Portfolio Exchange 2020: Right pricing
Maximising pricing effectiveness can really pay off. But it requires understanding your customers and embedding the value culture into them as well as your sales force to create sustainable growth. Inflexion Director Maria Orlowski spoke with the Inflexion portfolio about their experiences in focusing on pricing, proposition and sales effectiveness.
Business degree basics teach us that pricing is one of the five Ps in Marketing, and Economics 101 explains it is simply a function of supply and demand. Yet, as businesses scale and mature, it is often treated as a given. Focus is on growing volumes or optimising operations. Pricing as a cross-functional topic and critical value creation lever often gets less attention than it should.
Aligning price with value
Looking to boost the top line, risk management specialist Alcumus considered some pricing tweaks. Explains Alyn Franklin, Alcumus CEO,
He justifies the move by explaining how they had historically over-serviced customers, but perhaps not spent enough time aligning price with that value. “We identified we could try and tap into latent value opportunities.”
To help them understand customer need and the value Alcumus delivers, they brought in external consultants to support the analytical and market research work. The work validated that there was a price-value opportunity. It also helped to educate the sales team – to create an internal value focused culture.
Medical affairs data provider Pharmaspectra partnered with Inflexion in October 2019 to support continued growth of the business. “We operate the largest database of medical science in the world. We had to really dig into our proposition to get insight into our pricing,” says Jez Moulding, CEO.
Pricing should not just be the focus when times are good. It is equally a lever to consider when volumes are hard to come by. Roofing specialist Marley initially developed a margin focus during the 2009 downturn. COO Paul Reed says,
We realised any price increase was 100% on the bottom line, versus 30-40% if we changed volume.
Similar to Alcumus, the initial focus was very much on embedding a value culture in the organisation where discounts are carefully considered and measured. Over time, prices have been reviewed regularly and adjusted in-line with cost increases and added services. “Evaluating price and value regularly is something that we have benefitted from.”
Sustainable growth – one size doesn’t fit all
It’s important to consider pricing and volume in tandem – including new sales, cross-selling and churn – to ensure you have a sustainable revenue engine. Continuously assessing the value you deliver and setting price accordingly is only fair. But price should not be used as a quick fix. “Only using price to drive growth can cover cracks and flatter you, but you need to drive volume as well”, warns Alyn.
Alcumus has, over time, further developed its offerings with premium service level packages that customers can opt in to. Now the firm enables the customer to make their own choice and decide what offering suits them best from both a price and value perspective. “This is a sustainable story for us,” Alyn says.
Pharmaspectra recently evaluated their pricing and packaging model for one of its products. “We looked at how our customers are buying the product to understand their journey and where the friction was,” says Jez Moulding, CEO.
The value proposition always has to come first in any pricing-related work. For example, we found that multiple departments and roles are interested, but they have different budgets and purchase processes.
Pharmaspectra now packages and prices the product based on different content sets to better align with the customer needs.
It’s a journey, not a project
Paul describes any pricing work as a continuous process rather than a project. “For years we’ve worked on various price and value related aspects. We’ve added data analysis that shows us who is buying how much of what and at what price. We’ve also tied it to our costs more closely, so we know how profitable each order is. More sophisticated data and analytics have allowed us to further develop or service options as well – we want to be able to service customers’ needs for smaller orders or remote delivery locations, but it needs to make financial sense for us.”
Getting the entire organisation to buy into the strategy is key and has been embedded as part of the culture at Marley. “We make price performance a significant part of the bonus for salespeople,” Paul says.
Stop, collaborate and listen: getting team and customer buy-in
Pharmaspectra has found the pricing process an iterative one. Jez knew customers save a lot of time by using Pharmaspectra’s database. He is also aware theirs is a premium-priced product, versus less expensive alternatives which offer less data. “Initially we had some internal nay-sayers, so we sent them out to test it and asked they return with all the questions and challenges they could find. It helped us to learn about both our own and the customer perceptions we needed to overcome. It really helped us to improve and gain confidence.”
For Alcumus, it was about showing customers and the sales team that the value they add is more than the cost. “If it adds value to the customer, we should charge accordingly. We use that price return to invest in our business and improve our offerings further,” Alyn says. “Being proud of what differentiates us and the premium service we provide is critical.”
Being able to communicate and provide a rationale for your price model and positioning is key to its success – and this must feed into customers as well as your own team. “The customers we deal with are business owners as well and so they recognise the importance of fairness,” says Paul.