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November 3rd, 2022 (Updated 11/04/2022) | 11 min. read

After a Merger: Planning & Implementing a Pricing Strategy

It is a cruel and unfortunate fact that when inflation skyrockets and/or the additional pressures of a recession biting, the market begins to experience a surge in merger activity across a range of industries. No industry sector is immune. The pressures of inflation, higher interest rates and economic uncertainties lead to more mergers than usual, some of which will be ‘shotgun marriages’ enforced by investors and shareholders. In this merger-rich environment, people investing in mergers and acquisitions (M&As) or leading merged businesses need to plan pricing actions as part of the execution of the merger. In that light, we have gathered the range of considerations on what you need to do after a merger for the planning and implementation of your pricing strategy accordingly.

At Pricefx, for more than a decade, we have been assisting hundreds of large-scale enterprise organizations just like your businesses to make transparent, data-informed, real-time pricing decisions. And that also means addressing all manner of pressure points from our customers including assisting them in managing their pricing through tough times of sudden and extreme change.

So, let’s dive right on in this guide to post-acquisition pricing strategy planning and implementation firstly outlining how and why post-merger price planning is critical before we jump into some practical advice on how you can organize and implement your after-merger pricing strategy.

‘Do-it-Now’ Pricing is Critical to Your Ongoing Success; Don’t Treat It as a Post-Merger Afterthought

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As two companies become one, excitement, disarray and challenges will inevitably arise. With a slew of priorities competing for your attention after a merger, is it absolutely necessary to revisit your pricing strategy?

In a word, “yes.”

As pointed out by the Harvard Business Review, the M&A failure rate lies somewhere between 70% and 90%. Much of that failure rate can be attributed to a poor integration strategy between the two entities once the deal has closed.

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While of course there will frequently be “culture clash” issues (i.e., For example, the two companies possessing radically diverse cultural values and not getting along during an attempted businesses integration), there are sometimes much more simple reasons that M&As can often turn out to be failures.

Pricing is commonly one of these reasons. If it is not executed correctly, a merger or an acquisition integration can lead to inconsistent value propositions, undifferentiated brands, and product segments, and a debilitating deprioritization of customer segments.

Rather than moving in different direction, the two parties included in a M&A need to set up as many ways as possible to work together and set a foundation to benefit from the synergies. Decisions to be made will arise;

  • Whether to charge the acquirer or the acquiree’s prices and which of the two company brands has the greatest recognition in the marketplace and the highest pricing power?
  • Can the acquirer’s brand can be leveraged for charging higher prices, and if so, what should that higher price be?

Use Your Post-Merger Pricing Strategy Re-Boot Pass Wisely

A concentrated pricing strategy after M&A should be of the highest priority. M&A most often involves overlapping or complimentary products with disparate pricing levels and structures. Without a sweeping overhaul of pricing strategy for the shared product portfolio, a natural gravity for product pricing tends to lead pricing in the direction of the lowest common denominator between the two products.

In other words, your customers will naturally pick the pricing level/structure that favors them, and your sales department is impotent to resist the organic customer-led pricing erosion.

Consequently, look on the post-merger period as a chance to re-boot your pricing strategy and a once in a lifetime opportunity for hopeful and positive change and the break you have waiting for to finally get your pricing ducks in a row.

Make a pricing strategy change a part of your post M&A first 100 days and take advantage of the honeymoon period to be aggressive with pricing structure/metrics changes while your customer base will be expecting change.

Generally speaking, value-based pricing will be the best pricing strategy to apply after a merger. 

 

What focusing on the value of your products will do, will maneuver the focus out of the ‘navel-gazing’ perspective of your organization and instead, directly onto your customers.

 

After all, it is your customers that value will be generated from, and eventually, it is your clients who will have the final verdict on the success of your merger.

However, there are some hurdles to jump to lay the groundwork for your value-pricing post-merger.

5 Pricing Obstacles to Overcome in the Post-Merger Environment

There are 5 major obstacles to your organization executing a value-based pricing strategy after a merger;

  • The two merging companies are not aligned on their pricing strategies or business objectives.
  • Blurred Identity – The two organizations are cannibalizing each other’s value premise by offering similar products to the same markets with little differentiation in terms of quality or features
  • Logistically, the pricing metrics used by each company are not compatible. As a result, it becomes an immovable barrier for the sales departments of each organization to price bundles, a challenge for invoices to be reconciled and customers to understand which department to deal with and how to do it.
  • An alignment and restructure of the roles, skills and other capabilities are needed ASAP across the two companies to avoid duplication of pricing and other administrative tasks.
  • An internal of audit of IT resources will be required as ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), accounts, billing, pricing, and all associated financial systems of the two companies may all be incompatible and limit the development of single company-wide pricing strategy.

