Companies rarely implement customer-initiated changes that improve margins. However, best-in-class companies show that margin increases of more than ten percentage points are possible with professional change management.
This article provides an overview of typical challenges linked to managing changes and shares our strategies and recommendations on how companies can maximize their profitability during the product lifecycle.
What is product change management?
Product change management refers to planning, implementing, and controlling changes to a product throughout its lifecycle. This process ensures effective management of modifications, updates, or enhancements to minimize disruptions and maximize benefits.
Product change management involves coordination among different departments or teams to ensure changes are implemented smoothly and meet desired objectives. It's essential for maintaining product quality, meeting customer requirements, staying competitive, managing risks, and ensuring compliance with regulations.
Challenges with product change management
Products often undergo over 1,000 changes during their lifecycle, ranging from technical modifications to fluctuations in material and energy expenses. These changes can present considerable additional costs for companies, which should be appropriately remunerated. However, this is often not the case.
Common issues include the sales team not being updated on significant product modifications and the technical department communicating cost changes to customers in advance, hindering effective value argumentation. Many businesses lack the time or understanding to proactively handle product modifications to enhance profit margins.
Which companies excel in product change management?
Best-in-class companies in pricing and profitability often exhibit the following characteristics:
- Customer-centricity: Prioritizing customer needs and feedback to adjust prices and maintain satisfaction.
- Agility and responsiveness: Quickly adjusting prices in response to customer requests with streamlined processes and decision-making frameworks.
- Data-driven decision making: Using customer data, market insights, and pricing analytics to make informed pricing decisions.
- Collaborative cross-functional teams: Close collaboration across departments to evaluate pricing implications and develop strategies.
- Transparent communication: Effectively communicating pricing changes and value propositions to foster trust and understanding.
- Continuous improvement mindset: Regularly enhancing pricing strategies and processes based on feedback and performance analysis.
How to improve product change management
Simon-Kucher has supported numerous companies in achieving considerable margin increases through professional change management. We review and optimize change management in six areas:
- Increase awareness: Ensure all employees, both in sales and technical positions, are aware of opportunities to use product changes to increase profitability.
- Optimize processes: Define clear roles, tasks, and responsibilities for all functional areas to manage changes systematically.
- Create infrastructure: provide the necessary data quality and tools to identify, assess, and monitor changes.
- Strengthen contract management: Start change management with project acquisition, defining what's included in quotes, including standards and limits.
- Improve pricing: Develop a transparent, market-oriented system to help the sales force capture the customer’s willingness to pay.
- Strengthen negotiation conduct: Prepare thoroughly for negotiations, improve communication strategies, and set realistic targets to systematically introduce price increases.
What does effective change management look like?
Let's imagine a scenario where TechPro Solutions follows these six change management steps:
Upon receiving a customer's request for changes, the company initiates an assessment process, evaluating the nature and scope of the changes, including their impact on product functionality, development resources, and timelines.
They conduct a comprehensive cost analysis to determine the financial implications, assessing additional resources, materials, labor, and potential overhead costs.
Based on the cost analysis and the customer's perceived value, an appropriate price is determined, considering market rates, competitive pricing, and the customer's willingness to pay.
A margin assessment is then conducted to ensure the proposed pricing aligns with profitability targets, making adjustments as needed.
In negotiation with the customer, the terms and pricing are finalized using pricing strategies and negotiation tactics to reach a mutually beneficial agreement.
Once an agreement is reached, the contract is updated with the agreed-upon changes and pricing terms, ensuring accurate documentation and clarity on responsibilities.
The changes are implemented according to the agreed timeline and specifications, with progress and costs closely monitored to ensure efficient execution within budget.
After implementation, a post-change evaluation is conducted to assess the impact on profitability, analyze costs, revenues, and margins, and identify areas for future improvement or optimization.
How Simon-Kucher can help
Many product change management initiatives fail due to disjointed pricing strategies. Our experience shows that optimizing change management in these six areas can lead to a margin increase of over 5% during the product lifecycle.
At Simon-Kucher, we revolutionize your approach to product change management with a focus on pricing and profitability. We work with your cross-functional teams to drive collaboration and unlock new opportunities.
Let's transform your product change management into profitable and sustained growth. Reach out to Simon-Kucher today.
