As pricing professionals, we often see price increases as a way to fix eroding margins due to cost increases. Executing that price increase can also be a sales team’s most intimidating task. We often hear pushback such as, “We will lose customers, our competitors will win more market share, we have a great relationship with the customer, we will lose out on future deals.” This dynamic results in the pricing team negotiating internally with the sales team. The negotiations often result in smaller price actions or, even worse, no price actions.
From our experience, understanding and communicating your differentiated value helps align both points of view and increase the chance of a successful price initiative. The sales team’s pushback is often valid. Many pricing methodologies do not give sales teams justifications for price increases other than internal goals like reduced cost, increased margin, or increase volume. This fails to arm sales teams with tools for tough customer conversations and negotiations. By having differential value-based pricing, we can support our sales team by arming them with pricing rationale, thus reducing pushbacks.
Unveiling differentiated value is a competency that can be mastered. Here are some best practices:
- Talk to customers. There are different ways to identify differentiated value depending on your business. Appreciative Inquiry is one of the most effective ways to capture deep insights. Understanding your customer’s business and pain points can uncover why your customer values your solution.
- Tie to business outcomes. Quantifying the value drivers as part of this exercise is critical. How exactly does your offering increase customer revenue, decrease costs, or mitigate risk? The quantifiable nature of the feature, benefit, and value (FBV) framework will make the ROI justification intuitive for all stakeholders. More importantly, your team will now have confidence in the prices they are seeking.
- Keep it simple! It is easy to identify dozens of value drivers but only a few truly matter. Ask yourself these questions: What are the most significant quantifiable values? For a particular value driver, is my offering differentiated? How tangible is the value? After answering these questions, you should have a short list of quantifiable values with clear rationales.
For more on how to execute a price increase, see more on our YouTube.
