Leveraging pricing as a growth catalyst
September 6, 2023
A lot of B2B scale-ups are fixated on generating high volumes and expanding their customer base. Investors care about, revenues, right? So let’s grow as big as possible, as fast as possible. But here's the catch: while they're busy driving up account numbers and customer reach, they often underinvest a crucial aspect – pricing. Pricing is often treated as an afterthought, missing out on the opportunity to unlock the true value they offer and capitalise on it today.
Welcome back to another exciting edition of the xCollective! In this episode we had the privilege of hosting Dr. Ian Tidswell, the pricing expert from Ideal Price. We discussed the often overlooked potential of pricing as a growth lever for many businesses. When done well, pricing can make the difference between success and failure.
The ‘pricing geek’
Ian Tidswell is a seasoned pricing expert with over 20 years of experience in the field. His journey began in a pricing software company where he specialised in selling to large enterprises. Throughout his career, Ian has had the opportunity to work in both small and large companies, honing his expertise in the B2B world of pricing. For the past seven years, Ian has led the boutique consulting firm Ideal Price, dedicating his expertise to working with startups and scale-ups.
The importance of pricing
Pricing is the only way companies can capture the value they provide. Many companies underestimate the importance of pricing, dedicating insufficient time to it. Ian uses the following example, “It's like playing football – anyone can kick a ball and aim for the net, but excelling at it’s a different story. This becomes even more critical when striving for growth, because every misstep can send the ball rolling back down the hill.”.
Integrating pricing into the product design process and sales strategy is crucial. It should influence every decision made along the way. Keeping the customer at the forefront is essential. Companies often focus on costs and their own product, but understanding the customer's perspective, their perceived value, and the factors driving their decisions is key. Getting pricing right is crucial because it directly impacts the value exchange with customers. If the price is set too low, you risk undervaluing your offering and sacrificing profitability. On the other hand, setting the price too high can deter potential customers and hinder growth.
Striking the right balance requires anchoring the pricing strategy to the value the product delivers. According to Ian, one common mistake is fearing low prices at the outset.
Strategies for informed decision-making
Informed decision-making is the key to developing a successful pricing strategy. Central to this process is a deep understanding of the value your offering brings and the potential challenges that could hinder customer acceptance. Ian's CONVERT model is a valuable tool that strikes a balance between customer and seller needs.
The foundation of your plan lies in three essential elements: Customer, Offer, and Next Best Alternative. First, you must identify your “ideal customer” and comprehend their preferences. This knowledge lays the groundwork for tailoring your offering to suit their needs and desires. Next, defining a compelling offer targeted at these ideal customers. Lastly, identify your ideal customer’s “Next Best Alternative” options: what they would do if they don’t buy your solution.
Customer: identify your ideal customer and their preferences.
Offer: define what you are providing to your customers and what makes it unique.
Next Best Alternative: understand your competitors and the alternatives customers have.
Moving beyond the core elements, the VERT part focuses on evaluating the value your customers receive from your offering as compared to their Next Best Alternative. This is pivotal in determining how well your product or service meets their needs and expectations. Including barriers that could impact customer acceptance:
Value: evaluate the benefits your customers get from your offering.
Effort: Assess the effort, investment, and changes required by customers to adopt your offering. Lowering barriers in this area can make your solution more appealing.
Risk: Consider what risks the customer is likely to perceive. Various types of risks can significantly reduce a customer’s attraction to an offer.
Time-to-Value: Understand the timeframe within which customers can expect to see tangible benefits. If the process takes too long, it might deter potential customers.
To gather the necessary input for an informed pricing strategy, Ian emphasises engaging with customers and internal stakeholders to gain valuable insights. Various approaches can be employed:
Hypothesis-driven approach: Starting by leveraging the knowledge and expertise of the team, documenting their beliefs and assumptions. However, don't stop there: it’s crucial to validate key hypotheses.
Market research: For early-stage companies, market research and transaction data may be limited due to resource constraints. However, as they scale up, it becomes important to analyse transaction data and conduct Market Research. Regular customer satisfaction surveys, for instance, can provide insights into the perceived value for money and track changes over time.
