Smart Pricing Helped a Private Equity Firm Unlock More Value

A leading private equity firm conducted a full potential diligence on a possible software acquisition. The assessment revealed that many of the company’s industrial clients regarded its software as indispensable and would readily pay more for it.  The fund’s willingness to underwrite price increases put them in a position to buy the company. 

Recognizing the importance of  those price increases, the firm hired a boutique consultancy to implement a new pricing regimen. Unfortunately, the project soon went sideways. The proposed shift from a one-size-fits-all approach to a system spanning 15 to 20 different customer segments was overly complex and was not linked to either the company’s overall strategy or its ability to execute.

The firm tried again, ultimately choosing a partner offering not only pricing expertise but deep implementation capabilities. The result was a much simpler segmentation strategy, creating three tailored product tiers designed to appeal to different customer levels—for example, bundling sophisticated features that its largest clients regarded as essential into a higher priced tier while offering streamlined functionality to smaller customers who were more price sensitive.

Central to the effort was an extensive retraining of the firm’s more than 200 salespeople, transforming them into “value-based sellers” adept at executing sales plays. The salesforce learned how to move customers up the value tiers as appropriate, to emphasize the features and benefits of the software functionality in order to set and get the right price, and to create a “win room” to scale the company’s new approach to commercial excellence.

The results have been impressive: a 15% lift in revenue that dropped straight to the bottom line in a mature, zero-volume-growth market. The company crushed its budget last year, and the outlook for a strong and early exit is extremely promising.