Many companies do not take advantage of the renewal cycle to optimize pricing.
- What It Is – Capture more value from the existing base of customers over time.
- Why It’s Important – Companies can’t always meet growth goals through new accounts. Creating a renewal strategy enables companies to capture more market value. Growing the base business can be essential to making the number, particularly as businesses mature.
- How to Use It – But what is the right way to grow accounts? A series of upgrades? Add annual price increases? Both are potentially viable — the answer lies in the product pipeline and the characteristics of the customer base. Companies can’t choose to ignore it, since in a market with any level of inflation, maintaining prices is equivalent to a reduction.