Willingness-to-Pay interviews: Even simple approaches like conducting Willingness-to-Pay interviews can provide valuable insights. Just by doing 5-10 of these interviews can give you invaluable insights.
Operationalising your pricing policy
In early-stage companies, the responsibility for setting pricing strategy typically falls under the purview of the commercial leadership team. While a dedicated pricing function may not exist until a company reaches a larger scale, product marketing serves as a natural fit for overseeing pricing in the absence of such a role. Although there are a lot more people involved in pricing decisions from different disciplines, it’s helpful to designate a single individual who is responsible for overall pricing development.
Initially, the CEO or head of sales often handles all the pricing, especially in negotiated sales. But as the company grows, they suddenly have a sales team who need to make pricing decisions. It becomes a challenge because these team members may not understand the value and pricing as well as the founders. It's important that sales grasps the value proposition and know when and how much to negotiate or give discounts. If you simply tell your sales team to go out and sell, they will, but you may not be satisfied with the pricing outcomes. “There's a common expression that ‘salespeople win deals while pricing loses deals’, but it isn’t very helpful. The best sales reps are those who achieve high sales at high average prices. However, determining what constitutes a high price depends on the customer and their usage of the product, requiring segmentation.”
This is where your price policy comes to play, this involves setting price targets, price floors, and treating the floor as the exception rather than the minimum. By now, the question arises: how can you effectively communicate this policy throughout your organisation, and ensure that sales representatives understand how to apply pricing in practice for different segments? This starts with sales understanding the value the product delivers. It's common to see high-growth companies neglecting the task of convincing customers about the value they offer. “The key is to instil a value mindset within the sales team, which may seem obvious, but often gets lost amidst customer complaints about pricing. Sales representatives frequently find themselves in reactionary conversations where they defend against claims of high prices. However, it's crucial to shift the narrative, and proactively lead conversations centred on the value the product provides. By establishing credibility in discussing value, you can guide the conversation and effectively communicate the benefits to customers.”, Ian shares.
Adapting to current market dynamics
There has been a significant shift in recent times, particularly in the macroeconomic and investment community landscape, including factors like higher interest rates and increased cost of capital. This shift has exposed unprofitable go-to-market strategies of many SaaS companies that emerged in the past few years as unsustainable. The current environment demands a higher level of scrutiny and discernment, where companies lacking a strong value proposition or encountering substantial barriers to delivering value will face closure. Simply put, if you lack value, you will struggle.
Another change is high inflation. Interestingly, this presents an opportunity for companies to raise prices, as customers already anticipate price hikes, as well as the threat of higher costs. However, many companies aren’t accustomed to this mindset due to the prolonged period of minimal inflation in the past decade. Consequently, they have been content with maintaining the same pricing structure without considering potential adjustments. Moreover, as companies grow, their value proposition and barriers to adoption naturally evolve over time (value tends to increase, customer perceived risks decline). It becomes crucial to stay attuned to these changes. Some companies may find themselves in a situation where they have been undercharging for their offerings for an extended period, realising this oversight only after years have passed.
Ironically, existing customers who have already experienced the value of a company's product or service are often simultaneously the most loyal and willing to pay more. Recognising this loyalty and the potential for capturing additional value from these customers is an important consideration. According to Ian, Netflix serves as an excellent example in this regard. Over the past decade, Netflix has not only doubled its prices, but also expanded its customer base fivefold. This expansion encompasses a broader range of products, including a vast library of shows and other content, which adds to the value proposition. While it’s true that price increases can result in some customer attrition, the losses are overcome by the profits from higher prices. In fact, the numbers surrounding pricing dynamics suggest that the outcome depends on the cost structure of each company. “For instance, if a company raises prices by 10% and experiences a 10% reduction in customers, the impact on profits remains positive.”
Final words of advice
Clearly define your target market and value proposition: It’s crucial to have a deep understanding of your target customers and the unique value they will receive compared to their next best alternative. This is the first step in developing a strong pricing strategy.
