Best practices in introducing new pricing
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talio.
You have invested a lot of time and effort in designing new packaging and pricing.
Data has been parsed, current customers consulted, stakeholders engaged. You have a shiny new pricing and packaging model. One that is meant to address critical business challenges:
Get revenue growing again
Improve Net Revenue Retention
Accelerate pipeline velocity
Improve the win/loss ratio
Reduce discounting
Your new pricing does this by
Better matching packages to buyer needs
Supporting key use cases and jobs to be done
Aligning price to value
Giving sales more tools
Strategic price increases (and maybe some price costs as well)
The analysis and design work has been done, but you still need to roll out your new pricing and get it adopted by the market.
What do you need to do?
Introducing new pricing requires careful planning and a disciplined process. Just throw the pricing out there and some bad things can happen.
Marketing won’t know how to communicate the value of the new packages
Sales will reject the new packaging and pricing, try to sell what they know or discount away price increases
Customer success will struggle to get existing customers onto the new pricing when they renew
Finance will not be able to bill or recognize revenue
Partners will not want to sell the new packages
Buyers will push back and demand discounts and concessions
The market will talk about how you messed up your business
Plan to avoid these traps - your six-step plan
There are six steps to take to ensure that the launch of your new pricing will be a success.
Understand the value of each package
Who gets value
How they will get it
When the value will be deliveredGather evidence of value
Validate with partners and customers
Map existing customers by value and revenuePrepare the messaging
Let people know in advance
Put price changes in the context of value
Provide multiple paths for different segmentsConfigure systems
Value and Pricing
CRM and CPQ
Customer success and user support
Billing
Finance
ProductTrain sales, customer success, and partners
Sales and partners need to be able to communicate value and explain plans
Customer success needs to be able to document value and deliver what the packagers promiseTrain Customers
Help customers understand the value, the packages, and the new pricing
Use an OODA Loop
No plan survives its encounter with the market. Be prepared to adapt. The best model for this is the OODA loop: Observe - Orient - Decide - Act.
Observe the response to the new packaging and pricing
Orient using the value model
Plan messaging and training
Act in a systematic way
This is a loop as the actions will change the observations.
Understand the value
Why the obsession with value?
Value is the foundation for pricing. Packages need to align with how value is delivered for the key use cases. Price needs to scale with value so that the Value > Price > Cost requirement is satisfied. Value shapes messaging and adoption.
Value is understood through a value model, a system of equations that estimates the value being provided to a customer. No value model? Then you don’t actually understand value, you won’t be able to communicate it, and it will be impossible to document.
Value is communicated in conversations and through stories. Buyers, and sales, don’t have the patience or need to understand the value model. They want to engage in conversations and be able to tell a story. Ibbaka has a proven way to generate value stories from a value model.
Gather Evidence
Show me. That is what buyers expect. Not just tell me, but show me how you will create value for me.
Buyers (and sales) have become cynical about value claims. That is one reason you need a value model. To make those claims believable. You need to give buyers the framework to understand your value, but they will want to validate these claims with their own numbers.
Before designing your new packaging and pricing you probably did some form of value research. You interviewed existing customers and hopefully, some customers that have churned. Maybe you did a value survey or a conjoint study. This was an input into the new pricing.
Now that you are ready to go to market you need to validate again, using the new packaging and pricing design.
There are two ways to do this.
First, conduct value validation interviews using the value model mapped to the new packaging.
Then map all of your current customers to the value model. This will help you get a much deeper understanding of how you are currently delivering value and get you started on value documentation. It is also a critical input into the value and price pathing that is a critical part of introducing new pricing.
Prepare the Messaging
You will need to sequence a series of messages about your new pricing. If there are price increases, and there generally are, you need to let people know in advance. The whole organization has to be aligned on the messages. Marketing, sales, delivery teams, customer success and billing all need to be telling the same story.
The story needs to explain
Why the change
When it will happen
How it will impact each customer
How the customer can adapt (the options they have)
The value they will receive
Price changes that are not put in the context of value are likely to face much more resistance.
The value story needs to be backed up with evidence.
Configure the Systems
Pricing touches many different systems. Many price change programs get into trouble. Map the data flow between systems and make sure everything has been updated and aligned. Get the owners of each system on board with the change.
Marketing (including the website, pricing page, standard presentations)
Sales (the CRM and if you have one the CPQ or Configure Price Quote system along with sales documents)
Delivery (the project management systems)
Customer success (who need to be able to document value)
Billing (the billing system must be able to support the new packaging and pricing)
Finance (how revenue will be recorded and recognized)
Legal (contracts and obligations, impact on partners, sales compensation)
Train
Training is an important part of a price transition. The training should be kept light, and not be a burden, and should happen close to the introduction, but before customers are informed. Training works best when it is broken up into small segments and repeated several times. As the pricing and packaging may evolve once in market, and value and messaging are sure to evolve, plan a sequence of training events and keep the supports updated.
Who needs to get trained? We have found the training works best when there is a general session for all stakeholders and then each key groups gets their own training. The key groups are …
Sales
Customer Success
Implementation and professional services
Finance and legal (these can often be handled together as they both generally report to the CFO)
Channel partners
Consultants and analysts
Customers! Yes, consider offering customers information sessions or online learning on your new packaging and pricing, your champion will often need to be able to explain this internally.
Managing Value and Pricing Paths
Not everyone will respond the same way to your new packaging and pricing. You need to segment your customers and design messaging and programs for each segment. There are many ways to do this - by industry vertical, by use case or jobs-to-be-done, by package, by size … but for price changes what works best is to segment by value to customer and value to vendor.
Your customers will fall into four main buckets.
Do you know how many customers are in each bucket? What do the companies in each bucket have in common? Knowing this is critical to predicting the outcome of a price change.
High Value to Customer and Vendor (top right)
These are your best customers. And you are a great vendor for these customers. They are getting a lot of value and you are getting a lot of value in return. Your goal here is to keep customers in this quadrant and to continue to grow value to customer (V2C) while increasing prices.
Low Value to Customer and High Value to Vendor (Bottom Right)
These are the customers most at risk in a price change.
From a value perspective, they are already being overcharged.
You need to figure out how to deliver more value to these customers and document that value. You may need to offer concessions to these customers as part of the price change.
High Value to Customer and Low Value to Vendor (Top Left)
These are the customers that should be getting a price increase. They are getting a lot of value from you while paying relatively little.
But before you act on this, make sure that you have validated the value and have evidence it is being delivered.
Communicate the value before you explain the price change.
Low Value to Customer and Low Value to Vendor (Bottom Left)
These are the problem customers. They are not happy. You are not happy. There are three paths out.
Find ways to increase value, and move them up to the top left.
Go ahead and increase the price, if they accept the price increase you have moved them across, to the bottom right.
When you increase price some may churn, and this is OK.
A price change with no churn was likely a missed opportunity. Use your price change to improve the quality of your customer base. Get customers out of the bottom left and move as many as possible to the top right.
