What Multinational Corporations Can Learn From Microsoft’s Pricing Strategy 🌏
In the fast-paced world of multinational businesses, one fundamental principle lies at the very heart of their marketing and sales strategy: pricing transparency. In an era where consumer empowerment and informed decision-making reign supreme, the significance of openly disclosing pricing structures cannot be overstated. This captivating practice not only builds trust with customers but also fosters loyalty and strengthens brand reputation. Developing a pricing transparency strategy becomes not just an option, but a strategic imperative for those seeking to thrive in the competitive international marketplace, just like Microsoft Corporation.
The problem is though, pricing transparency is often fraught with challenges. The complexities of operating across multiple markets with varying regulations, currencies, and consumer preferences can pose significant obstacles to achieving complete pricing transparency. Moreover, intricate supply chains, fluctuations in production costs, and ever-changing market conditions further complicate the task of providing clear and consistent pricing information. As such, achieving comprehensive pricing transparency becomes an intricate puzzle for multinational corporations.
In this article, we will explore the implementation of pricing transparency in multinational businesses. Using the pricing transparency strategy of Microsoft Corporation as an example, we examine whether their efforts to establish pricing transparency align with the genuine essence of the concept. We argue that to maintain trust and credibility, it is essential for businesses to be transparent and provide a clear and comprehensive rationale for price adjustments.
At Taylor Wells, we believe that if businesses really want to achieve pricing transparency, they must openly communicate other relevant factors influencing pricing decisions and demonstrate a genuine commitment to fair and customer-centric pricing practices. By the end, you will have a clear understanding of how multinational businesses can successfully adopt authentic pricing transparency and leverage its advantages.
What Is Behind The Recent Microsoft Pricing Increase Communication Strategy
In the international business landscape, pricing transparency plays a pivotal role in fostering customer loyalty and long-term relationships. Multinational corporations that demonstrate a commitment to openness and honesty in their pricing strategies stand to gain a competitive edge.
When customers feel informed and valued, they are more likely to stay loyal to the brand and maintain confidence in its products or services. Pricing transparency, therefore, becomes an integral part of building a strong and loyal customer base, vital for sustainable success in a global market.
Pricing transparency becomes even more important during price increases. Transparent communication about pricing adjustments helps build trust and credibility with consumers across diverse markets. When companies openly share the rationale behind price changes, customers are more likely to perceive the adjustments as fair and justified, reducing potential resistance to higher prices. This level of transparency also bolsters a company’s reputation and minimises the risk of negative backlash, ensuring a smoother transition during periods of price fluctuations.
Every multinational corporation is determined to make customers perceive that they are transparent with their pricing, and this holds true for tech-giant Microsoft Corporation.
In the previous year, Microsoft established their transparent process for synchronising Microsoft Cloud pricing across the globe. Yet, their most recent actions may not be truly aligned with the concept of pricing transparency.
Microsoft has revealed its intention to raise prices for its customer base in Australia, New Zealand, and Canada. Effective September 1st, Australians will experience a 9% price hike for Microsoft’s cloud-based and on-prem products. Meanwhile, Kiwis will face a 6% increase specifically for cloud services, while on-prem prices will remain unchanged. Similarly, Canadian customers will witness a 6% surge in prices. In contrast, Swiss customers will have to pay 9% less.
These price changes follow Microsoft’s goal to synchronise global Microsoft Cloud pricing with the USD. They say this approach ensures that customers in different regions and with various currencies will receive more consistent pricing, reflective of the exchange rate between their local currency and the USD. Therefore, as exchange rates fluctuate, prices are subject to change accordingly.
The company also emphasised its commitment to evaluating pricing in local currency twice a year, considering currency fluctuations relative to the USD. Microsoft assures its customers that this approach will offer enhanced transparency and predictability, benefiting customers worldwide.
This is an interesting spin on pricing transparency – using exchange rate fluctuations to justify a price rise. Is this transparent or just another layer of ambiguity to confuse customers? The exchange rate also moves daily. Is adjusting prices twice a year, then, really enough to be classed transparent?
Discussion On How Microsoft Can Improve Its Pricing Transparency Strategy
The pricing transparency strategy of Microsoft that justifies price increases solely based on fluctuating exchange rates can be problematic for several reasons. Firstly, exchange rates can be highly volatile and subject to sudden shifts, making it difficult to predict and communicate consistent price adjustments to customers. This uncertainty can lead to confusion and frustration among consumers, eroding their trust in the company’s pricing practices.
Secondly, customers may perceive such justifications as an attempt to pass the burden of currency fluctuations onto them, rather than a reflection of actual cost increases. This perception could lead to negative sentiment and a potential backlash, damaging the company’s reputation and customer loyalty.
Moreover, relying solely on exchange rates as a justification may overlook other relevant factors that contribute to price adjustments, such as changes in production costs or market demand. Failing to provide a comprehensive explanation for price increases can leave customers feeling dissatisfied and skeptical about the company’s transparency and pricing integrity.
