Increasing profits without increasing price

A Case Study

Business type: Professional services
Industry: Security and Investigations
Product: Background checks and corporate due diligence
Result: 25% increase in profitability YoY
Ownership: Private Equity firm


CLIENT SITUATION

Our client, a global background investigation company, provides background checks and corporate due diligence services. Their customers include executive search and private equity firms who need detailed due diligence on key individuals or target organizations around the world before entering into relationships or transactions. Customers rely on this data to make informed business decisions and mitigate financial and reputational risk.

Their services range from simple screening checks to complex background research and are positioned in four packaged tiers, which hadn’t been reviewed or assessed in years. They reached a plateau in their growth and were looking for ways to improve profitability and grow organically without doing a blanket price increase.

Our client wanted to standardize their pricing structure to reflect the nuances of various global markets, while simplifying their arduous sales process. It often took the sales team hours or days to create custom proposals, and even then, they still wondered if they were leaving money on the table.


OUR APPROACH

Our client’s existing packaging structure was loosely adopted from other lines of their business and did not have clear delineation between the service tiers. To better inform any packaging changes, we began by analyzing client’s transactional data and interviewing existing customers to understand what drove their buying decision:

• Some lower-level features were not critical to customer needs, while features in the high-end packages were often not valued by the customers

• Customers did not understand the nuances of investigative offerings, and the service tiers were not distinct enough from each other for customers to decide on their own (the tiered packaging became more important)

• The least expensive offering accounted for 70-80% of revenue. Customers often picked the lowest priced service because of time constraints, since the lowest tier ensured fastest delivery and the high-end package did not have sufficient value differentiation.

The interviews helped to identify 3 significant value drivers to guide our strategy:
1. Risk mitigation
2. Time to complete due diligence
3. International coverage

OUR RECOMMENDATIONS

We recommended redesigning the packaging of the tiered offerings and making several adjustments. Since customers were drawn to the lower cost options, we needed to ensure that those offers were not simply giving away value – so we reduced value (by removing extra features in that tier) while maintaining price level. This effectively served as a price increase for that tier of service, and the change immediately improved profitability projections.

At the higher end of the offerings, we fine-tuned value through adding and removing features, which incentivized customers to purchase higher-level option (another way to improve profitability, because the higher-level tier has higher margins). We then created add-on services for features that were purchased less frequently, which reduced the cost of each package tier and, again, increased overall profitability by monetizing previously bundled features.

As the result of our recommendations, we forecast up to a 25% increase in profitability YoY.

The last mile of pricing: Sales execution

To effectively roll out the new pricing structure across the global staff of investigators, we then designed a customized Negotiating with Backbone (NwB) workshop. The commercial team needed to understand and defend the value behind the new packaging options to sell with minimal friction and ensure that they weren’t leaving money on the table.

The workshops focused on training in four key areas:

• Understanding the value received by the customer
• Custom messaging on the importance of risk mitigation
• Responding to discount request
• Using Give-Get options to tailor to individual customer needs.

This last mile of training ensured the commercial team was equipped with tactics and strategies to avoid price leakage and defend their value even in the toughest negotiations.

KEY TAKEAWAYS

1.) To improve profitability, look for areas to reduce value by removing unnecessary features
At a time when price increases are rampant, many companies are asking themselves if it’s the right time to implement another increase to help improve profitability. Before doing so, we recommend looking at your existing offering tiers to make sure they’re optimized.

Key questions to ask:

• Do we have distinct low, middle, and high end offerings?
• Is the low end option truly a low-value offering? Am I giving away too much value?
• Is the high end option designed based off customer feedback on our key value drivers?


2.) Understand what your customers value most

Companies often design their service bundles based on their internal view of the offerings they provide. Make sure you are clear about which features your customers value the most, and base your tiers off of those drivers. For the features that are mentioned least frequently, consider pricing them as add-on services.


3.) Defending value is critical to the sales process

To minimize price leakage, make sure you invest the time to train and educate your sales force about the logic behind any pricing decisions. The best pricing strategy will fail unless salespeople have the confidence - and the skills - to defend it.