• Troy Wendt

Mid-Pandemic Pricing: 3 Optimization Strategies to Maximize Revenue

The goal of this article is to help you answer this difficult COVID question: “How have my customers and revenue streams changed during the pandemic, and what can I do to maximize revenue growth?” At this point, we have a full 2020 pandemic dataset to guide us forward, and evidence that some companies are benefiting from pandemic trends, while other companies are faltering. Shifts in the relationships between price, value and ability to pay provide insight into pandemic impact. Pricing is a powerful lever to respond to changes in the value customers derive from your products in these tumultuous times.

This article provides an overview of three pricing strategies to increase revenue in response to COVID-19 effects. The first strategy is value-based pricing that optimizes changes in customer value proposition to maximize revenue growth. The second strategy is long-term revenue optimization appropriate for a short-term pandemic demand surge. The third strategy is temporary incentives to ride out the pandemic and reach economic recovery of a hobbled customer base.

First we’ll explore a means to decide among mid-pandemic courses of action for your pricing. How? At this point, we have four quarters of 2020 pandemic data that can be used to evaluate changes in demand for your company’s offerings, and a corresponding pricing approach to optimize growth as we exit the pandemic.

Next, the theory and process of our three pricing strategies will be explained. Examples will be presented for each quadrant of the Pandemic Pricing Strategy Matrix. Lastly, I’ll share a list of common blockers and how to overcome them. Let’s go!

From Pandemic Data to Pricing Strategy

Three sets of 2020 data can be analyzed with the following methodology to determine a recommended mid-pandemic pricing strategy approach. The 2020 datasets are: 1) revenue growth vs. expected growth, 2) customer mix change, and 3) product usage shifts. The calculation of each of these is described next. Subsequently, the three results are combined into a decision matrix of recommended pricing strategy.

2020 Revenue Growth vs. Expected Growth

Pandemic Data Output #1: 2020 Revenue: Above or Below pre-pandemic forecast

The first pandemic data attribute to consider is revenue growth vs. expected growth. The objective is to decide if actual 2020 revenue was greater than or less than expected 2020 revenue without a pandemic. The baseline value for 2020 revenue without COVID could simply be your forecasted revenue for 2020 before the pandemic hit. For output #1, we compare the forecast to actual 2020 results.

Customer Mix

Pandemic Data Output #2: 2020 Customer Mix by Value Segment Revenue %: Similar or Changed compared to 2019 Customer Mix

The second set of 2020 data that will guide our choice of pandemic pricing strategy is customer mix. Essentially, we need to know if there is a change in the value delivered by your offerings to key customer segments. We can segment our customers by a categorization we’ll call Value Segment.

Value Segment is defined as a major grouping of customers best aligned with common value propositions. The segments are particular to your business, and could be based on vertical, customer size, use case, geography, or something unique.

The decision that informs recommended pricing strategy is whether or not Value Segment revenue mix is “similar” or “changed” from 2019 to 2020. An increase or decrease of 10% or more for any Value Segment revenue percentage could be considered “changed”. Alternatively you can set your own threshold. Examining the data and making an intuitive decision is also an excellent method for this analysis.

Product Usage

Pandemic Data Output #3: 2020 Product Usage: Similar or Changed compared to 2019 Product Usage

The third and final set of 2020 data we’ll use to choose a pandemic pricing strategy is product usage. Has the pandemic caused a significant decline in usage of some of your “important” and “valuable” features? Have some previously underutilized features dramatically increased in customer usage?

For the purpose of choosing our pricing strategy, we want to compare 2019 product usage to 2020 product usage. We are seeking usage data as a proxy for product value. Metrics can be based on volume/frequency, relative percentage, or both.

Pandemic Pricing Strategy Matrix

A change in customer mix or product usage indicates a change in the customer value proposition that could be optimized with new pricing. No change in either suggests no shifts in the price-value relationship. Revenue above forecast for 2020 indicates a positive pandemic effect on business performance, and warrants different considerations than an unforeseen drop in 2020 revenue.

