The natural reaction in times of crisis is to increase discounts and to close deals at any cost to keep the lights on. There are things you can do without giving away the farm. Pricing can be a creative and innovative tool to accomplish remarkable success while delivering more value to your customers and prospects, as the author explains. Stephan M. Liozu, Ph.D. (sliozu@gmail.com), is Founder of Value Innoruption Advisors, a consulting boutique specializing in industrial pricing, XaaS pricing, and value-based pricing. He is also the co-Founder of Pricing for the Planet, which specializes in pricing for sustainability. Stephan has 30 years of experience in the industrial sector with companies like Owens Corning, Saint-Gobain, Freudenberg, and Thales. He has authored and edited 14 books on value and pricing management. Stephan sits on the Board of Advisors of Professional Pricing Society. He is a Senior Advisor with BCG and Black Winch.

The Journal of Professional Pricing, March 2024

We have been there before. And multiple times over the last twenty years. Bubbles are formed, grow too fast, and then burst. Stock valuations and profit levels go through the roof. Capital is chasing ideas and new business models giving exuberant level of investments without doing proper due diligence on the attractiveness of the business models. So called “unicorns” were born because two people with a cool concept, a nice PowerPoint slide deck, and a Beta platform environment were able to convince venture capitalists (VC) and angel investors to back them. This was a start-up bonanza we had not seen since 2000.

“Yes, but this is actually a good thing (a potential recession),” the Tesla CEO responded. “It has been raining money on fools for too long. Some bankruptcies need to happen.” (Elon Musk says upcoming recession is ‘actually a good thing,’ and predicts how long it will last | Fox Business)

Well, the party is over. For some the hangover is brutal. Valuations are down significantly. Announcements of layoffs are falling like an Arizona monsoon. VC and investors are now asking for some type of return and for faster profitability. Forget about unicorn status, the rule of forty, and irrational growth. Investors want profit and sustainable business models. In other words, it is time to get back to reality. The stock market casino is closed (The stock market “casino” is closed – CNN). As a result, the startup layoffs have continued to hurt. VC funds are putting the break on investments in areas that are currently collapsing (Venture Capital investments in crypto set for 50% reduction in 2022 – crypto-news-flash.com), and some VC firms have closed shops all together.

The tech world has been hit hard. The rest of the economy is doing a bit better, but growth is sluggish, and the market conditions are blah! Nothing to be super happy about. Are we in a recession, a slowdown, or a steady recovery? What does this new recession and wave of financial conservatism mean for all of us in 2024 and 2025? CEOs, CROs, and CFOs need to go back to fundamentals. They cannot stay idle waiting for better times to come. It might take a while. It is time to slow down, reinforce the core business models, and demonstrate the resilience of the value proposition. I propose five recession busters to consider and begin implementing right away.

Recession Buster #1: Validate That Your Core Customer Value Proposition Is Still Robust

A customer value proposition (CVP) cannot be static. It needs to be refreshed every six to twelve months to make a company stay in touch with market needs. That is the ideal case scenario. The reality is different. Most companies and start-ups focus on their core CVP at the beginning of their development and forget to manage it dynamically. The key word here is dynamically! When a recession looms, things accelerate and become much more dynamic. Customers’ perception of value and preference shift and sometimes in an extremely dramatic way. They prioritize spending and are much more focused on delivered value and price.

One of the fundamental things to do before or during an economic recession is to dive deep into the core value proposition and to gauge its robustness. Competitors might have caught up or customers may not see the same level of differentiation. If that happens, your core is vulnerable and you need to take immediate action to innovate or accelerate your product roadmap. The overall objective is protecting the core business and making it even more differentiated. Please keep in mind that competitors might conduct the exact same exercise.

1. Conduct internal meetings with key stakeholders to refresh the CVP and create new value maps with the salesforce, customer success teams, and marketing.
2. Conduct qualitative interviews or focus groups to validate your refreshed customer value proposition. Focus on customers’ pains and gains to reprioritize based on qualitative feedback.
3. Conduct quantitative research to validate some of the key pains as well as the customer willingness-to-pay levels for some of your pain relievers. This is relevant if you have a large customer base and want to get robust data to conduct segmentation analysis as well as positioning maps.
4. Bring all the data together and develop a game plan for your revised go-to-market approach based on a renewed CVP.

Now you might say that you do not have the time and budget to conduct such a deep redesign process. I would respond to this by asking: “What could be more important than talking with customers and discussing their pains and gains?” This should be done on a regular basis. It is also the foundation of your future value models and the powerful ROI calculations you might deliver to them in times of crisis. Some of the value drivers might have shifted due to the recession. You might have to reprioritize your ROI calculations to focus much more on specific areas of pain.

