Pricing for growth
Most businesses drive growth in one of four ways:
Acquiring net new customers
Monetizing their client base better or differently
Improving profits and margins
Gaining competitive market share
Acquire net new business
You can grow by acquiring net new customers. For example, acquiring net new customers by moving into down market. A common scenario is where your
costs of customer acquisition or costs to customer service doesn’t allow you to serve a certain segment. A new offering with a more favorable cost structure may allow you to address the down market that you couldn’t address before.
Another example is moving up-market. For instance, let’s say that you’ve always been the great value solution with little market share among the premium buyers. Or that you couldn’t respond to the higher levels of complexity or service levels that premium buyers require. A new service can help you to address the complexity or help you serve them remotely. And that may become your ticket to entry into upmarket.
Another example is a play for enterprise software. A new perhaps a connected service strategy may help you integrate with the primary enterprise software platforms. And, all of a sudden, you may open yourself up to an ecosystem of products and services that you couldn’t serve before.
Monetize more; monetize better
A second way to drive growth, especially if you can’t acquire net new customers is to monetize your existing customer base better or to monetize them differently. First, you can monetize them more and increase the average revenue per account by creating upsell or cross sell opportunities. One thing to keep in mind here is that you can’t just charge more for the same thing – at least ideally you shouldn’t.
You can mobilize the customers in your lower paying tiers to higher paying tiers by introducing caps or triggers for their usage of your solution. For example, you can implement a multi-tiered pricing structure that moves them from plan to plan based on their usage or benefit level.
Another way is to transition into recurring revenue model which has certain advantages. A change in your revenue model may not only help you monetize your existing customers differently and at new price points but also can help you drive their lifetime value. Customers would continue to pay as they continue to benefit from your solution. Recurring revenue model can also help you on the acquisition side by driving your sales conversion and close rates by removing upfront costs that serve as high barrier of ownership. You can bring customers on board with smaller levels of commitment and get them experience your solution and get them hooked.
A third way to grow your business is to grow you profits. You can do that either by driving the price up or the costs down.
For example, you may change your pricing structure or model to account for onboarding and training costs, deployment costs, integration and configuration costs, and costs of customization etc. A lot of these costs are commonly written off or are not even tracked properly. By introducing additional pricing elements you may get additional opportunities to cover such costs by charging for them differently.
Increase competitive share
You can drive growth by enhancing your competitive position.
Especially if you’re playing in an established space, growth usually depends on a competitive play. Offering new products for stealing market share is an obvious play and has been done in a competitive space, the less obvious play is offering new products that help you maintain and defend market share.
For example, connected products and services can help you build deeper switching costs that discourage your customers from considering other systems or make it harder to overhaul the product and service they have in place.
In our experience, many companies are having to fend off new and upcoming competition by small disrupters. In most cases, these small new comers address perhaps only one or two aspects of the overall customer problem with connected solutions but since they are nimble and well-funded they get business away from you. So, in such a scenario an IoT strategy goes a long way.
It's critical that your team is aligned on what your business is doing for growth in any and all of these primary growth strategies and how your product and offer structures will help you execute that market play. We have built just the tool for that The Pricing Canvas™. The Pricing Canvas™ consists of ten sections each representing a structural component of your business, product, and market. Each section will help you to design your pricing and monetization plans using the principles of value-based pricing. The questions on the Pricing Canvas™ will provide you with a pricing process based on the outcomes, benefits, and economic impact of your offering.