Now we are ready to enter the matrix. Here is the Pandemic Pricing Strategy Matrix that translates your 2020 pandemic data analysis into a suggested pricing strategy:

In the upper left quadrant where 2020 revenue is above forecast, and both customer mix and product usage are similar, we have pandemic fueled growth with data suggesting that customer value propositions are unchanged. In this case, it’s very likely the company has pressing operational priorities due to unplanned growth. The recommended pricing strategy is focused on post-pandemic growth in the years after we heal from the tragedy of COVID-19.

In the lower left quadrant, we assume the value delivered to customers remained stable in the pandemic, as the mix of customer revenue contribution and product usage are similar. 2020 data indicates that customer budgets were diminished by the pandemic, so the appropriate pricing strategy assumes lower customer budgets now, with increased ability to pay as we exit the pandemic.

On the right side of the matrix, the recommended pricing strategy is value-based pricing in the upper and lower quadrants. The data in both cases suggest a change in the relationship between value and price. In the upper right, with explosive growth and a price-value shift, the focus of a value-based pricing exercise is tuning the engine of growth.

In the lower right, where revenues are adversely affected and value proposition has shifted, the focus of the value-based pricing effort is revenue stream design to bolster existing revenue streams, and add new ones that monetize a changed landscape of customer value.

Three Pandemic Pricing Strategies to Optimize Revenue

Our three indicated strategies, Value-Based Pricing, Post-Pandemic Pricing and Temporary Incentives and Policy Changes, are described in more detail below.

Pricing Strategy #1: Value-Based Pricing

Pricing at its best is a disciplined process involving intuition, science, and optimization. For software, the combination of features into pricing plans easily has millions of theoretical combinations.

How do we get from an overwhelming set of choices to a pricing strategy we can implement with confidence? In my experience, a phased process using pre-defined techniques to make a series of gated decisions is the answer.

Here is an overview of the high level steps in a value-based pricing process for a SaaS company where product attributes are software features:

  • Initial Data Collection including product roadmap, value proposition, customer acquisition process, customer segmentation, competition, financial performance history

  • Market Research Phase 1 - Market research to understand the most important domains of customer value and relative value between features. Different pricing models can also be tested

  • Pricing Architecture - Development of a durable pricing model designed to optimize both initial sales value and existing customer revenue growth over many years to come

  • Revenue Growth Model - Monetization model that forecasts 3-5 year revenue growth as a function of customer acquisition, product choice, and customer retention

  • Market Research Phase 2 - Quantitative market research to calculate the value of individual features and enable simulation modeling to optimize feature allocation and price levels

  • Final Product Definition and Price Levels - Using phase 2 research output and the Revenue Growth Model, optimize multi-year revenue growth with final feature allocation and pricing

Value-based pricing works best for revenue optimization because it is based on the value perceived and delivered to key customer segments, and their associated willingness to pay. The optimization uses pricing to extract as much revenue as possible from each group of customers, such that they will gladly pay for your services now and for many years into the future.

Pricing Strategy #2: Post-Pandemic Pricing

What is a Post-Pandemic Pricing Strategy? It is optimizing revenue growth in the years following the pandemic with consideration of customer goodwill and long term retention. This strategy is recommended when the fundamental value proposition of a company did not change in the pandemic, but revenue growth was accelerated.

Companies in this situation likely have pressing operational priorities to scale with unexpected growth. Operational excellence to serve existing and prospective customers may be pandemic job #1.

With a temporary demand surge fueled by COVID-19, gouging customers with unfairly high pricing is not recommended. Post-pandemic pricing takes a long-term view of customer delight and revenue growth.

Pricing Strategy #3: Temporary Incentives and Policy Changes

Pricing strategy #3 assumes revenue growth will return to historical levels with current pricing as the pandemic subsides, and pricing strategy should focus on retention and acquisition of customers who are weakened financially with temporarily reduced budgets.