The bottom line is that this exercise should be done now as the economy is slowing and we are starting to see the first signs of cracks. This process can be done in 30 to 45 days by creating a tiger team and mobilizing your customer insights vendors. By interacting with your top customers and showing them you are taking action to focus on their needs and pains, you are also scoring points on the loyalty scale. Customers and prospects will be quick to tell you if you are relevant or not. Right now, the shift to protecting cash and focusing on profit is real. If you do not update your CVP, you might be the first candidate to be kicked out based on the cost cutting process. The best defense is a good offense.

Recession Buster #2: Deep Dive into Your Monetization Potential

The second recession buster zeroes in the topic of monetization. As you know, monetization is all about extracting revenues and profits from your products, services, software, and data. It is also about addressing your revenue leaks, minimizing cost-to-serve, and increasing sales and profits. How do you get started when you are entering a recession? You start by responding to the six questions listed below. Frankly, your board might already have sent strong messages that better monetization is required. They might have already asked your executive team these questions!

1. Is your product packaging strategy still relevant in the current environment?
2. Are you really leveraging your entire portfolio of products, services, and add-ons?
3. Are you giving away too much for free?
4. Have you developed a path to cross-sell and up-sell your customers?
5. Do you understand the services or features that bring no value to the customers and make your product over-designed?
6. Are you focusing enough on customer adoption of your solution and specific action to boost your share of wallet?

These are questions to answer in a matter of two or three weeks. It is now all hands-on-deck to fully monetize your potential and become even more relevant in your customer operations. That means increasing your revenue flow while focusing on bringing more value to your customers. That is quite a challenge when you think about it.

This work must be done in a collaborative fashion with sales, marketing operations, pricing, product, and packaging teams. It needs to be based on current data and on pipeline projections given by your customer base. If you do not know how to do this, bring an expert in. Tie your customer insight program to this effort. It is a fantastic opportunity to repackage your offer, kill the features and add-ons that are no longer relevant, and simplify your offers to the market.

As you improve your monetization potential, you also need to communicate to customers and prospects that you are focused on simplifying their operations and bringing additional value to support them during the upcoming slow down. Your communication campaigns must be 100% focused on solving customer pains and increasing their financial results. And to accomplish that, you are strengthening your value proposition, delivering greater value in your solutions, and improving their return on investment. While we increase our monetization potential, it must be done with the increased impact on the customer business in mind. The more successful they are, the more successful we are.

Recession Buster #3: Restructure your Marketing Programs and Spending

The third recession buster relates to the management and prioritization of marketing programs in the context of a potentially stronger recession in 2024. At this stage of the game, you are for sure in the process of asking yourself how to improve the “bang for the buck” and how to maintain a rich opportunity funnel. Considering the high chance that your firm will reduce headcount and refocus on the core, it is expected that priorities are going to change. Therefore, the key question is what stays in the tool kit and what gets sidelined for now. We are back to the “do more with less” frame of mind.

I posit that, in general, marketing activities have become commoditized. That is the first issue. Every company is applying the same model: trade shows, marketing campaigns, webinars, content production, national events, etc. It is a playbook that is quite common and is typically done very well if you have experts in your firm. The issue is that, with every company targeting the same pool of customers (CFO, CRO, CMO, CEO), it becomes noisy and undifferentiated. The market space is crowded.

The second issue is that your customers are now looking at their pool of installed solutions and are making an analysis of the “need to stay to be successful” and the “what is nice to have.” Hopefully, you stay in the first category because your solution creates real value to customers, and it is embedded in the customer operations. If you are in the second category, you must quickly react and reposition your entire marketing program to retention and churn avoidance. That pivot is not an option. It must happen now within the next 15 to 20 days.

1. Revisit the nature and sequence of your marketing campaigns to address the current economic trends.
2. Focus on marketing that brings concrete value to customers using the power of the customer success team energized by innovative marketing programs.
3. Engage your customers with value realization initiatives to demonstrate the value you bring in the short-term (meaning the last 6 months and the next 6 months). You might have started this in the past, but it is now time to make it formal and impactful.
4. Deliver superior value to the end-users using the most progressive marketing tools. Here I refer to outstanding community engagement, specialized certifications, intimate user groups, advanced adoption programs, and exclusive novel content. No more plan vanilla marketing!
5. Focus on customer adoption to increase their impact. A study from Productiv shows that the average software adoption is under 50%. When times are tough, companies invest in more software to improve productivity. Adoption might not be their number one priority. When times are bad, low adoption means churn. You must now engage with your key customers and work jointly on increased adoption to increase the bang for the buck.

We are entering into an era when marketing must be robust, impactful, and sustainable. The investments that companies are going to make in the next 24 months must bring payback. It is time for marketing 2.0 to focus on IMPACT.