Ian employs the ABCD methodology to formulate an effective pricing strategy. ABCD stands for Ambition, Blueprint, Check, and Deploy, with each step playing a significant role in the process. For a more comprehensive understanding of this methodology and its application, you can access the complete step-by-step plan here.
Consider pricing throughout the go-to-market strategy: Pricing shouldn’t be an afterthought or a late-stage consideration. It should be an integral part of your go-to-market strategy, from the conceptual stage to practical implementation. By factoring pricing into the entire process, you can avoid wasted time and resources on innovations that may lack substantial value.
Document and communicate pricing decisions: One common issue with pricing is a lack of closure and ongoing disagreements within the team. To overcome this, document your pricing strategy, including fundamental beliefs about the value you deliver and your target customers. By documenting these decisions, it becomes easier to identify and address any internal disagreements, enabling focused research and discussion.
Focus on your solution’s core value: Sometimes, debates about pricing stem from differing perspectives on the core value of the product or service. It’s essential to recognise and address these disagreements to ensure alignment. By prioritising discussions about core value, you can establish a solid foundation for pricing decisions. When selling a business service or product, there are five distinct ways to provide value: cost savings in the short and long run, business growth, environmental and social impact, and risk reduction. Ian elaborates on value-based pricing in this article, delving into these different aspects.
Want to learn more about Ian's journey and how to leverage pricing as a growth catalyst? Listen to the full story on Spotify.
A lot of B2B scale-ups are fixated on generating high volumes and expanding their customer base. Investors care about, revenues, right? So let’s grow as big as possible, as fast as possible. But here's the catch: while they're busy driving up account numbers and customer reach, they often underinvest a crucial aspect – pricing. Pricing is often treated as an afterthought, missing out on the opportunity to unlock the true value they offer and capitalise on it today.
Welcome back to another exciting edition of the xCollective! In this episode we had the privilege of hosting Dr. Ian Tidswell, the pricing expert from Ideal Price. We discussed the often overlooked potential of pricing as a growth lever for many businesses. When done well, pricing can make the difference between success and failure.
The ‘pricing geek’
Ian Tidswell is a seasoned pricing expert with over 20 years of experience in the field. His journey began in a pricing software company where he specialised in selling to large enterprises. Throughout his career, Ian has had the opportunity to work in both small and large companies, honing his expertise in the B2B world of pricing. For the past seven years, Ian has led the boutique consulting firm Ideal Price, dedicating his expertise to working with startups and scale-ups.
The importance of pricing
Pricing is the only way companies can capture the value they provide. Many companies underestimate the importance of pricing, dedicating insufficient time to it. Ian uses the following example, “It's like playing football – anyone can kick a ball and aim for the net, but excelling at it’s a different story. This becomes even more critical when striving for growth, because every misstep can send the ball rolling back down the hill.”.
Integrating pricing into the product design process and sales strategy is crucial. It should influence every decision made along the way. Keeping the customer at the forefront is essential. Companies often focus on costs and their own product, but understanding the customer's perspective, their perceived value, and the factors driving their decisions is key. Getting pricing right is crucial because it directly impacts the value exchange with customers. If the price is set too low, you risk undervaluing your offering and sacrificing profitability. On the other hand, setting the price too high can deter potential customers and hinder growth.
Striking the right balance requires anchoring the pricing strategy to the value the product delivers. According to Ian, one common mistake is fearing low prices at the outset.
Strategies for informed decision-making
Informed decision-making is the key to developing a successful pricing strategy. Central to this process is a deep understanding of the value your offering brings and the potential challenges that could hinder customer acceptance. Ian's CONVERT model is a valuable tool that strikes a balance between customer and seller needs.
The foundation of your plan lies in three essential elements: Customer, Offer, and Next Best Alternative. First, you must identify your “ideal customer” and comprehend their preferences. This knowledge lays the groundwork for tailoring your offering to suit their needs and desires. Next, defining a compelling offer targeted at these ideal customers. Lastly, identify your ideal customer’s “Next Best Alternative” options: what they would do if they don’t buy your solution.