The techniques suggested alter the amount and/or timing of customer payments while keeping current pricing intact. This can be accomplished by a combination of policy changes and temporary incentives. A way to think about it is to define an objective first, then construct a temporary pricing change to accomplish the objective.

Policy changes and temporary incentive options for new customer acquisition and existing customer retention include:

  • One-time bundle of free add-on products with the main product at standard price

  • Free additional professional services

  • Payment for lower pricing plan with higher level plan features for one subscription period

  • Modification of payment terms: Net 30 could become Net 60 or Net 90

  • A shorter subscription duration could be offered

  • Pause service for a period of time (for existing customers only)

  • Free extension of subscription for existing customers

  • Extension of free trial for a new potential customer

  • Giving product for free for a period of time, with a contractual agreement to pay in the future

  • Temporary sales quota adjustments based on pandemic impact to give the sales team a shot at their customary compensation

  • Change discounting policy to allow larger discounts

In general, a key objective is lowering cost for financially weakened customers during the pandemic, but naturally returning to a higher revenue level in the future. Increasing discount level should be a last resort, as discounts are sticky and difficult to lower in the subsequent payment cycles.

Example #1: Value-Based Pricing for Growth Above Plan (Zoom)

Zoom provides an excellent example of a company in the upper right quadrant of the Pandemic Pricing Strategy Matrix. We’ll use Zoom to illustrate the recommended strategy of value-based pricing with a focus on tuning the growth engine.

Zoom announced Fiscal Year 2021 financial results on March 1, 2021. Full fiscal year total revenue of $2.7 billion was up 326% year-over-year. Revenue growth was above pre-pandemic forecast for Pandemic Data Output #1.

Pandemic Data Output #2 is Customer Mix by Value Segment Revenue %. For Zoom this changed in 2020. The FY21 earnings press release includes the following information regarding customer growth:

  • Customers with more than 10 employees, were up approximately 470% from the same quarter last fiscal year

  • Customers contributing more than $100,000 in trailing 12 months (“TTM”) revenue, were up 156% from the same quarter last fiscal year

Based on the classifications above, and data in Zoom’s earnings announcements, and we can construct three Value Segments that are important to company performance:

  • Value Segment #1: Customers over $100k per year (Most Valuable)

  • Value Segment #2: Customers with more than 10 employees but less than $100k per year (Most Revenue)

  • Value Segment #3: Customers with 10 or less employees (High Churn, Least Valuable)

Pandemic Data Output #3 is Product Usage. Given all of our personal experience using Zoom for family gatherings, birthday parties, remote schooling, seeing the doctor, and everything else, we’ll simply declare for our analysis that Product Usage changed in 2020.

Here is Zoom’s pricing page before the pandemic:

Let’s do a little value-based pricing project together on behalf of Zoom, and compare our results with their pricing changes during the pandemic.

Executive vision is a key component of pricing strategy work. A CNBC article in March 2020 quotes Zoom CFO Kelly Steckelberg: “Executives have not been trying to hatch new pricing schemes to make the most of the usage tidal wave...The main strategy for collecting more revenue at this point, is to continue to sell the Zoom Phone product that workers can use for inbound and outbound cloud-based calls.” If the goal is to sell more Zoom Phone, perhaps we could bundle with the more popular Zoom Meetings product?

Entry price, the cheapest possible offering, is a cornerstone of every pricing strategy. Further, Zoom has a Freemium model, so the astronomically large number of free pandemic users on the platform are prospects for conversion to paid plan. Lowering the $14.99 per month price or creating a cheaper, de-featured offering would certainly convert more free users. Is this a good idea?

I would recommend that they do not lower Pro pricing or introduce a cheaper entry product for two reasons:

  1. The existing revenue stream of customers on the Pro plan renews either monthly or annually. If we offer something cheaper, some of them would downgrade on renewal.

