The Situation
SoftwareCo* is multi-billion dollar organization, though it struggled to set and execute its pricing activities and initiatives due to a number of factors:
- A recent reorganization put pricing in the hands of marketing, which had insufficient pricing experience.
- The company struggled with price execution which contributed to a high variance in discounts issued by the sales team.
- The organization lacked a coordinated deal review process which overwhelmed management with approval requests and led to insufficient reviews on opportunities that warranted further attention.
A cohesive set of pricing initiatives promised to mitigate these issues by improving efficiency and clarifying governance for SoftwareCo. The engagement presented a significant opportunity for SoftwareCo to generate value across its business, while simplifying pricing for its customers.
Our Approach
To resolve SoftwareCo's pricing issues, the Bain and client teams focused on four key questions:
- What is the step-by-step process to price new and refreshed products?
- How competitively priced is SoftwareCo's product portfolio?
- How can SoftwareCo reduce discounts to achieve higher average selling prices?
- How can SoftwareCo clarify roles, responsibilities and processes to increase the speed and quality of pricing decisions while reducing overall effort?
To organize around these issues, the teams aligned themselves across three core initiatives:
- Price setting: A clear approach to setting prices, informed by best-in-class research, analysis and pricing logic.
- Discount management: A review of SoftwareCo's discounting processes in order to rein in disorganized discounting.
- Operating model: A clear operating model to ensure the organization could effectively execute price-setting decisions.
Our Recommendations
Working together, the Bain and SoftwareCo teams developed clear and practical recommendations to support each initiative of SoftwareCo's pricing approach:
- Price setting: The teams created a detailed pricing playbook that provides step-by-step instructions on how to set prices, using best-in-class pricing practices, logic and analyses.
- Discount management: The teams implemented a series of improvements to SoftwareCo's discounting process:
- Established "fast lanes" where sales representatives can provide low discounts without approval – within the right portion of the discount distribution –encouraging representatives to reduce discounts to increase efficiency
- Embedded improved logic for assessing deals that still required review to boost the quality and speed of decision-making
- Created a "deals desk" to ensure a dedicated team exists to review high-discount deals
- Operating model: To ensure SoftwareCo's continued pricing success long into the future, the teams defined an integrated, end-to-end, pricing process. The improved model laid out clear roles and accountabilities as defined by Bain's RAPID® decision framework.
"Fast lanes" empower sales representatives by providing discount ranges that reduce the need for approval
The Results
Each initiative of the pricing transformation added value to SoftwareCo:
- Price setting: This effort embedded improved pricing processes for use in both pricing and licensing decisions and substantially reduced complexity by eliminating redundant or similar pricing meters. The new pricing playbook significantly increased the capabilities of price setters and serves as a living document to ensure continued success.
- Discount management: The revamped criteria for discount evaluation reduced the number of management reviews by more than 30% while creating a consistent and robust review process when necessary. The increased efficiency, along with improvements in price realization on the part of sales representatives has increased margins by ~3-4% and added millions of dollars in profit.
- Operating model: The teams enabled SoftwareCo's continued success by providing them with a clear set of roles and responsibilities that allow SoftwareCo to be a faster, more efficient decision organization. The company is now better equipped to make and execute their pricing decisions.
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.