With all obstacles identified and planned pathways to a resolution of each put into motion, you are ready to get started with hitting the pricing strategy reset button.

The Post-Merger Pricing Strategy Checklist

After a merger, there is a lot happening and a lot of activity to keep a track of and any number of tasks can go unseen and fall through the cracks. That is particularly true of your pricing, as pricing strategy has many factors originating from different points in your organization and many factors can be hidden if you are not following closely.

To make certain that you are doing everything you need to do with your pricing following a merger, consider the points on this checklist;

1.    To Start, Aim for Significant Progress, Not Perfection

Don’t expect everything to align immediately and perfectly during your post-merger pricing planning because it won’t. There will be a period of trial and error as both parties adjust, reconcile expectations, and figure out new roles.

The strategic pricing planning process must be fluid and flexible in the preliminary stages. While structure is important, be willing to adapt and work together to establish a new normal. You’ll come to a point where you simply need to launch the updated pricing strategy and course correct from there as needed. Don’t treat your new pricing strategy as a ‘set-and-forget’ – keep your pricing strategy in motion!

2.     Get Alignment on What Needs to be Done

While it’s important to revisit your pricing strategy, the specific projects, and initiatives that the newly defined team will be working on are equally important. There will be chaos if nothing is determined about what’s happening on the ground after a merger.

During your pricing strategy review, dive into the day-to-day initiatives and outline expectations, redefining individual roles if necessary. Walk through the more minute projects and steps to ensure they have an owner and execution team. For example, both organizations were doing sales prior to the merger, and now it’s important to get all teams on the same page as to how sales will operate as one organization.

3.     Consider the Timing and the Costs

Of course, reviewing your pricing strategy after a merger is important, it doesn’t mean it needs to happen as soon as the ink is dry on the contract. Don’t delay the process too long, but do think through the most beneficial timing over the short term (the first few months);

  • Do you have key executive leaders in place to internally champion and drive your new strategy?
  • Are there any major technology changes in progress or something that needs an upgrade to execute your strategy?
  • Do you have a timeline to complete the pricing review in an efficient and smooth manner?

4.     Get Granular with a Data-Informed Pricing Software Solution

If one or neither of the two merging companies have not been using a data-driven pricing software solution until now, it’s time to now do so.

Pricing is critical and getting it as granular can the difference between ‘making it’ and breaking it.’  On average, a 1% price increase translates into an 8% increase in revenue. Considering the flood of data that has become available to companies over the last few years, it would be crazy not to use it to make better pricing decisions. For those organization’s looking to bring order to big data’s complexity, the value is substantial.

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Learn More Here How a Small Percentage Can Make a Pricing Difference

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Without uncovering and acting on the smart pricing insights that data provides, large-scale business organizations just like yours may be potentially leaving millions of dollars of profit on the table.

The secret to increasing profit margins and plugging those annoying profit margin leaks is to empower the data that rests within your system to find the best prices for your products.

5.     Audit Basic Pricing Hygiene on Both Merging Companies

Build the pocket price waterfall for products in both the merging companies and look for price margin leaks and assess if the margin leaks occur in the same place.

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6.   Revisit & Check If You Have Single & Strong Company Culture

Review your pricing strategy implementation plan—including its development, execution, and reporting processes. Check that your business has created a unified team that has embraced working together and no lingering “us versus them” mentality is present.

Confirm to yourself that any employees from the acquired company will feel valued and included, while also empowered to bring fresh perspectives to the pricing strategy.

This decisive step review checks in on the establishment of a cultural understanding between all parties and has effectively aligned the mission, vision, and goals.

Increase the Chances of Merging Pricing Strategies Successfully & Painlessly

Whether an organization is acquired or merged, the overarching pricing strategy becomes a critical focal point in the integration of the two businesses.

It is especially important to reassure existing fans of the brand that they will still love the business and the products post-merger and find a new and improved pricing strategy to communicate the value of your products to them.

‍It may seem like a lot of work and especially so if you are trying to perform managing the reboot of the integrated pricing strategy manually. An integration of the two company’s pricing strategy done manually could become tedious and expensive, particularly if your clientele must wait for the dust to settle and know what prices they are going to paying over the long term.

However, effectively managing a post M&A pricing strategy often separates the successful deals from the many failures. Using an automated pricing software solution like Pricefx will make the chances of success for your merger greater.

If you want to learn more about which pricing software is best to start with and why, check out this handy article below:

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Or if you already know what pricing solution you need and want, talk to one of Pricefx pricing software experts now.

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About the Author

Idrissa Diop has over a decade of experience in pricing. As a Solution Strategist, Idrissa helps companies to improve their pricing processes, profit and growth with software. His expertise ranges from defining a pricing strategy to pricing strategy audits and competitive analysis.