  2. The quality of revenue in Value Segment #3 is lower, as these customers have a higher churn rate. If we offer more attractive pricing at the low end, it would drive even more of this lower quality revenue and put downward pressure on company valuation.

A revenue growth model with product-level revenue streams and variables for customer acquisition and net retention can be used to make decisions like these. We can assume the scenario analysis in our Zoom revenue growth model strongly supported the decision to keep the Pro plan at $14.99 per month.

Let’s compare our mini pricing strategy project to Zoom’s current pricing page:

Zoom did introduce a new bundled offering of meeting, phone and chat. The combined product is $5 less per month versus separate purchases for Zoom Conferencing and Zoom Phone. As we recommended in our mini pricing project, entry price is unchanged at $14.99 per month.

There are two additional changes Zoom made to their Zoom Meetings pricing page during the pandemic:

  • The “Buy Now” orange button moved from the Pro plan to Zoom United Business plan, aligned with the strategic goal to sell more Zoom Phone

  • A new pricing add-on is highlighted for Pro and Business plans to “Increase participants up to 1,000 with Large Meetings add-on”

Zoom has provided us with an illustrative example of a company clearly in the upper right quadrant of the Pandemic Pricing Strategy Matrix. Revenue growth was well above pre-pandemic forecast, and there were significant changes in both customer mix and product usage. But Zoom’s pricing changes in the first year of the pandemic were not substantial, but rather a value driven tuning of a growth engine with historic horsepower.

Example #2: Post-Pandemic Pricing and Operational Execution (Peloton)

The CNBC headline for Peloton’s Fiscal Year 2020 earnings announcement read “Peloton crushes estimates as sales surge 172%, expects strong demand to continue into 2021”. The article states that the pandemic ultimately boosted revenue more than 24% above the projection Peloton provided for fiscal 2020 after its IPO. 2020 revenue was clearly above the pre-pandemic forecast.

For the purpose of mapping Peloton into our framework, we’ll assume the Peloton executive team examined the analysis of Value Segment revenue mix and product usage trends, and determined that neither of them changed significantly. The pandemic amplified the Peloton value proposition, and the business plan was simply accelerated forward in 2020. In terms of our framework, Pandemic Data Outputs #2 and #3 are similar.

Thus Peloton fits into the upper left quadrant of the Pandemic Strategy Pricing Matrix with revenue growth above pre-pandemic forecast while customer value proposition is unchanged. The recommended strategy is Post-Pandemic Pricing and Operational Execution.

Let’s look at operational execution first. Demand for Peloton bikes and treadmills surged in the pandemic as gyms closed and people wanted to exercise at home. Peloton stated in the FQ2 2020 shareholder letter “The ongoing COVID-19 pandemic continues to present a challenging operating landscape, and we continue to work to address long order-to-delivery timeframes.”

The Peloton Connected Fitness Subscription is $39 per month, but is tied to a bike or treadmill. So selling these memberships requires delivery of hardware. Growing the revenue streams for Peloton hardware and the associated subscription is tied directly to manufacturing capacity if demand exceeds supply, so operational execution is paramount. Connected Fitness Subscriptions grew 134% year-over-year in the most recent quarter.

In contrast, Paid Digital Subscriptions grew at 472% where sales are not constrained by manufacturing. Operational focus is still very important to customer experience, as these new customers can utilize the support organization.

Post-Pandemic Pricing, the other half of the recommended strategy, is optimization of brand loyalty and revenue growth for the years following pandemic exit. It is not price gouging. Since Peloton bikes and treads had extremely high demand and short supply early in the pandemic, prices could have been raised to increase short term profits.

How did Peloton manage their pricing during the pandemic? They lowered the price of their first generation bike! At the start of the pandemic, the Peloton Bike was priced at $2145. In September of 2020, Peloton lowered the price of Peloton Bike by $250 to $1895, and introduced Bike+ at $2495. Bike+ has a larger screen, better speakers, and the handy feature of screen rotation for weights, core and yoga off the bike. (Note: I have personal experience using my wife’s basic Peloton for off-bike training, and wish she had sprung for the Bike+) Peloton offered a lower entry price to get even more pandemic users on the platform, but also gained the ability to extract more revenue from upmarket hardware customers.

