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Understanding a customer base and aligning pricing with proposition

Pricing strategy is perhaps too commonly overlooked by businesses. There are number of reasons why this might happen – often there is a failure to update a legacy pricing system that has been in play for a number of years. Or perhaps a business has grown in complexity, either through organic growth or acquisition. It might be as simple as lack of clarity as to who is responsible for the pricing strategy within the business.

Whatever the reason, it’s important to fix. Getting the right pricing strategy can make or break the success of a business. Not only does it directly impact profit, but it can be used to create greater customer success, facilitate the up-sell and cross-sell of products and help reduce customer loss (churn) – all powerful contributors to the health of the company.

Aligning pricing with proposition was the theme of Hg’s 2018 Pricing Forum. Over 70 professionals from across Hg’s portfolio came together to share best practices on how to achieve fair value on pricing and proposition.

The day focused on how pricing strategy is often misunderstood – it should never be about simply increasing prices. Instead it should go hand-in-hand with product or service proposition. It’s about achieving fair value and gaining a better understanding of your customers, knowing what they want from your product and which aspects derive the most value.

Some key points included:

  • Pricing is not just a one-off project
    it’s important to develop capabilities on an ongoing basis. It should be very market focused, strategic, with a high understanding of value;
  • Governance and ownership within an organisation is crucial.
    Yes, there needs to be someone driving the strategy internally, but really everyone needs to buy in to the change, from top to bottom of the business. As well as sign off from the top of the organisation, employees that face customers need to believe in the change also;
  • Have the pricing conversation early when developing new products and services.
    It is much harder to course-correct after the fact and you may not actually know what you think you know if you don’t strategise and plan early on;
  • Fair value
    Make sure you really understand the value you are delivering to your customers. To do this effectively you can’t look at your customer base as one unit, rather look in a more detailed way, on a segment basis – different customer types will derive different value from your products and service;
  • Adjust pricing over time
    To continue to align with the value you are delivering, which will ultimately evolve and progress with time;
  • You are not beholden to legacy pricing.
    It’s never too late to build a strategy into the business;
  • Success relies on being prepared to review and change things.
    Make sure you continue to stay on top of what is inevitably a constantly changing dynamic.

Pricing is one of the most important decisions a business will make. We hope that the network we are building around our forums will help these businesses face these decisions strategically. Proper planning in this area is time well spent.

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