Customer: identify your ideal customer and their preferences.
Offer: define what you are providing to your customers and what makes it unique.
Next Best Alternative: understand your competitors and the alternatives customers have.
Moving beyond the core elements, the VERT part focuses on evaluating the value your customers receive from your offering as compared to their Next Best Alternative. This is pivotal in determining how well your product or service meets their needs and expectations. Including barriers that could impact customer acceptance:
Value: evaluate the benefits your customers get from your offering.
Effort: Assess the effort, investment, and changes required by customers to adopt your offering. Lowering barriers in this area can make your solution more appealing.
Risk: Consider what risks the customer is likely to perceive. Various types of risks can significantly reduce a customer’s attraction to an offer.
Time-to-Value: Understand the timeframe within which customers can expect to see tangible benefits. If the process takes too long, it might deter potential customers.
To gather the necessary input for an informed pricing strategy, Ian emphasises engaging with customers and internal stakeholders to gain valuable insights. Various approaches can be employed:
Hypothesis-driven approach: Starting by leveraging the knowledge and expertise of the team, documenting their beliefs and assumptions. However, don't stop there: it’s crucial to validate key hypotheses.
Market research: For early-stage companies, market research and transaction data may be limited due to resource constraints. However, as they scale up, it becomes important to analyse transaction data and conduct Market Research. Regular customer satisfaction surveys, for instance, can provide insights into the perceived value for money and track changes over time.
Willingness-to-Pay interviews: Even simple approaches like conducting Willingness-to-Pay interviews can provide valuable insights. Just by doing 5-10 of these interviews can give you invaluable insights.
Operationalising your pricing policy
In early-stage companies, the responsibility for setting pricing strategy typically falls under the purview of the commercial leadership team. While a dedicated pricing function may not exist until a company reaches a larger scale, product marketing serves as a natural fit for overseeing pricing in the absence of such a role. Although there are a lot more people involved in pricing decisions from different disciplines, it’s helpful to designate a single individual who is responsible for overall pricing development.
Initially, the CEO or head of sales often handles all the pricing, especially in negotiated sales. But as the company grows, they suddenly have a sales team who need to make pricing decisions. It becomes a challenge because these team members may not understand the value and pricing as well as the founders. It's important that sales grasps the value proposition and know when and how much to negotiate or give discounts. If you simply tell your sales team to go out and sell, they will, but you may not be satisfied with the pricing outcomes. “There's a common expression that ‘salespeople win deals while pricing loses deals’, but it isn’t very helpful. The best sales reps are those who achieve high sales at high average prices. However, determining what constitutes a high price depends on the customer and their usage of the product, requiring segmentation.”
This is where your price policy comes to play, this involves setting price targets, price floors, and treating the floor as the exception rather than the minimum. By now, the question arises: how can you effectively communicate this policy throughout your organisation, and ensure that sales representatives understand how to apply pricing in practice for different segments? This starts with sales understanding the value the product delivers. It's common to see high-growth companies neglecting the task of convincing customers about the value they offer. “The key is to instil a value mindset within the sales team, which may seem obvious, but often gets lost amidst customer complaints about pricing. Sales representatives frequently find themselves in reactionary conversations where they defend against claims of high prices. However, it's crucial to shift the narrative, and proactively lead conversations centred on the value the product provides. By establishing credibility in discussing value, you can guide the conversation and effectively communicate the benefits to customers.”, Ian shares.
Adapting to current market dynamics
There has been a significant shift in recent times, particularly in the macroeconomic and investment community landscape, including factors like higher interest rates and increased cost of capital. This shift has exposed unprofitable go-to-market strategies of many SaaS companies that emerged in the past few years as unsustainable. The current environment demands a higher level of scrutiny and discernment, where companies lacking a strong value proposition or encountering substantial barriers to delivering value will face closure. Simply put, if you lack value, you will struggle.
