Working dilligently with pricing can often yield superior profits, both for the company doing it but in case of Venture Capital / Private Equity also for the investor. Here are 7 things to consider as an investor:
- During exploratory phase / due diligence: conduct price research to understand different customer segments' willingness-to-pay for a product or service. If you know that a segment is willing to pay 30% more than today, then you have a great value case for the business and potentially can do a bargain on the investment.
- Post-investment: do a strategic review of price positioning and what segments, locally or globally, that are willing to pay a higher price for the portfolio company's services or products. If being able to identify higher-paying segments, be it from a product perspective or a geographical angle, then the business can make more money.
- Train the portfolio company's sales team in negotiating better prices.
- Identify through price research new segments that are willing to pay premium prices for the product that the company is developing.
- Use pricing software to instil discipline and revenue control, so topline growth doesn't become a bad excuse for heavy discounting.
- Use price research as part of case for repositioning in turn-around cases. Or to find completely new market segments willing to pay for products that the launch-segments might not have been.
- Use price improvements to increase the value of the company ahead of an exit.
Pricing discipline can improve profits considerably. Simple maths dictate that if the company has a 10% operating profit margin, then 1% improvement in price yields a 10% OP improvement.
Contact Stratinis if you want to explorer ways we can help you or your portfolio company with pricing expertise (consulting) or pricing software. Or check out the website of our sister company, PriceBeam, who delivers world-class price research rapidly and a reasonable cost.