How can multinational companies, like Microsoft, truly adopt a pricing transparency strategy?
Ensuring trust and credibility requires businesses to be transparent and offer a thorough explanation for price changes that extend beyond currency fluctuations. This involves openly disclosing other pertinent factors that influence pricing decisions and showcasing a sincere dedication to equitable and customer-oriented pricing strategies.
1. Strategic Communication
Multinational companies should initiate clear and timely communication with their customers about upcoming price adjustments. Explaining the reasons behind the changes in a straightforward and customer-centric manner will foster transparency and understanding. Utilise various channels, such as emails, social media, and website announcements, to reach a broad audience and ensure the message is well-received.
2. Customer Feedback and Involvement
Involve customers in the pricing process by seeking their feedback and opinions. Conduct surveys or focus groups to gauge their preferences and concerns about price increases. By actively involving customers, companies demonstrate their commitment to making pricing decisions that align with customer needs and expectations.
3. Value Proposition
Emphasise the value customers will receive despite the price increase. The company should communicate the unique value proposition of its product or service. This includes highlighting any distinctive features, benefits, or advantages it offers compared to alternatives in the market. Clearly articulate how these changes will positively impact the customer experience, reinforcing the idea that the price adjustment is justified. Customers are more likely to pay a premium price if they understand the additional value they are receiving.
A multinational company should conduct thorough market research and analysis to determine the pricing strategy. Customers should be made aware of how the company arrived at the price point based on factors like customer preferences, competitor prices, and overall market demand. This information shows that the pricing decision is not arbitrary but rooted in a comprehensive understanding of the market.
Moreover, the business should be transparent about any long-term benefits or ongoing support services that accompany the purchase. This could include warranties, after-sales support, maintenance, or access to updates and improvements. Customers may be willing to pay more upfront if they see added value in the form of extended benefits and continued assistance.
By being open and forthright about these factors, a multinational company can effectively communicate the rationale behind its pricing decisions and demonstrate a commitment to delivering genuine value to its customers. Transparent communication builds trust, fosters brand loyalty, and enhances the overall customer experience.
4. Gradual and Incremental Adjustments
When implementing price increases, consider adopting a gradual and incremental approach rather than sudden and significant jumps. Gradual changes give customers time to adjust and perceive the adjustments as fairer, as opposed to abrupt shifts that might be met with resistance. Transparently communicate the schedule for future increases if applicable, promoting a sense of predictability.
5. Price Comparison and Benchmarking
Implications Of Transparent Pricing Strategy To Microsoft And Other Global Multinational Companies
Genuine pricing transparency not only benefits customers but also enhances a multinational corporation’s internal operations. Clear and transparent pricing practices facilitate better decision-making within the organisation, allowing for more accurate revenue forecasting and cost management.
By understanding the impact of pricing adjustments on sales and profitability, companies can fine-tune their strategies and allocate resources effectively. Embracing pricing transparency as a guiding principle empowers multinational corporations to navigate the complexities of the global market confidently and ethically, driving growth and prosperity in the long run.
A multinational corporation needs a well-coordinated pricing team or multiple teams collaborating effectively to develop an optimal pricing strategy that can be successfully implemented across all regions. Our findings show that with the right set-up and pricing team in place, incremental earnings gains can begin to occur in less than 12 weeks. After 6 months, the team can capture at least 1.0-3.25% more margin using better price management processes. After 9-12 months, businesses often generate between 7-11% additional margin each year as they identify more complex and previously unrealised opportunities, efficiencies, and risks.
The presence of a high-performing pricing team indicates that the organisation must also enhance its pricing and commercial capabilities for optimal performance. Our findings show that when a business builds and embeds commercial capability across the business; bolstering its internal pricing skills and capabilities to build a sustainable pricing system, it can generate at least 3-10% additional margin each year while protecting hard-earned revenue and volume. This is at least a 30-60% profit improvement straight to the bottom line.
Pricing transparency can contribute significantly to a multinational company’s success by fostering trust, loyalty, and positive customer relations, while also providing a competitive advantage and complying with regulatory requirements. Embracing transparency as a guiding principle can lead to a stronger market position and increased profitability.
If businesses genuinely aim to harness the advantages of transparent pricing, they must prioritise honesty and openness in their pricing practices. Businesses should provide clear and detailed information about pricing components, communicate openly with customers about any changes or adjustments, maintain consistency in pricing across channels and regions, offer pricing comparisons with competitors or industry standards, and avoid deceptive practices. Being open and honest with pricing fosters trust, enhances customer satisfaction, and reinforces the company’s commitment to providing value and a fair customer experience.
For a comprehensive view of integrating a high-performing capability team in your company, Download a complimentary whitepaper on A Capability Framework for Pricing Teams.
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