Pricing Optimization

Rubicon changed the way product marketing viewed the market and the role of pricing

A security solutions company had grown quickly from startup to a multi-billion dollar enterprise. As a part of their growth they had acquired more than 25 companies, giving them a diverse product line and the potential to become the dominant player in several market segments.

In this context, the company was struggling to develop a coherent pricing structure across its different product lines. The situation called for a more sophisticated pricing strategy than the legacy one-product startup pricing processes of the original and acquired companies. There were products in different competitive arenas, different stages of maturity and saturation, and others that were targeted to specific verticals. Further, each product brought with it the pricing and contract strategy of the acquired company which developed it.

Most product managers used price as the primary lever, setting prices based narrowly on features rather than on broader value, and the management team believed they were leaving a lot of money on the table. The executive team was frustrated by the financial impact of these generally ad hoc pricing decisions. Revenue, margins, and market growth were much less than expected.

The company brought in a well-known consulting firm and spent over a million dollars to “fix the problem.” Yet after a year, pricing was still seen as the key indicator that the company had not transitioned out of startup mentality. Rubicon was brought in by the management team to provide fresh insight into the pricing strategy. Of course they wanted a bulletproof process for pricing all products, but it also had to stick with the organization.

The Challenge

Unsophisticated pricing methodology
Prior to their acquisitions, the company only had one product and one way of doing pricing, and they were addressing an established market where they were the category leader. Pricing was inconsistent and was often “best guess” based on feature, rather than market dynamics. Value pricing wasn’t even considered to help structure pricing. Company executives admitted that they did not know if they were overpricing or underpricing. They did know that their processes were not keeping up with the needs of different market environments or adapting to the company’s changing focus.

Lack of confidence in management
In the wake of a long series of arbitrary and inconsistent pricing decisions, the Executive team lost faith in the ability of their managers to market and sell their products. As a result, the Executive team began to micromanage product marketing decisions. Frustration was widespread. As one manager put it, “Pricing meetings were bloodbaths.”

Vision and strategy suffered
Product Managers felt that price was the only competitive tool in their strategic toolbox. In pricing the company’s various products, product marketing did not consider the products’ positions in the market and the implications that this and other factors have for pricing. The lack of a coherent product/pricing analysis framework prevented Product Managers from engaging effectively with the executive team in strategic pricing discussions.

The Rubicon Solution

Rubicon created a thorough pricing methodology that also addressed organizational needs

Rubicon recognized that the company needed more than rigorous analytical frameworks for effective pricing in the hands of product managers. Given the history of a failed pricing overhaul, it was imperative that the organization at large have confidence in pricing. Rubicon performed an advance audit with a launch team to understand what had worked and not worked in the past. Rubicon found that the pricing issues were exacerbated by issues related to training, human resources, and office politics. With this broader scoping of the problem, Rubicon developed a solution that provided the expected rigorous framework as well as the necessary effective processes and metrics to make sure pricing decisions are well-supported organizationally. As a part of the rich set of deliverables, Rubicon provided them with a straightforward visual pricing decision tree that was deployed across the company, enabling the rapid establishment of a repeatable and consistent standard corporate approach.

Making room for vision
The Rubicon solution allowed the company to appreciate pricing as a powerful strategic tool to be understood in the context of the market environment. To accomplish specific goals such as maximizing profit or driving penetration, one proceeds differently depending on the when and how you enter a market. Neglecting this dynamic seriously limits the options available to a company and undermines pricing as a strategic tool.

The pricing methodology developed by Rubicon allowed the company to focus on their vision for the company’s differentiation and position in the marketplace

Clear roles and responsibilities
The pricing methodology developed by Rubicon requires the team to follow a specified review and approval process. It addresses four major components for each pricing decision:

Company differentiation
Customer profile and demand situation
Market context for pricing
Business & pricing objectives for individual products

After working with the new model, the Executive team and the product managers gained confidence in their approach to pricing and marketing of the new and existing products. In addition to analytical rigor, the review and approval process assured that key organizational resources were involved, enabling broad support and validation of pricing.

The Results

The new methodology was approved by the CEO and changed the way product marketing viewed the market and the role of pricing. By considering the stage of the market for each business unit or product line, and then mapping this against the appropriate process considerations, the company’s product pricing better supported the company’s overall strategic objectives and the organization had the tools to engage in strategic discussions regarding product pricing. In addition, once confidence was restored to the pricing process, the Executive team was again able to focus on the strategic issues and stop micromanaging, with predictable decreases in frustration for all concerned.