In December 2020, Peloton reduced the digital-only membership from $19.49 to $12.99 a month. We can assume Peloton’s multi-year revenue growth model yielded the pricing decision to forgo higher per month revenue from existing digital customer renewals, but optimize long term revenue and success at the $12.99 price point. Bravo.

A key component of Peloton’s hardware + software pricing strategy is that if you own a beautiful Peloton Bike or Tread, you can’t get the full value without paying the $39 Connected Fitness subscription as long as the bike is in your living room or basement. This is brilliant from an LTV perspective (Customer Lifetime Value). Peloton did not reduce this $39 per month subscription in December.

Here is a summary of Peloton’s Mid-Pandemic digital subscription pricing:

As Peloton invests in content, this can be distributed across all of their platforms to build long term customer value, and enjoy the associated revenue streams.

Example #3: Temporary Pricing and Policy Changes (B2B SaaS Composite)

The following example is augmented reality. I am familiar with the pandemic strategy and tactics of a few Enterprise B2B SaaS companies, and have combined actions from each of them with a little fiction to produce an anonymized real world example. The companies represented here fall into the lower left quadrant of the Pandemic Pricing Strategy Matrix,

Develop Temporary Pricing Incentives. All of them believe their value proposition has not been altered by the pandemic, but target customers across the board have been hurt by the pandemic and have less ability to pay.

New customer acquisition and retention of existing customers are the two major categories of temporary pricing incentives. Our example company made decisions for temporary pricing incentives with:

  • Input from a cross-functional leadership team

  • Consideration of 2020 results vs. plan for customer acquisition and retention

  • Scenario analysis using a revenue growth model

The results:

2021 Sales Plan to Improve New Customer Acquisition

  • Temporary policy to include two free add-on packages with any annual subscription

  • No-penalty quarterly payment plan for new annual subscriptions in 2021

  • Option for sales to offer Net 60 payment terms without manager approval

  • 2021 quotas adjusted for pandemic-revised 2021 revenue plan, and assigned in January

2021 Customer Success Plan to Improve Customer Retention

  • First Choice: One-time bundle of free additional services at the same subscription price. Benefit of this approach is opportunity for upsell to the additional services on next renewal

  • Second Choice: Modification of payment terms on renewal. Sales has the option to do one of: A) annual payment to quarterly payments, or B) change payment terms from Net 30 to Net 60

  • Third Choice: Pause service for a quarter. This maintains revenue, but pushes out revenue recognition of unused services. Costs of providing the product are avoided during pause

  • Fourth Choice: Free extension of subscription. This keeps the customer active, and moves the renewal date out to potential financial recovery of the customer

  • Fifth Choice: Additional discount

Hopefully these specific real world examples were helpful. A general process for designing incentives and programs is to first understand what happened to your business in terms of customer metrics and financial metrics. Then, in the context of the overall pandemic strategy for the business, specific objectives can be listed and prioritized. Lastly, incentives and policy changes can then be designed to meet each objective.

Example #4: Value-Based Pricing for Growth Below Plan (SoftCo)

We’ll use a hypothetical enterprise B2B SaaS company, SoftCo to illustrate the lower right quadrant of the Pandemic Pricing Strategy Matrix. In this example, we’ll briefly walk through the steps in a value-based pricing process focused on revenue stream design.

SoftCo’s imaginary product is designed to increase productivity and lower costs for teams of employees. The value proposition of higher revenue per employee and cost savings worked well prior to the pandemic, and 2019 was a breakout successful year for the company.

