Pricing after Merger and Acquisition Part 3: The M&A Pricing Checklist
The 3rd in a 3-part series on pricing after a merger.
Part 1: Why pricing is critical to M&A success
Part 2: Finding pricing alignment after a merger
There is a lot to keep track of after a merger and it is easy for things to drop through the cracks. This is especially true of something like pricing, where there are a lot of hidden dependencies.
In such situations checklists are valuable tools to help the team align on what needs to be done and then to make sure it does get done. There is a wonderful book on this, The Checklist Manifesto by Atul Gawande that shows the power of checklists in complex operating environments.
Checklists can perform three key functions in the post merger environment.
Get alignment on what needs to be done
Allocate responsibilities for each piece of work
Make sure that nothing slips through the cracks
Once you have alignment on pricing strategy you can use the following checklist to prepare for post merger pricing. You will want to customize it for your own situation. There are 2 reasons for this. The combined company strategy and how that is being implemented through pricing will impact priorities. Where the company falls in the 2x2 customer-value matrix will shape the next steps. You will be in a position to make this determination after you have compared customers (Step 2) and mapped the value-based market segments (Step 3).
Perform basic pricing hygiene on both companies
Build the pocket price waterfall and look for price leaks
Do the leaks happen in the same place?
Can you segment customers by where the price leaks occur and how extensive the price leaks are?
Do a pricing dispersion (map actual price to the pricing metric(s))
Do the pricing metrics predict price?
Look for clusters that are above or below the regression line, investigate the reason for this
Compare contracts to actual billing
Are contracts being followed?
What price changes can be made under the current contracts?
Compare customers
How much do the customers overlap between the two companies?
What are the underlying similarities between customers at each company?
What are the differences?
How do usage patterns and engagement compare between the customers of each company?
Usage
Engagement
Value paths and completion of value paths
(a value path is a sequence of actions taken by a user that results in something of value)
Map the value-based market segments between the two companies
Are there segments that overlap?
What value drivers overlap?
Are there any common variables in the two companies’ value drivers or pricing models? If ‘yes’, then how does value to customer and pricing vary with these variables at each company?
Compare the value metrics and pricing metrics
Assuming that each company has a value model, look at the variables in the value driver equations. Are the same variables showing up for both companies?
Align Marketing, CRM, billing and financial systems
Marketing and CRM configuration of stages and conversion criteria
Definitions of Marketing Qualified Leads MQLs), Product Qualified Leads (PQLs) and Sales Qualified Leads (SQLs)
Billing Systems
Revenue Recognition
Customer Success
Pricing and Customer Value Management (like the Value Pricing Dashboard)
Revise Pricing and Packaging
(Once you have completed Steps 1-5, you will be in a position to change pricing)
The following is more of a simplified version of a pricing process than a checklist, but it helps to define the work that needs to be done.
Choose the target segments that you need to package and price for
Within each target segment, define the value drivers and value metrics and use these to select pricing metrics
Validate the value drivers (again) with
The current customers
Target customers
Develop a value model that can be used to estimate economic value for each customer
Design a new pricing model
Design a communication plan
Plan the migration of current customers
Set up a process and systems to gather the data you will need to adapt the value model and pricing model
Track the pricing metrics and KPIs at a weekly cadence
This is hard work, but pricing investments can have a big payback. They are especially important at transition points like after a merger.
How to get ready for usage based pricing
When and how to change your pricing metric
How to introduce usage-based pricing
New skills for usage-based pricing
Value paths are the key to usage-based pricing
Pricing under uncertainty and the need for usage-based pricing
Enabling Usage-Based Pricing - Interview with Adam Howatson of LogiSense