Legacy Pricing Model in B2B eCommerce Platform
Maintaining legacy pricing and grandfathering legacy customers to new pricing in B2B ecommerce
Let me start by paraphrasing Andy Warhol, who, munching on a McDonalds burger, once said that being good in business was art, and good business was the best art. Everyone knows that a business success is determined and driven by customer satisfaction: if your customers don’t like what you are doing – they stop buying from you; it is that simple.
Our research suggests that about 15% of your business customers account for more than 50% of your total sales. If you have been in business for a while, you have probably gone through a couple of iterations of changing terms, conditions, and pricing plans. The chances are that some of that 15% of your customers have become accustomed to the product and pricing plans they have been using for a while and are unwilling to switch to new terms. In this case, the customers accustomed to the old plans are referred to as legacy customers.
Consider a scenario where you buy out a business with its own consumer base, which has already become comfortable with the previous owner’s pricing policies and products list. Here, legacy customers are those you end up with when you buy out that business.
Regardless of the circumstances, the legacy consumer base is the one that has existed for some time – either those who return to your site regularly and are subscribed to the old plans or those you buy out with the business.
If you want to retain the customers you get by acquiring someone else’s business or those who have been with you since Adam ate an apple, it is high time to research what to do about your new pricing plans and how to adjust them to account for those legacy customers.
In this piece, we’ll define legacy pricing and look at the conditions of switching your legacy customers to new pricing plans without putting them off or losing them altogether.
What is legacy pricing?
Suppose you want to introduce a new pricing plan starting March 1, 2021. The changes to the pricing plan are, in fact, so significant that you are bound to think twice if you want to transfer your loyal customers, who have become accustomed to the old prices, to a new pricing plan immediately after March 1. The old prices your loyal customers pay are what is referred to as “legacy pricing.” In other words, legacy pricing plans are available to all customers who signed up for your business before the new pricing plans are implemented; in our case, it is March1.
Maintaining legacy pricing in B2B ecommerce
It is time-consuming and upsetting to keep several pricing plans for your customers, especially if your legacy customers end up paying way less than your newly acquired ones. However, your customers are the lifeblood of your business, and retaining those who have been paying for years might be more important than having a new customer who fails to pay in a month.
One of the best approaches to maintain your legacy pricing plans is setting up the boundaries for keeping them active. For example, make it impossible to return to a legacy plan after switching to a new plan or canceling the subscription service. If your customer has been making bulk orders for as long as you know them at $1 per item, it would be unfair to charge them anything more than a dollar if your customer continues to order the same amount of items. However, since you are now pricing your items at $3, you may inform the customer about the changing pricing conditions and stipulate that if they order less than the usual amount, you will have to charge them more than the price they are used to – it might be less than $3 but certainly more than $1.
To illustrate how frustrating legacy policies might be, consider an example. In 1992, McDonalds signed a long-term lease with the Moscow’s City Government for at least three properties at a symbolic annual rent of one ruble. The decision back in 1992 was heavily political; still, the Russian government patiently stuck to the deal despite the rising rental prices and the down-spiraling of the ruble since then. At least until 2009, when the City Hall apparently had enough. It must have been painful for the greedy Russian bureaucrats to watch McDonalds make millions while paying a worthless couple of rubles.
Suppose you can no longer keep up with the old prices and decide to transfer your legacy customers to new pricing plans (the transferring process most commonly referred to as “grandfathering”), you might wonder if there is any way to achieve the transition as seamlessly and guilt-free as possible while still maintaining your goodwill and keeping your customers happy. Let’s break the “grandfathering” process down below.
Grandfathering: 4-step strategy to transfer your legacy customers to a new pricing
First of all, it's okay to change prices. Nobody expects to pay the same price for ten years. What is not okay, though, is to change prices often (unless we’re talking about dynamic pricing, which fits into another pricing paradigm altogether) – prices create expectations that need to be managed.
Second of all, you have to understand that it is impossible to move your customers to new pricing overnight, so it is best to start with a pilot project and randomly select a bunch of customers whom you will “grandfather.”
Thirdly, you have the responsibility to communicate your decision to your customers and listen to their objections or concerns. Send out an email or call and genuinely explain the reasons for switching to new prices. It’s OK to be verbose, if you need to, as long as you walk your customers through the reasons and acknowledge and listen to their objections. It’s worth trying to find common ground with your most important legacy clients and get back on the price a little to satisfy their demands. It’s okay to discount if some of your long-term customers are explicit that they can’t afford the new prices or ask to delay the new pricing policies for a few months because of the economic downturn, pandemic, etc.
Ideally, you’ll want to let your legacy customers pay the old prices as long as they wish. Suppose that is not possible or no longer financially reasonable. In that case, you may transfer them to new pricing while suggesting additional benefits in return, such as better customer service, longer support hours, free delivery, discount on favorite items, and so forth.
Lastly, consider increasing the pricing gradually. For example, if your legacy customers are accustomed to paying $1 as opposed to new clients who pay $3 for the same item, set the new price for your legacy customers at $2 and explain why you had to. It is best not to apologize because there is nothing to apologize for, it is business, yet it’s always nice to be considerate and account for other people’s circumstances.
Now, there’s a chance your legacy customers will reject a price spike. In such a case, you may renegotiate the scope of services you deliver, reduce the amount of time you spend with the customer, drop a few offers they can do without.
It all comes down to keeping the balance between what you and your customers can afford and keep up with.
Enjoyed this article? Check out our “Making sense of dynamic pricing in B2B ecommerce” article to get a deeper understanding of the B2B pricing world.