Total revenue grew by 95% in calendar year 2019 compared to 2018. The 2020 pre-pandemic forecast was 80% year-over-year revenue growth. But actual 2020 revenue growth with pandemic impact was just under 20%. In terms of our framework, Pandemic Data Output #1: 2020 Revenue is below pre-pandemic forecast.

Regarding customer revenue mix, SoftCo is in the process of moving upmarket to serve Enterprise customers, and the company is aligned in product, marketing and sales on three Value Segments:

  • Small to Medium Business (SMB) 1-100 Employees

  • Midmarket 101-1000 Employees

  • Enterprise more than 1000 Employees

Customer Mix by Value Segment Revenue % in 2019 and 2020 was analyzed and graphed in pie charts to understand the trends:

The pandemic disproportionately affected SMB customers, and their segment revenue was down in 2020 while the company grew. Midmarket customers fared well given the pandemic, and Enterprise rose 5x as a percentage of overall business. In terms of our matrix framework, Pandemic Data Output #2: 2020 Customer Mix by Value Segment Revenue % is changed compared to 2019 Customer Mix.

Product Usage, Pandemic Data Output #3: also changed in 2020 versus 2019. In 2020, all product features associated with teams being physically together in an office dropped dramatically in usage. All remote team communication features skyrocketed in both frequency and volume metrics. SMB customers overall exhibited a worrisome decline in active users and overall product usage.

We’ll assume that SoftCo was given early access to the Pandemic Pricing Strategy Matrix, and decided to begin a value-based pricing project in Q4 of 2020. Highlights of each phase of the process, and resulting new value-based pricing are described below.

Entering the pandemic, SoftCo was using the pricing plans developed in the early days. Initially Midmarket prospects up to 1000 employees were the largest customers targeted by sales, and Enterprise features were only a future vision. Small to Medium businesses (SMB) represented the lower end addressable market segment. The original pricing plans, crafted with significant CEO input, look like:

To improve SoftCo’s revenue growth rate, we’ll follow the process of Pricing Strategy #1: Value-Based Pricing, and go through the steps of initial data collection, market research phase 1, pricing architecture, revenue growth model, market research phase 2, and lastly, final product definition and price levels.

Initial data collection involves quickly gathering all of the available internal information that informs pricing strategy. Key pieces of information in the company data included:

  • 2020 lead conversion was down by 50% for Midmarket

  • 2020 lead conversion for SMB was down by 85%

  • Midmarket net revenue retention dropped from 95% in 2019 to 91% in 2020

  • SMB net revenue retention dropped from 92% to 68% in the same period

Next, SoftCo conducted market research to understand the value of features for SMB, Midmarket and Enterprise customers. The MaxDiff research technique was used because it uncovers the relative value of existing and roadmap features, and is useful to prioritize engineering development. MaxDiff research results also inform pricing architecture design.

Of the product roadmap features included in the market research, social sharing, collaboration and remote security were the most valuable by far. These features were prioritized by product management and engineering for completion in Q1 2021, and inclusion in SoftCo’s initial release of new value-based pricing. The new analytics feature was also notable, as it had very high value for a smaller number of customers, the ideal characteristics of an add-on feature.

SoftCo’s new pricing architecture enabled the design of new revenue streams, including a higher priced subscription plan for Enterprise, and a new add-on feature structure.

A revenue growth model for 2021, 2022 and 2023 was constructed to analyze the effects of new pricing scenarios. This bottom-up model includes customer acquisition, product choice, and retention as a function of pricing changes. Importantly, all current customers and their associated revenue streams are included in the model.

The research technique used by SoftCo for phase 2 market research is called Conjoint Analysis, the only research technique that statistically quantifies the “part worth”, or actual dollar value of each feature.

