5 ways to enable your sales team for pricing success
With Inflation deemed the biggest risk to businesses in 2022, actively managing pricing is crucial. Inflexion brought the portfolio together to discuss strategies to drive pricing success.
When Inflexion surveyed its portfolio earlier this year, 90% said they are undertaking pricing and margin work as a result of inflation. As businesses begin to look more closely at pricing in light of this, wider opportunities are also uncovered. These may be around your pricing model and how to better align price with value, or there may be customers on legacy offerings that need addressing.
Regardless of which pricing-related opportunity, it is rare that businesses successfully capture their full target. To ensure success in aligning price with value, keep these five things in mind:
1. Involve sales in the process from beginning to end to build internal adoption. While customers are the ultimate target, you have to start with internal buy-in – getting the team on-board is a crucial first step. This should involve an evidence-based approach to overcome biases inherent in sales teams, with salespeople often overestimating customers’ price sensitivity, according to Cliff Burgin of Burgin Associates. They aim to please customers, so raising prices is anathema to them and they shy away from it. In Cliff’s experience, convincing the sales team of the value you deliver is often harder than the clients!
2. Understand your cohorts – your customers are different. The best approach to pricing is a targeted one, and Cliff recommends segmenting customers to decide what conversation to have. Infrequent purchasers or small customers don’t warrant the same level of notification as more significant clients. The business-critical clients should have multi-stage communication to ensure the best outcomes for everyone, and this takes time. Use your data to understand how customers are different and similar – in terms of size, frequency of purchase, usage, etc. This can help reveal where value is coming from and therefor inform an optimal pricing model.
3. Take your time to prepare. Succeeding with price changes requires time. Cliff advises running a workshop for the sales team which clearly defines the rationale and merits for them and for the company. Understanding the psychology of customers can help them with tactics, such as how to respond to objections. The most significant clients should have individual plans targeted to their particular needs and circumstances.
Shifting customers’ thinking in advance of an increase can help avoid adverse reactions. This may mean for example dropping anchors to the current list price or referencing changes to the product or service since it was first sold to them. It’s about finding ways to re-establish the feeling that they’re getting value for money, even at a higher price.
Avoid surprises by breaking the news gently over time. Hint that it might happen at some point and distance yourself from the cause, advise on the approximate scale of the new price, remind them of the value (and that it’s still good!), and confirm the detail – any negotiation should be around something other than the amount. Consider allowing a phased increase for important customers.
4. Pilot if you can. Trial any changes with some smaller clients to see what works, then iterate before rolling out to the more business-critical ones. Moving the new price to new customers first is typically less risky, since Cliff says existing customers often feel 1- they’re already paying market price, 2- the product or service has not changed since they agreed a price and 3- the provider desperately wants to keep their business. If you intend to change prices by more than inflation, you need to disabuse them of at least two of these notions. Additionally, ‘inflation’ is best left out of the conversation if your change is substantially higher since it can otherwise be used against you.
After the initial pilots are trialled, the team should reconvene to talk, swap stories, check progress, share tactics, pivot direction if needed, and recalibrate the plan. Testing and iterating can help to minimise risk and prove the benefits of aligning price with value – a goal all companies should pursue, now more than ever.
5. Understand all the levers available. It is important to re-assess price metrics and think about what aligns with the value delivered, and how customers use the product/service. People tend to default to a simple all-you-can-eat or seat-based model, when really they need to consider all the options. User-based pricing may be the best metric in certain circumstances, but there’s not just one type of user and just one price for them. You need to differentiate to align that pricing with value.
The team at Peach has also found that enabling the sales team to speak about value in a new way has been much easier with new clients rather than existing ones. You need to build the internal conviction step by step, and iterate as you learn more to continue to build confidence and momentum.
While making changes to longstanding customers can seem daunting, Brandon points to inflationary pressure as an unexpected boon to this worthwhile exercise as it opens the door for the conversation. “It’s truly a once-in-a-generation inflationary environment”.