McKinsey's Four Pricing Strategies Framework Matrix Template

Description
In March 2015, McKinsey's Kevin Chan, Jay Jubas, Berenika Kordes, and Melissa Sueling published a paper called "Understanding your options: Proven pricing strategies and how they work" (https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/understanding-your-options-proven-pricing-strategies-and-how-they-work ). 

The paper provides an overview of different pricing strategies that businesses can use to improve their sales and profitability. It covers six main pricing strategies:
- cost-plus pricing
- value-based pricing
- dynamic pricing
- freemium pricing
- psychological pricing 
- subscription pricing

For each strategy, the article explains how it works, its advantages and disadvantages, and provides real-world examples of companies that have successfully implemented it. Additionally, the authors discuss some important considerations for choosing the right pricing strategy for your business, such as understanding your customers' willingness to pay, monitoring your competitors' prices, and continuously testing and refining your pricing approach.

Overall, this McKinsey paper provides a helpful overview of different pricing strategies and can be useful for businesses looking to optimize their pricing and improve their bottom line.

The key focus, in my view, is on the 2x2 matrix outlined in Exhibit 1 which has 2 axis:
- X-Axis: Degree of Innovation (Incremental “Pushing the boundaries” vs Radical "Pioneering new models”)
- Y-Axis: Primary Impact Objective (Sales Growth vs Margin Improvement)

This leads to 4 different possibilities or Pricing Strategies:

- 🎯 Margin expanders (Incremental “Pushing the boundaries” + Margin Improvement): aim to improve margins through small regular price increases, defending against unnecessary giveaways, segmenting the offering, applying surcharges, passing on changes in cost to serve, and pricing in additional sources of value. Example: Dow Corning's introduction of a different brand (Xiameter) with different service levels, different customer experience and lower price points.

- 🤑 Profit disrupters (Radical “Pioneering new models” + Margin Improvement): on the other hand, aim to define or defend their business model by implementing bolder, disruptive pricing strategies. These models can include profit sharing with customers, pricing agreements that factor in risk, and changes in the unit sales model. Example: BASF's shift from a price per gallon to price per painted car model.

- 💰 Revenue drivers (Incremental “Pushing the boundaries” + Sales Growth): focus on growing revenue by bringing in more business and driving deeper penetration in the existing customer base. This can mean providing introductory offers to bring in new customers, subscription models to build on an installed base, contracting to extend the lifetime value of a customer, and bundling to increase revenue per customer. Example: Expensify's freemium subscription model.

- 🥇 Sales and pricing pioneers (Radical “Pioneering new models” + Sales Growth): aim to achieve large-scale sales growth and radical margin change simultaneously by implementing completely different ways of working to find new pockets of growth and value, such as introducing new services or new business models that integrate new portions of the value chain. Example: Rolls-Royce's use of new software advances to lure risk-averse customers.

Given the success, clarity and originality of the McKinsey Pricing Strategies Matrix I decided to create an editable template that any marketer, business leader, CEO or business unit leader can use to optimise the role of each product/service in the optimisation of financial performance.

The Best Practice is:
- an editable Microsoft PowerPoint Template Slide + Excel File
- with an online & offline 14 step-by-step methodology, with pedagogical illustrations for each step.

Should you have any questions about this top tier pricing strategy framework template by McKinsey & Company, you're welcome to reach out to me via Private Message.

Good Luck!
- Tim

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