Summary
A global provider of market intelligence, data, and events was nearing the end stages of developing a new data service product targeted at the sales organizations of IT firms. They required a comprehensive pricing strategy to ensure the success of the product in a highly competitive landscape with a number of established companies. While the client faced intense competition in the market, the product did not have comparable, one-to-one functionality to any other product available, nor was its functionality fully realized by the start time of the project. Revenue Management Labs was engaged to develop the new product pricing strategy that addressed the client’s key requirements, which included establishing short- and long-term price structures, determining price levels for the core package and optional add-ons, and developing a comprehensive plan for agile pricing implementation.
Challenge
As is common for new, innovative products, the challenges in developing the pricing strategy came mainly from the data gaps and incomparability with other products on the market. Typically, historical, transactional data would serve as a valuable input in setting the price, but here, the product is a completely new offering with no past data to build on and for a new client-side user than the company had traditionally served. Similar issues with data arose when analyzing competition that made it challenging to benchmark pricing. The product’s functionality was not one-to-one comparable to other products on the market, and the competition did not disclose pricing publicly making it difficult to obtain in most cases. Internal competition or cannibalization risk was another key consideration in the pricing project. The concern being that customers would switch from the client’s existing subscription products priced at a premium compared to the new product. As a result, revenue would reduce but also the customers’ lifetime value would go down. It’s also worth noting that the product was not finalized at the start of the project, so we adapted our approach to match its evolving framework.
Solution
Revenue Management Labs developed a tailored pricing solution for our software client, emphasizing flexibility and value optimization. We proposed a modular price structure, ensuring the solution could be customized to meet specific customer needs. This approach was complemented by setting strategic price points for the base package and additional levers, effectively reflecting the economic value of the product while minimizing the risk of cannibalization. Additionally, for the second version of the product, we provided a comprehensive price structure that included increased prices to account for the enhanced functionalities and added value. To support effective implementation, Revenue Management Labs developed detailed price execution guidelines. These guidelines covered discretionary discounting approaches, contract terms, and price escalation policies, leveraging internal best practice benchmarks. Furthermore, we created a pricing calculator to enable the client’s sales team to easily calculate prices based on specific customer profiles and needs. This combination of structured pricing, execution guidelines, and a practical tool empowered the sales team to deliver tailored and value-driven pricing to their customers.
