How to Gain Price Visibility Following a Merger or Acquisition
Strategic mergers and acquisitions can drive impressive growth. All too often, though, growing pains can get in the way of reaping the full benefits of the synergistic new organization. Poor data clarity is a common challenge, as two organizations struggle to blend their various ERP and other business intelligence systems into a unified structure.
From a pricing perspective, this lack of visibility raises serious concerns. A pricing manager’s overarching goal is to understand the new product mix in order to keep growing the already-strong business while improving weaker accounts. However, when data is stuck in siloes, it becomes difficult to identify all of the opportunities for economies of scale the merger or acquisition was intended to produce.
Fortunately, there are steps you can take to quickly consolidate your data into a single, cohesive view. These actionable insights will in turn empower you to drive strategic pricing improvements and move more customers to more profitable product lines, across the new organization for better price visibility.
1. Identify Product and Customer Overlaps
The first step following a merger or acquisition is to do a deep dive into the data at hand. Segment customers and products into the groupings that make the most sense for the new organization. Now you can begin to notice some important patterns:
- Where do product or customer segments overlap?
- Can product lines be combined?
- Can prices be streamlined?
There is no way around it – this stage of the game involves hard work and lots of number crunching. You need to make sure all of the data is properly synchronized so you are comparing apples to apples in your analysis. This is where an outside consultant with significant data management expertise can make a real difference. An experienced resource can help you get up to speed with integrating your data as painlessly as possible.
2. Focus on Margins
Once you understand your customer and product segments, you can begin to look for opportunities to optimize your margins – which is the key to optimizing profitability. Across your segments, consider:
- What are the average prices for each customer/product segment?
- Where do we want to set the target price for each segment?
- Where do we want to set the target margin for each segment?
- Where are the pricing outliers?
Armed with this insight, you’re ready to set a margin floor for each customer/product segment. By identifying the outliers – that is, the customers and products that fall below that floor – you can determine the appropriate price increases to move those outliers to an acceptable margin.
3. Develop a Product Positioning Strategy
Optimizing margins nearly always involves some sort of price increase for at least certain segments. If you’re not positioning your products properly, these increases will be a struggle for you. The secret is to understand and communicate the value your products deliver to your customers.
To start, go back to the product category segments you’ve already developed and see if there are any smaller niches within your broader segments.
- Are there upsell or add-on features that are often added to a product? If so, this should be reflected in your data as a new, premium product category.
Next, look at the price ranges and average prices of the premium products versus the standard products.
- Do the premium products command a premium price or a premium margin? If they don’t, you’re essentially giving your add-ons away for free.
Pricing should always reflect quality and value. Strive to establish a pricing organization that is built on a center of excellence.
Doubtless, the outcome of any merger or acquisition will involve both significant upside and difficult decisions. Implementing a price increase – whether due to the positioning of a product in a premium category or the leveling of prices across similar customer segments – will never be an easy step to take. But with the right data, you can rest assured the decisions you make will be more accurate, more confident and more likely to drive the results you want.
Looking for more insights into how to successfully raise prices? Contact us.