The past 15 months have put a damper on discussions surrounding pricing strategies. Many associations have chosen the path of social responsibility and dramatically reduced pricing on many of their offerings to keep providing support and services to members who are struggling.
As we ease back into the world, now is the time to change your pricing strategy. Here’s how to do that.
Why change your pricing strategy now?
Many associations tend to look at pricing conversations as greedy. It's good to give value, but it's harder for us to set pricing based on that value. We often think that pricing (especially price increases) goes against being a purpose-based organization that's trying to do good — but that's not the reality.
The reality is that correct pricing is all about financial sustainability. Pricing is the biggest lever to impact your bottom line. Ask yourself these questions:
- Can you make it through another crisis like COVID-19?
- Do you have a reserve?
- Do you have the funding to keep programming going without having to cut anything?
If the answer to these questions is “no,” then now is the time to act. It’s not that your organization should be overpriced. That places a burden on your members and is also unsustainable. But you also can't undersell and be underpriced because then you can't fulfill your mission in the most impactful way possible.
How correct pricing impacts your bottom line
To realize how dramatically pricing affects your bottom line, take a look at these two scenarios. For the sake of simplicity, let’s say that in a $100 program, 70% of the price goes towards costs – admin, tech, events surrounding the program. We will use that as a baseline for both scenarios.
Scenario 1: Offering a discount
Your organization organizes a video conference for $100 and offers a 10% discount (a pretty average discount for many organizations). Most people would look at that discount and say, no big deal, right? We lose about $10 per person, so we need to get one more person for every ten that we sell to make the same amount of money, right? Wrong.
What you are doing is giving away 33% of your profit with no reduction in costs. That means that you need to increase enrollment by 50% just to break even. And it’s optimistic to think that the amount of work needed would stay the same, given the 50% increase in enrollment, so costs may go up (and profit down). Giving a 10% discount right now means you're losing money on this program.
Scenario 2. Implementing a modest price increase
On the flip side, if we look at that from a price increase perspective, imagine you raise that $100 to $105. That's not a big difference – the price of a fancy coffee. If you were paying $100 for something that you felt was valuable, surely you would pay an extra five bucks for, it right?
But consider the impact: a 16% increase in your bottom-line profitability. In this scenario, if you were selling 100 seats, and you're making an extra $500, that's a small scale. But what about a $400 membership every year at 5,000 members?
The scenario you choose has the power to revive or kill your bottom line without much effort.
Four steps to changing your pricing strategy
Changing your pricing strategy – no matter the product or service – follows four steps.
Step 1. Data analysis
Data analysis looks at:
- How members/sponsors are engaging with your products
- The value-to-effort ratio
Each of these data points can offer insight into what prices you can change. Ideally, you want to see which products and services offer high value to your members with little effort on your part. There might be some offerings that are high-effort, but if they are also high-value, that’s a win.
Step 2. Market research
Market research uses focus groups and one-on-one interviews to determine what members need, what they want, and how valuable it is to them.
This step helps you determine which products/services can be discontinued, and which areas to ramp up.
Step 3. Market testing
This step looks at the following two questions to refine pricing and offerings:
- Based on our market testing, will we see an increase in our profits, or a decline?
- Based on our market testing, can we provide more meaningful value to our members and our sponsors to best fulfill our mission?
Depending on the answers, you may need to backtrack a bit and refine your strategy.
Step 4. Execute
This step is all about execution. Putting your new pricing strategy in place might not be quick - you might ease into it over a month (or more).
You also need prepare for change management, both internally and externally. Externally, you're communicating an exciting change that’s coming because members asked for it. Internally, you’re building enthusiasm in your organization because nothing kills an initiative faster than a staff that has not bought in.
Pricing strategies are living things – consider how you will evaluate the change and what you might need to refine as stakeholders adjust.
Easing into pricing strategy changes
If your association has traditionally offered a wide variety of products and services, the idea of changing all of your pricing all at once can be daunting. The good news is this: you don’t have to change everything overnight.
Start by asking yourself if there is a pricing strategy in place, and look at the last time you changed your prices. Figure out where you are and what you’ve done in the past, and then pick one thing - a monthly webcast, a membership, an event, a small product - and then take it through the four steps. Do the data analysis, the market research, and the market testing, and then execute the pricing change.
See how it goes, and learn from it. You're going to get some things wrong, but guess what? You're also going to get a lot of things right.
Once you have this test pricing strategy under your belt, create an annual plan of how you're going to do this for all of your products. Commit to raising the price of everything every year. This doesn't mean that you're going to make a drastic value change to everything every year, but it does mean that you are going to strongly consider what that might look like. You’ll create an annual plan, and then every two or three years all pricing will be adjusted.
Normalize implementing the four steps of your pricing strategy on a regular, predictable basis for the benefit of all of your stakeholders.
July 16, 2021