Pricing changes are pivotal for companies seeking to optimize revenue streams and adapt to evolving market demands. However, successfully implementing increasing prices or altering pricing structures necessitates a nuanced approach that maintains customer satisfaction and loyalty.
In this article, we delve into the intricacies of pricing strategy, exploring how businesses can effectively navigate raising prices while ensuring customers perceive and accept these changes positively.
Drawing insights from market research and employing strategic communications plans, we outline six key success factors for orchestrating a seamless transition toward a higher price point, ultimately safeguarding long-term profitability and market share.
1.Introduce attractive new models with added value
Now more than ever, offerings must trigger a “wow” effect among customers and sales reps. Broad price increases without considering customers’ perceptions and without a good story are unlikely to succeed. Ideally, your customers actively agree to the new pricing. This means convincing them to accept the change.
Also, think about your own sales team. They should not be reluctant to engage with customers. This implies comprehending precisely which product or service components customers cannot resist.
We recommend bundling added value into simple and attractive value-added packages. This strategic approach can significantly enhance the perceived value of your offerings while maximizing customer satisfaction and loyalty.
Start by understanding your target audience's needs and preferences. What additional value or benefits are they seeking? Conduct market research and gather customer feedback to identify areas where bundling can address pain points or enhance the overall customer experience.
Select components for your value-added packages that complement each other and provide meaningful customer benefits. Consider bundling related products or services that customers commonly purchase together or that solve a specific problem.
2.Segment, communicate, and migrate
Clarity and straightforwardness are key in communication. Communicate two to three main points about the proposed alterations. It's also crucial to facilitate the approval process for customers as much as possible. Here, you can use concise communication materials, explanation videos, and digital consent forms.
Consenting to the pricing change digitally simplifies the process. Some segments have higher potential with good cross-selling opportunities. In these cases, a face-to-face conversation may be more successful. However, for lower-potential segments, digital consent is an efficient solution.
Another aspect to address is the extra load the pricing changes impose on the individual customer. Generally, the less the extra load, the more detached the approval process can be.
You can also consider various elements of behavioral science. Offering extra incentives like rewards for switching within the initial eight weeks can speed up adoption.
3.Create internal emergency exits
For price-sensitive customers who may refuse the pricing change, you can create options so they don't have to switch. These are what we call “internal emergency exits.” You can integrate these exits directly into your new pricing landscape.
A potential escape route could be a fresh pricing scheme with a competitive base rate that omits specific services. On the other end of the spectrum, highly appealing premium account bundles could be offered.
These options allow price-sensitive customers to switch to less cost-intensive products and services.
Customers less concerned about price will probably prioritize convenience over expenses and stick to their adjusted plans. Both scenarios are beneficial.
You need a differentiated pricing model to respond to different customer types and their willingness to pay. This allows customers to select a model that suits them. It's much better than an external emergency exit leading to the competition.
Pricing models based on relationships, where the cost of the account is contingent on product utilization, are particularly effective in this context.
If you tell customers their product is 100 euros more expensive (e.g., it costs 600 euros instead of 500), you are more likely to face resistance.
Instead, the communication could be “The product now costs between 0 and 600 euros. At present, you need to pay 100 euros more. However, allow me to demonstrate how you can reduce this cost. All you need is XYZ."
XYZ here refers to a product suggestion that is extremely pertinent to the customer based on your data. The ball is then back in the customer’s court, and they can determine the price they pay themselves through their behavior and loyalty.
4.Reflect the relationship in pricing
To reach their full potential, relationship pricing models require user-friendly and intuitive digital tools. These tools show customers and sales reps the customer’s status, the resulting discount, and how customers reach the next level most easily.
Customers should be able to access their individual and pre-filled profiles via an online platform, consultations with their sales rep, or via QR codes in customer newsletters. They should be able to instantly identify the modules they are currently utilizing and those that are yet to be used.
After using a specific number of modules, they attain bronze, silver, or gold status. The subsequent status level is typically within close reach, which encourages customers to achieve the next level, similar to a fitness app or an online game.
If customers consent to the pricing changes, they can earn appealing bonus points. You can also give sales reps the ability to open a pre-filled application for each customer. With a single click through the customer master data, they can view the suggestions. This serves as ideal groundwork for a fruitful discussion with the customer regarding alterations in pricing.
Sales reps can easily bring up the relationship pricing incentives in meetings to gain approval for a new pricing model. This diverts attention from the price changes and toward other aspects, such as improved services. It greatly simplifies the sales process by avoiding discussions that are exclusively about price. Discussions are far more agreeable, and the acceptance rate markedly increases.
Companies must often invest expensive sales resources to obtain approval for pricing changes. Relationship pricing models ensure that not only do you discuss the new pricing but also additional sales are on the table.
You may plan to conduct more holistic customer meetings with high-potential customers anyway. You will, therefore, effectively allocate your sales resources. Sales reps won't waste time on conversations that only aim to secure approval for new prices and do not result in any sales achievements.
Additional revenues are usually lower in the first year when obtaining approval for pricing changes. This is because the confirmations tend to come in successively. Using a relationship pricing model, you offset this with significantly higher cross-selling revenues.
Utilizing digital service configurators is a verified successful approach for choosing the appropriate model for customers. They not only assist in emphasizing the additional value of the new products, but also boost the upselling of more expensive products and enhance the customers' readiness to pay. Upselling becomes a significant incremental revenue driver.
Sales reps can use service configurators with customers. Alternatively, customers can use them to find the right product in just a few steps. Multiple studies indicate consumers are more inclined to pay for products they can customize themselves rather than pre-set ones. This is exactly why the car industry heavily utilizes model selectors and configurators.
5.Prepare and train the sales team
“We have to talk to every customer?” No, rather: "We can talk to each customer!" Having the correct sales mentality is crucial for success.
Central to this, along with an appropriate new pricing structure, is readiness and education. A proficiently trained sales force is pivotal in deciding the pace and triumph of pricing changes. An impeccably trained sales team can not only portray the pricing changes favorably but also utilize the discussion to mention other items and identify missing elements in the customer's profile.
There are numerous effective sales training methods. These include intensive coaching, group exercises to handle objections, and training sessions on using service configurators. Furthermore, executive coaching sessions are ideal for ensuring key influencers are completely engaged.
6.Define clear priorities and objectives
Sales are pivotal in efficiently and swiftly transitioning customers to the new product/pricing structures. That's why it's crucial to establish the transition as a sales priority and set goals accordingly. Which customers will you approach first? Which segments will you convert primarily in person or digitally?
During the transition period, you can also employ game-based rewards to offer extra encouragement to sales representatives. There is a wide variety of incentive models, from team rankings and playful competitions to monetary sales incentives.
How Simon-Kucher can help
At Simon-Kucher, we specialize in assisting companies in effectively communicating pricing changes to their customer base. Through our comprehensive market research and understanding of pricing strategy, we develop a tailored communications plan that ensures transparency and customer satisfaction.
Whether you're raising prices to reflect the value of your product or service or optimizing your pricing structure for long-term profitability, we'll help you convey these changes in a way that resonates with your customers. By aligning pricing with customer perception and market trends, we ensure that your pricing reflects the actual value of your offerings and maintains market share.
Let us help you unlock the full potential of your pricing strategy and achieve higher profitability today.