Some key findings from Phase 2 market research:

  • The new remote security feature set had a price “part worth” of $18,000 per year on average for Enterprise prospects

  • An SMB pricing plan that added social sharing features had a total average value of $1200 per year for both customer and prospects

  • The current Professional plan is appropriately priced for Midmarket companies with current features, and will become even more attractive by adding the collaboration feature set

  • Add-On Analytics was worth $7,200 per year to a small but distinct group of customers

At this point we have all of the information and data needed to choose product configurations and pricing. Using market simulation from the Conjoint together with the revenue growth model, optimized feature groupings and price levels were calculated using scenario analysis.

Starter pricing was lowered from $2000 to $1000 per year due to dramatic impact on both new customer conversion and retention of existing customers. Social sharing was included in Starter to bolster sales and renewals. A monthly pricing option was also added to Starter based on customer research. New collaboration features were used as the “value wall” separating Professional from Starter. A new substantially higher priced Enterprise subscription plan was added with remote security as the key differentiating feature. SoftCo’s first ever add-on feature, Analytics, was introduced.

New pricing was constructed to design revenue streams that increase falling revenue from SMB, improve Midmarket revenue slightly, and add a new high value revenue source from Enterprise customers. Mission accomplished. We have our new value-based pricing for SoftCo:

SoftCo was now ready to launch their value-based pricing on April 1, 2021 the first day of Fiscal Q2. Marketing was excited to drive a massive amount of self-service sales for the new $99 monthly Starter plans, knowing they are priced right for SMB. The sales team was thrilled to have a higher priced plan for Enterprise prospects, and an Analytics add-on they could sell to existing customers.

Overcoming Blockers and Getting Started

Although it is understood by many that pricing is a huge monetization lever, there is a long list of reasons to delay pricing strategy projects leading to pricing changes that increase revenue.

Here is a list of common blockers:

  • Delay pricing project until next quarter for “good” reason x, y, z, 1, 2, and/or 3

  • Repeat above bullet point for an unreasonable number of quarters in a row

  • CEO attachment to the pricing model they originally created

  • CFO fearful that a pricing change will have negative impact on short term revenues

  • VP Sales concerned that a pricing change will cause sales to miss quotas

  • Product team laser focused on delivering the current roadmap on time

  • Lack of agreement on which pieces of the current strategy can be modified

  • Concern about losing customers on existing pricing plans

  • Availability of internal resources to lead a pricing project

The solution to overcome all of these blockers is the same:

  • Make a supported decision to begin a pricing strategy project

  • Agree on scope, deliverables and timeline at the executive level

  • Obtain full CEO support to monitor progress and assign critical resources

  • Staff the pricing project with a capable leader

A key to success is either assigning a respected internal pricing leader or hiring an external expert. For internal leadership, a growth mindset, customer orientation, and analytical skills are important attributes. Product and marketing are the most common organizations for pricing leadership, but choosing the right leader far outweighs functional affiliation.

If you hire an external pricing expert, key attributes are ability to analyze cross-functional company data, qualitative and quantitative research acumen, a proven pricing process, and the ability to appropriately adapt that process to the particulars of your customers, value and product. An advantage of hiring a pricing consultant is the experience they have optimizing pricing for various products, technologies, markets and business models. This breadth and depth of experience can be utilized both creatively and analytically to deliver a successful pricing strategy with predicted improvement in revenue growth that is realized after implementation.

As you get started, it’s helpful to know the type of pricing strategy you intend to pursue. I’ll quickly recap our journey together. For pandemic-fueled growth and value proposition unchanged like Peloton, pricing to optimize a higher number of delighted customers beyond the pandemic is advised. If revenues are below plan because of financially weakened customers who see the same value in your products, take temporary pricing actions to keep those customers until they recover. If the price-value relationship between you and your customers was altered by COVID, value-based pricing is the optimal approach regardless of revenue impact. For a deeper look at value-based pricing and revenue modeling for pricing decisions, see this article.

The pandemic invariably changed some combination of your customer mix, product usage, and revenue growth rate. There are many strategic levers to minimize damage and optimize opportunity during the pandemic. Is pricing strategy one of these levers for you?

© 2020 by Bell Rock Consulting.