The Crucial Role of Pricing and Packaging in Driving Sales Success

In the fast-paced world of business, where markets are constantly evolving, pricing and packaging strategies are important elements in unlocking sales growth and maximizing revenue potential. Effective pricing is not just about assigning a number to a product or service; it’s about understanding cost structures, market dynamics, customer needs and behavior, and the value proposition offered. Packaging plays a pivotal role in shaping customer perceptions and influencing purchasing decisions. Add in M&A activity, and pricing and packaging optimization becomes increasingly challenging as well as valuable.

There are countless pricing strategies an organization can choose to deploy. Here is a quick look at some of the more common strategies:

  • Value-based pricing: Value-based pricing is at the top of the pricing food chain. This strategy is based upon a customer’s willingness to pay and is often one of the strategies most likely to maximize revenue and profit. Healthcare and pharmaceutical companies commonly use value-based pricing as do organizations who provide time-sensitive emergency business services.
  • Subscription pricing: Increasingly popular in the B2B software space is subscription pricing, where companies charge clients a recurring fee for use of their products or services. When embedded into contracts, this pricing model provides a predictable revenue stream, which is expected to translate to increased company valuation.
  • Tier-based pricing: Also common in B2B software businesses, this form of pricing is often combined with subscription pricing in the form of “good, better, best” choices for customers. Three is the magic number, since psychologically purchasers often gravitate towards the “better” option in the middle, wanting to find that balance between enhanced features and benefits while still being relatively affordable.  
  • Cost-plus pricing: As the name implies, cost-plus pricing applies a markup to the cost of an item. On the positive side, as long as the cost side of the equation is well understood, this model generally results in predictable and understood profit margins. Industries such as manufacturing and distribution often make use of this model as costs may shift frequently.
  • Volume-based pricing: Volume-based pricing is a pricing strategy where the cost per unit of a product or service decreases as the quantity purchased increases.This form of pricing is often combined with cost-plus pricing and is common in the manufacturing and distribution space. Volume-based pricing, however, is also commonplace in e-commerce scenarios as well as when more than one product or service is bundled together.
  • Freemium pricing: The freemium pricing strategy is a model designed specifically to attract users and drive adoption. No-cost options introduce products/services or sub-features of products/services to a wide audience with the goal of upselling or converting clients to more fulsome paid-for solutions up the value chain. Freemium pricing is commonplace in online marketplaces as well as among mobile apps, but it is also found in software-as-a-service (SaaS) cloud-based services.

Taking the time to carefully select the best pricing model for your company’s market ensures that you align your offerings with the perceived value, needs, and purchasing behavior of your target customers, ultimately maximizing revenue and fostering long-term customer relationships.

Once you deploy a pricing and packaging strategy, keeping pricing updated is essential to remain competitive and profitable. As costs fluctuate and market conditions evolve, companies must adapt their pricing strategies accordingly to maintain profitability while meeting customer expectations. This optimal balance requires a keen understanding of market trends, competitor pricing, and the willingness of customers to pay for value. Pricing assessments, whether done internally or with outside expertise, are never a one and done event. The best pricing strategies incorporate a regular review and update cadence based upon the needs of the business.

Effectively executing a pricing strategy requires alignment across sales channels and functions. Sales management deal desk processes play a crucial role in ensuring consistency and accuracy in discounting approvals. By centralizing pricing authority and providing sales teams with clear guidelines and support, companies can streamline the sales process and avoid pricing inconsistencies that could erode trust and profitability. Additionally, the design of sales compensation plans can significantly impact key metrics such as Average Order Value (AOV) or Annual Recurring Revenue (ARR). By incentivizing sales teams to focus on selling higher-value packages or encouraging upselling and cross-selling opportunities, you’re more likely to optimize revenue generation and drive sustainable growth.

In conclusion, pricing and packaging strategies are integral components of any successful sales strategy. The key is taking the time to carefully select the right pricing model for your business. Keeping pricing updated, effectively executing pricing strategies through sales management deal desk processes, and optimizing sales compensation plans can all be major factors in maximizing revenue potential, driving customer value and satisfaction, and achieving sustainable growth in dynamic markets.

Cathy is the chief revenue officer within Capstreet’s Operating Executive Group. She works with the investment team and portfolio companies on sales strategy and revenue optimization. With over 20 years of consulting and executive-level sales and marketing experience, she was most recently with Pivot3, a privately held company, as vice president of inside sales and global sales operations. Her prior tenures include executive-level positions at Cisco, Polycom, Epicor, and multiple start-ups. Cathy’s areas of focus include sales and go-to-market planning, operational excellence, pipeline development, pricing and packaging, sales incentive design, forecast methodology, CRM optimization, systems integration, training and enablement, and data analytics. She holds a Bachelor of Science degree in Management and Marketing, along with a Master of Business Administration degree from Kansas State University.