Within the Volaris Comms & Media Portfolio, we value learning from each other and sharing best practices across the Portfolio. This article is the final in our 4-part Comms & Media Insight Series containing tips and best practices from our business leaders.
In this installment, we ask the team, "How do you develop a pricing strategy, and what are the most common mistakes you've seen?"
David Nyland - Portfolio President, Comms & Media
Understand your customers.
Pricing is a challenge for all business that we acquire. Their legacy pricing is typically based on metrics that are not linked to customer value and ROI such as the number of users or number of servers. It benefits software businesses to understand how their customers make revenue and profits and we encourage our businesses to link their pricing directly to this.
We encourage business leaders to research their peers. Rarely do software businesses understand the relative pricing of their competitors — and these fears and doubts affect their pricing and discounting decision-making.
There is also typically an imbalanced value exchange between buyer and supplier, with the supplier being in a weak negotiation position relative to the buyer. Offering a differentiated product and exceptional service, along with a strong sales team, can tip this imbalance back in a business’ favor.
Tony Garcia - Portfolio Manager, Comms & Media
Take frequent situational assessments.
One of the most common mistakes in developing pricing strategies is that the company has no strategy, or it is out-dated and irrelevant. As new products go-to-market or new competitors emerge, leaders need to review the strategy.
It is important to take frequent situational assessments to understand your strengths and weaknesses in your pricing strategy. Strengths can include competitive win-loss rates, an innovation-rich culture, strong license sales, and core profitability. Weaknesses can include low growth in maintenance revenues, high involvement of support or R&D organizations in the customer delivery, and overall high expenses.
After developing a full situational assessment, we work together with our acquired companies to understand the right solutions for the business, the team, and the customers. When you think of a pricing strategy as just that – a strategy – you begin to think creatively and find solutions that work for the long-term success of the business and their customers.
Mats Ekelund - Portfolio Manager, Comms & Media
We believe in a pay as you grow approach.
Pricing is one of the most important factors for any product – not only business profitability but understanding what is appropriate for customers to pay. It requires a deep understanding of your customer and where this product fits in their business model. With this in mind, we take a “pay as you grow” approach.
We want to ensure a low threshold for our customers to start using our software so pricing should be based on a tangible number of assets such as sites, subscribers, or locations. Pricing should also take into account if they are using only the base software, or also additional modules or add-on functionalities. As the customer’s business grows and evolves, additional functionalities can be added, generating new back to base revenue and ensuring customer needs are met.
This article was originally published on LinkedIn. You can view it here.
April 30, 2019
Erini is the Marketing Manager for the Volaris Communications & Media Portfolio. Whether it’s for global CPG brands or local start-ups, Erini has five years of helping companies tell stories that inspire, educate, and inform. How can she help you learn more about the Volaris Communications & Media Portfolio? Send her an email at email@example.com with your questions.