Another change is high inflation. Interestingly, this presents an opportunity for companies to raise prices, as customers already anticipate price hikes, as well as the threat of higher costs. However, many companies aren’t accustomed to this mindset due to the prolonged period of minimal inflation in the past decade. Consequently, they have been content with maintaining the same pricing structure without considering potential adjustments. Moreover, as companies grow, their value proposition and barriers to adoption naturally evolve over time (value tends to increase, customer perceived risks decline). It becomes crucial to stay attuned to these changes. Some companies may find themselves in a situation where they have been undercharging for their offerings for an extended period, realising this oversight only after years have passed.
Ironically, existing customers who have already experienced the value of a company's product or service are often simultaneously the most loyal and willing to pay more. Recognising this loyalty and the potential for capturing additional value from these customers is an important consideration. According to Ian, Netflix serves as an excellent example in this regard. Over the past decade, Netflix has not only doubled its prices, but also expanded its customer base fivefold. This expansion encompasses a broader range of products, including a vast library of shows and other content, which adds to the value proposition. While it’s true that price increases can result in some customer attrition, the losses are overcome by the profits from higher prices. In fact, the numbers surrounding pricing dynamics suggest that the outcome depends on the cost structure of each company. “For instance, if a company raises prices by 10% and experiences a 10% reduction in customers, the impact on profits remains positive.”
Final words of advice
Clearly define your target market and value proposition: It’s crucial to have a deep understanding of your target customers and the unique value they will receive compared to their next best alternative. This is the first step in developing a strong pricing strategy.
Ian employs the ABCD methodology to formulate an effective pricing strategy. ABCD stands for Ambition, Blueprint, Check, and Deploy, with each step playing a significant role in the process. For a more comprehensive understanding of this methodology and its application, you can access the complete step-by-step plan here.
Consider pricing throughout the go-to-market strategy: Pricing shouldn’t be an afterthought or a late-stage consideration. It should be an integral part of your go-to-market strategy, from the conceptual stage to practical implementation. By factoring pricing into the entire process, you can avoid wasted time and resources on innovations that may lack substantial value.
Document and communicate pricing decisions: One common issue with pricing is a lack of closure and ongoing disagreements within the team. To overcome this, document your pricing strategy, including fundamental beliefs about the value you deliver and your target customers. By documenting these decisions, it becomes easier to identify and address any internal disagreements, enabling focused research and discussion.
Focus on your solution’s core value: Sometimes, debates about pricing stem from differing perspectives on the core value of the product or service. It’s essential to recognise and address these disagreements to ensure alignment. By prioritising discussions about core value, you can establish a solid foundation for pricing decisions. When selling a business service or product, there are five distinct ways to provide value: cost savings in the short and long run, business growth, environmental and social impact, and risk reduction. Ian elaborates on value-based pricing in this article, delving into these different aspects.
Want to learn more about Ian's journey and how to leverage pricing as a growth catalyst? Listen to the full story on Spotify.
A lot of B2B scale-ups are fixated on generating high volumes and expanding their customer base. Investors care about, revenues, right? So let’s grow as big as possible, as fast as possible. But here's the catch: while they're busy driving up account numbers and customer reach, they often underinvest a crucial aspect – pricing. Pricing is often treated as an afterthought, missing out on the opportunity to unlock the true value they offer and capitalise on it today.
Welcome back to another exciting edition of the xCollective! In this episode we had the privilege of hosting Dr. Ian Tidswell, the pricing expert from Ideal Price. We discussed the often overlooked potential of pricing as a growth lever for many businesses. When done well, pricing can make the difference between success and failure.
The ‘pricing geek’
Ian Tidswell is a seasoned pricing expert with over 20 years of experience in the field. His journey began in a pricing software company where he specialised in selling to large enterprises. Throughout his career, Ian has had the opportunity to work in both small and large companies, honing his expertise in the B2B world of pricing. For the past seven years, Ian has led the boutique consulting firm Ideal Price, dedicating his expertise to working with startups and scale-ups.
The importance of pricing
Pricing is the only way companies can capture the value they provide. Many companies underestimate the importance of pricing, dedicating insufficient time to it. Ian uses the following example, “It's like playing football – anyone can kick a ball and aim for the net, but excelling at it’s a different story. This becomes even more critical when striving for growth, because every misstep can send the ball rolling back down the hill.”.
