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  • Writer's pictureNihit Ningthoujam

10 key success factors for pricing implementation



Implementation of the pricing strategy is a very complex process involving multiple stakeholders from sales, marketing, IT and sometimes finance departments.

 

In this article, I will delve into 10 key success factors for execution of a newly developed pricing strategy.

 

 

1.     Testing and improving the new strategy


It is always better to implement a new pricing strategy in pilot as it reduces risks. The idea to test the new pricing strategy with a small segment of customers, gauge their reactions and improve the strategy before implementing it across the board.

 

2.     Definition of clear discounting rules


If discounting rules are not strategically and operationally formalised, then the impact of the new pricing strategy will be very likely be eroded. Based on an empirical study, 9 out of 10 managers underestimate the increase in volume required to compensate a price reduction. There are several cases in which unnecessary discounts erode profitability. The idea is to standardise and formalise four aspects of discounting:

  • Whom should we give discount to? And, why?

  • Under what circumstances we should give discounts?

  • How much should be the discount?

  • What is the approval process of giving discounts?

 

3.     Development of migration strategy for existing customers


This is more applicable for subscription businesses such as Software as a Service and telecommunication businesses. This is very important to mitigate the risks of customer churning. The three key questions that we need to answer are:

  • When are we going to ask the existing customers to migrate to the new packaging and pricing? Now, at renewals, or in between?

  • How are we going to ask the existing customers to migrate or upgrade to the new packaging and pricing? Are we going to offer some incentives?

  • Are there some specific sub-segments of customers who are at the high risk of churning? If yes, how should we address them?


4.     Preparation for price communication


We need to formulate a value-based argumentation strategy to communicate the new pricing to customers. We should always strive to quantify the additional value offered. If we are simply increasing the price without offering any additional value, then argumentation based on cost is often very effective. In this case, we are not going to develop the pricing strategy purely based on cost, but we will use cost to justify the new pricing.


5.     Sales enablement


We need to empower the sales team with three practical tools to reduce sales friction associated with a new pricing strategy:

  • Training on value-based selling

  • Provision of argumentation data

  • Answers to highly probable counterarguments


6.    Sales force compensation program


The sixth key success factor is to devise sales force compensation program which is more profitability-oriented than revenue-oriented. Sales teams are generally not happy with price increase as it makes their life harder. Hence, we need to carefully devise bonus programs along with a new pricing strategy to mitigate any internal friction.


7.     Technology


Leveraging technology is key to translate the pricing strategy to the price tag at the point of sales. Technology increases the time-efficiency and reduces the operational cost of price change management. Some examples of such technology are digital price tag, fully automated list price and configure-price-quote (CPQ) applications for B2B sales reps.


8.     Monitoring of results and adjustments


The eighth key success factor is monitoring the results of the new pricing strategy and loop the feedback without delay. We need to monitor some key metrics by segments and markets including but not limited to:

  • Average selling price

  • Volume

  • Revenue

  • Margin

  • Effect on the volumes of the related products


These metrics need to be defined carefully based on the sector and the business objectives.



9.     Communication to key stakeholders


Communicating the impact of the new pricing strategy internally is a very critical step as pricing involves multiple departments including but not limited to sales, marketing, finance, and operations.


10.  Development of internal pricing ecosystem


The final key success factor is to develop internal pricing ecosystem for continuous improvement of the pricing strategy:

  • By gathering more robust data

  • By adopting more powerful pricing tools

  • By recruiting more skilled talents

 

In conclusion, a well-planned implementation is imperative for the success of a new pricing strategy. You can implement a new pricing strategy 100% in-house, or outsource it to a consultancy, or take a hybrid approach where you temporarily contract an independent consultant.


Link to a real-life case study in which Pricing Stratz revamped pricing and packaging strategy for a HR tech and implemented a personalised price calculator resulting into an increase of average deal size by >40% for both renewals and new businesses

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