Pricing after Merger and Acquisition Part 3: The M&A Pricing Checklist

Written By Steven Forth

Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.

The 3rd in a 3-part series on pricing after a merger.

There is a lot to keep track of after a merger and it is easy for things to drop through the cracks. This is especially true of something like pricing, where there are a lot of hidden dependencies.

In such situations checklists are valuable tools to help the team align on what needs to be done and then to make sure it does get done. There is a wonderful book on this, The Checklist Manifesto by Atul Gawande that shows the power of checklists in complex operating environments.

A checklist for pricing after a merger

Checklists can perform three key functions in the post merger environment.

  • Get alignment on what needs to be done

  • Allocate responsibilities for each piece of work

  • Make sure that nothing slips through the cracks

Once you have alignment on pricing strategy you can use the following checklist to prepare for post merger pricing. You will want to customize it for your own situation. There are 2 reasons for this. The combined company strategy and how that is being implemented through pricing will impact priorities. Where the company falls in the 2x2 customer-value matrix will shape the next steps. You will be in a position to make this determination after you have compared customers (Step 2) and mapped the value-based market segments (Step 3).

  1. Perform basic pricing hygiene on both companies

    • Build the pocket price waterfall and look for price leaks

      • Do the leaks happen in the same place?

      • Can you segment customers by where the price leaks occur and how extensive the price leaks are?

    • Do a pricing dispersion (map actual price to the pricing metric(s))

      • Do the pricing metrics predict price?

      • Look for clusters that are above or below the regression line, investigate the reason for this

    • Compare contracts to actual billing

      • Are contracts being followed?

      • What price changes can be made under the current contracts?

  2. Compare customers

    • How much do the customers overlap between the two companies?

    • What are the underlying similarities between customers at each company?

    • What are the differences?

    • How do usage patterns and engagement compare between the customers of each company?

      • Usage

      • Engagement

      • Value paths and completion of value paths
        (a value path is a sequence of actions taken by a user that results in something of value)

  3. Map the value-based market segments between the two companies

    • Are there segments that overlap?

    • What value drivers overlap?

    • Are there any common variables in the two companies’ value drivers or pricing models? If ‘yes’, then how does value to customer and pricing vary with these variables at each company?

  4. Compare the value metrics and pricing metrics

    • Assuming that each company has a value model, look at the variables in the value driver equations. Are the same variables showing up for both companies?

  5. Align Marketing, CRM, billing and financial systems

    • Marketing and CRM configuration of stages and conversion criteria

    • Definitions of Marketing Qualified Leads MQLs), Product Qualified Leads (PQLs) and Sales Qualified Leads (SQLs)

    • Billing Systems

    • Revenue Recognition

    • Customer Success

    • Pricing and Customer Value Management (like the Value Pricing Dashboard)

  6. Revise Pricing and Packaging
    (Once you have completed Steps 1-5, you will be in a position to change pricing)
    The following is more of a simplified version of a pricing process than a checklist, but it helps to define the work that needs to be done.

    • Choose the target segments that you need to package and price for

    • Within each target segment, define the value drivers and value metrics and use these to select pricing metrics

    • Validate the value drivers (again) with

      • The current customers

      • Target customers

    • Develop a value model that can be used to estimate economic value for each customer

    • Design a new pricing model

    • Design a communication plan

    • Plan the migration of current customers

    • Set up a process and systems to gather the data you will need to adapt the value model and pricing model

    • Track the pricing metrics and KPIs at a weekly cadence

This is hard work, but pricing investments can have a big payback. They are especially important at transition points like after a merger.

 
Steven Forth
Previous

5 Characteristics of a Superior Pricing Model
Next

Pricing after Merger and Acquisition Part 2: Finding Pricing Alignment After a Merger