Integrating pricing into the product design process and sales strategy is crucial. It should influence every decision made along the way. Keeping the customer at the forefront is essential. Companies often focus on costs and their own product, but understanding the customer's perspective, their perceived value, and the factors driving their decisions is key. Getting pricing right is crucial because it directly impacts the value exchange with customers. If the price is set too low, you risk undervaluing your offering and sacrificing profitability. On the other hand, setting the price too high can deter potential customers and hinder growth.
Striking the right balance requires anchoring the pricing strategy to the value the product delivers. According to Ian, one common mistake is fearing low prices at the outset.
Strategies for informed decision-making
Informed decision-making is the key to developing a successful pricing strategy. Central to this process is a deep understanding of the value your offering brings and the potential challenges that could hinder customer acceptance. Ian's CONVERT model is a valuable tool that strikes a balance between customer and seller needs.
The foundation of your plan lies in three essential elements: Customer, Offer, and Next Best Alternative. First, you must identify your “ideal customer” and comprehend their preferences. This knowledge lays the groundwork for tailoring your offering to suit their needs and desires. Next, defining a compelling offer targeted at these ideal customers. Lastly, identify your ideal customer’s “Next Best Alternative” options: what they would do if they don’t buy your solution.
Customer: identify your ideal customer and their preferences.
Offer: define what you are providing to your customers and what makes it unique.
Next Best Alternative: understand your competitors and the alternatives customers have.
Moving beyond the core elements, the VERT part focuses on evaluating the value your customers receive from your offering as compared to their Next Best Alternative. This is pivotal in determining how well your product or service meets their needs and expectations. Including barriers that could impact customer acceptance:
Value: evaluate the benefits your customers get from your offering.
Effort: Assess the effort, investment, and changes required by customers to adopt your offering. Lowering barriers in this area can make your solution more appealing.
Risk: Consider what risks the customer is likely to perceive. Various types of risks can significantly reduce a customer’s attraction to an offer.
Time-to-Value: Understand the timeframe within which customers can expect to see tangible benefits. If the process takes too long, it might deter potential customers.
To gather the necessary input for an informed pricing strategy, Ian emphasises engaging with customers and internal stakeholders to gain valuable insights. Various approaches can be employed:
Hypothesis-driven approach: Starting by leveraging the knowledge and expertise of the team, documenting their beliefs and assumptions. However, don't stop there: it’s crucial to validate key hypotheses.
Market research: For early-stage companies, market research and transaction data may be limited due to resource constraints. However, as they scale up, it becomes important to analyse transaction data and conduct Market Research. Regular customer satisfaction surveys, for instance, can provide insights into the perceived value for money and track changes over time.
Willingness-to-Pay interviews: Even simple approaches like conducting Willingness-to-Pay interviews can provide valuable insights. Just by doing 5-10 of these interviews can give you invaluable insights.
Operationalising your pricing policy
In early-stage companies, the responsibility for setting pricing strategy typically falls under the purview of the commercial leadership team. While a dedicated pricing function may not exist until a company reaches a larger scale, product marketing serves as a natural fit for overseeing pricing in the absence of such a role. Although there are a lot more people involved in pricing decisions from different disciplines, it’s helpful to designate a single individual who is responsible for overall pricing development.
Initially, the CEO or head of sales often handles all the pricing, especially in negotiated sales. But as the company grows, they suddenly have a sales team who need to make pricing decisions. It becomes a challenge because these team members may not understand the value and pricing as well as the founders. It's important that sales grasps the value proposition and know when and how much to negotiate or give discounts. If you simply tell your sales team to go out and sell, they will, but you may not be satisfied with the pricing outcomes. “There's a common expression that ‘salespeople win deals while pricing loses deals’, but it isn’t very helpful. The best sales reps are those who achieve high sales at high average prices. However, determining what constitutes a high price depends on the customer and their usage of the product, requiring segmentation.”