Recession Buster #4: Invest in Customer Value Management

There is no doubt that the time has come for companies to take a serious look at the customer value management (CVM) process, methodology, and tools. It has never been a better time to get started. And the reason is simple: do it or get churned out! Your customers are doing the same analysis that you are doing. They want to improve customer retention and avoid losing sales. As you reinforce your customer value proposition as explained in the first Recession Buster, you must modify your value models, your value drivers, and your business value assessments to reflect the current business environment. It is a matter of credibility in front of the customer and showing that you care about their financial health. I am a strong believer in this approach. Your company might be cutting somewhere else. They have no choice. You need to convince your executives to take some of the savings and make a strategic investment in customer value management. Again, the best defense is a calculated offence.

In times of recession, volatility, and disruption, investing in CVM is a bold and smart move. At the same time, it is unrealistic to think that you can get started with CVM technology and processes while your company is reducing headcount and cutting support budgets to protect cash. So, what is the solution? Consider the following points:

1. Select an end-to-end CVM platform. Replace your existing partial or legacy platform (such as a home-made Excel solution or simple ROI calculator) with a powerful and integrated platform that will manage the process holistically and remove the need to manage things in various places or manually.
2. Challenge the providers of CVM solutions to make sure they are fully integrated into the go-to-market engine. More integration means faster time to value for your sellers and faster adoption into your established processes. That in turn means great sales velocity.
3. Invest in a CVM platform that can automate and bring power to the rest of your go-to-market engine. Focus all your attention on customer economic impact across the board. I believe that a great CVM platform can boost the monetization power of your entire go-to-market technology.
4. Ask your CVM vendor if they can provide turn-key solutions and services to avoid having to hire value engineers while getting you in motion in less than 60 days.
5. Focus on adoption and ask for support from your vendor customer success team. The faster your team can embrace CVM and use the platform, the faster your will deliver superior return to your customer base.

My experience in customer value management shows that strategic investments on the right platform can boost a company’s financial result tremendously. The impact for customers on their ROI, net retention rate, average selling price, and discount avoidance is phenomenal. Only the strong and bold survive. Cutting costs is not good enough. Make bold moves to disrupt your competition!

Recession Buster #5: Refresh your Pricing Approach

By now, your sellers are running around trying to close deals. The reality is that customers have to put a stop on deal making until they understand how their companies are going to be positioned in this slowdown. This is to be expected when stock markets are crashing and investments are drying up. However, it is essential to anticipate the pressure your customers and prospects might put on you when it comes to pricing. The procurement and finance teams might be unwilling to consider investing in your solutions or at least might consider downgraded solutions to save money.

Now is not the time to give up and to fall into the discounting spiral. It is the right time to be creative with pricing options and refresh pricing strategies and tactics to account for this shift in market dynamics. What does that mean in reality? Here are seven points to consider:

1. Revisit your product and pricing versioning approach to make sure customers and prospects have more choices. If you are offering a single product or solution today, you are offering a YES or NO solution only. Moving to a good/better/best versioning strategy might be a better option for now.
2. Add more value in your options to make the offer more attractive. You can do this in multiple ways. First, you can include add-ons into your options to beef up the value. Second, you can accelerate your product roadmap and include innovative and high-value features as part of the revised offers. Third, you can create new bundles at a lower price for the customer than buying the components separately.
3. Consider moving to a recurring revenue model with subscription and usage components. Prospects might be more interested in paying less upfront and in being put on a consumption-based pricing regime. Make sure you explain the pluses and minuses of both options.
4. Consider offering a 90-day free trial for prospects who are on the edge of buying. The “cheapmium” model is also a good option. In that case, you offer three months at a fraction of the normal pricing. Make sure you set up the customer fully in your system and you delight them during the trial period. For that, value realization teams can do miracles!
5. Modify the tiering of your discount structure and consider lowering the bottom level tiers so that prospects start using the platform right away and benefit from greater discounts faster as they scale.
6. Make a stronger connection between pricing and value. Speaking in terms of ROI and payback might be more compelling than just speaking pricing. I know that in a downturn, customers worry less about payback and ROI and are focused on acquisition price, but it is worth having the value conversations even if they are tough right now.
7. Include special incentives for faster adoption or greater share of wallet. Introduce special one-time end-of-year rebates or bonuses to promote proper adoption or usage behavior.

The natural reaction in times of crisis is to increase discounts and to close deals at any cost to keep the lights on. There are things you can do without giving away the farm. Pricing can be a creative and innovative tool to accomplish remarkable success while delivering more value to your customers and prospects.

Closing Thoughts

Brace yourselves for an economic hurricane. It is not me saying it. It is Jamie Dimon, CEO of JP Morgan Chase (Brace yourselves for an economic “hurricane,” Jamie Dimon says – CNN). The next wave of disruption is coming. Your board and investors are switching their focus to sustainability, cash protection, and profitable growth. Get started today and get working on these five-recession busters. You can be done in 45 to 60 days. You might think it is a lot of work. It is indeed, but what else could be more important? It is all-hands on deck for the next six months as we might enter a true recession that might last a year or two. Self-disruption is better than being disrupted!