This is where your price policy comes to play, this involves setting price targets, price floors, and treating the floor as the exception rather than the minimum. By now, the question arises: how can you effectively communicate this policy throughout your organisation, and ensure that sales representatives understand how to apply pricing in practice for different segments? This starts with sales understanding the value the product delivers. It's common to see high-growth companies neglecting the task of convincing customers about the value they offer. “The key is to instil a value mindset within the sales team, which may seem obvious, but often gets lost amidst customer complaints about pricing. Sales representatives frequently find themselves in reactionary conversations where they defend against claims of high prices. However, it's crucial to shift the narrative, and proactively lead conversations centred on the value the product provides. By establishing credibility in discussing value, you can guide the conversation and effectively communicate the benefits to customers.”, Ian shares.
Adapting to current market dynamics
There has been a significant shift in recent times, particularly in the macroeconomic and investment community landscape, including factors like higher interest rates and increased cost of capital. This shift has exposed unprofitable go-to-market strategies of many SaaS companies that emerged in the past few years as unsustainable. The current environment demands a higher level of scrutiny and discernment, where companies lacking a strong value proposition or encountering substantial barriers to delivering value will face closure. Simply put, if you lack value, you will struggle.
Another change is high inflation. Interestingly, this presents an opportunity for companies to raise prices, as customers already anticipate price hikes, as well as the threat of higher costs. However, many companies aren’t accustomed to this mindset due to the prolonged period of minimal inflation in the past decade. Consequently, they have been content with maintaining the same pricing structure without considering potential adjustments. Moreover, as companies grow, their value proposition and barriers to adoption naturally evolve over time (value tends to increase, customer perceived risks decline). It becomes crucial to stay attuned to these changes. Some companies may find themselves in a situation where they have been undercharging for their offerings for an extended period, realising this oversight only after years have passed.
Ironically, existing customers who have already experienced the value of a company's product or service are often simultaneously the most loyal and willing to pay more. Recognising this loyalty and the potential for capturing additional value from these customers is an important consideration. According to Ian, Netflix serves as an excellent example in this regard. Over the past decade, Netflix has not only doubled its prices, but also expanded its customer base fivefold. This expansion encompasses a broader range of products, including a vast library of shows and other content, which adds to the value proposition. While it’s true that price increases can result in some customer attrition, the losses are overcome by the profits from higher prices. In fact, the numbers surrounding pricing dynamics suggest that the outcome depends on the cost structure of each company. “For instance, if a company raises prices by 10% and experiences a 10% reduction in customers, the impact on profits remains positive.”
Final words of advice
Clearly define your target market and value proposition: It’s crucial to have a deep understanding of your target customers and the unique value they will receive compared to their next best alternative. This is the first step in developing a strong pricing strategy.
Ian employs the ABCD methodology to formulate an effective pricing strategy. ABCD stands for Ambition, Blueprint, Check, and Deploy, with each step playing a significant role in the process. For a more comprehensive understanding of this methodology and its application, you can access the complete step-by-step plan here.
Consider pricing throughout the go-to-market strategy: Pricing shouldn’t be an afterthought or a late-stage consideration. It should be an integral part of your go-to-market strategy, from the conceptual stage to practical implementation. By factoring pricing into the entire process, you can avoid wasted time and resources on innovations that may lack substantial value.
Document and communicate pricing decisions: One common issue with pricing is a lack of closure and ongoing disagreements within the team. To overcome this, document your pricing strategy, including fundamental beliefs about the value you deliver and your target customers. By documenting these decisions, it becomes easier to identify and address any internal disagreements, enabling focused research and discussion.
Focus on your solution’s core value: Sometimes, debates about pricing stem from differing perspectives on the core value of the product or service. It’s essential to recognise and address these disagreements to ensure alignment. By prioritising discussions about core value, you can establish a solid foundation for pricing decisions. When selling a business service or product, there are five distinct ways to provide value: cost savings in the short and long run, business growth, environmental and social impact, and risk reduction. Ian elaborates on value-based pricing in this article, delving into these different aspects.
Want to learn more about Ian's journey and how to leverage pricing as a growth catalyst? Listen to the full story on Spotify.
