Exploring the Pros & Cons of. Which Ones Actually Work...And Which Ones Gut Your Margins and Destroy Your Future?

Transcription

1 Exploring the Pros & Cons of Which Ones Actually Work...And Which Ones Gut Your Margins and Destroy Your Future?

2 Pricing Strategy Can Be Confusing and Frustrating... It s important for balancing competitiveness and relevance with financial performance. There s a lot of information out in the space---university courses, books, blogs, etc. Unfortunately, far too much of it is outdated, inaccurate, or outright dangerous in B2B.

3 Five Ways the Conventional Wisdom Is Problematic Pricing strategy is often discussed as though it is a discrete or standalone decision. 2. In examples and cases, pricing strategies are often inaccurately classified after-the-fact. 3. Pricing strategies from another time are still being taught in certain areas of business. 4. Pricing strategies are often presented as an IF/THEN situational proposition. 5. Discussions of pricing strategy often fail to acknowledge the massive changes in B2B.

4 Cost-Plus Pricing It s intuitive...and to most people, it seems to make sense. Most companies have a pretty good handle on their costs. It s extremely simple to apply, execute, and even automate. It s entirely internal and doesn t reflect the actual marketplace. It usually ignores the volume component of profit production. It can t help but result in over pricing, under pricing, or both!

5 Penetration Pricing It s intuitive and has an air of sophistication and credibility. Salespeople tend to love it as it minimizes price objections. Product people like that it doesn t require much market insight. True price buyers only comprise a portion of most B2B markets. It leaves money on the table at a critical point in the lifecycle. The entire lifecycle can suffer from what happens early on.

6 Attach-Rate Pricing For broad-line sellers, this can provide a good customer entry-point. It can help create an overall perception of competitiveness. It can indeed lead to more profitable items being attached. The whole thing falls apart if buyers end-up cherry picking. These decisions have to be based on solid analysis of sales data. Internal perceptions can sometimes be a challenge to manage.

7 Customer Lifecycle Pricing It can make it easier for sales to acquire new customers. It allows customers to sample your company with lower risks. Customers can indeed be moved up once they become habituated. It requires extremely rigorous and diligent management. The organization must have the fortitude to enforce the increases. If customers discover what you re doing, you can lose trust forever.

8 Skim or Premium Pricing For new products, it can help recoup your development costs. It can provide you with a lot more flexibility to change over time. Even in B2B markets, price levels do indeed influence perceptions. Your pitch needs to be extremely compelling. Your true addressable market is very limited. You re susceptible to economic fluctuations. Procurement will keep eroding the high-end.

9 Competition-Based Pricing Here again, it s fairly intuitive and it seems to make sense. It s relatively easy to execute without much market knowledge. In theory, it mitigates pricing objections and forces other criteria. Knowing which of the competitors to match. You have to be able to see their real prices. You re assuming the competition has a clue. You re giving up any potential value-add.

10 High-Low Pricing Your upfront prices can fuel a perception of higher quality. Discounting provides more flexibility with less transparency. Massive discounts can be appealing to some purchasing people. Your upfront prices can keep you off the short-list entirely. The mixed messages can negatively impact customer perceptions. Creating a discountoriented culture can be very damaging.

11 Market-Based Pricing It s more aligned to the realities and dynamics of the marketplace. It takes full advantage of segment-level price sensitivity differences. It enables maximum profits and revenues, at the same time. It requires an granular segmentation based on willingness-to-pay. It doesn t influence customer perceptions, but works with them. Sales needs to be able and equipped to offer differentiated prices.

12 Value-Based Pricing It s more aligned to what customers are buying and why. You can get paid for your innovations and differentiations. It can help reduce competitive pressures and create preference. It requires a deeper understanding of your customers business. You have to credibly articulate and prove the differential value. Value segmentations are too coarse relative to the actual market.

13 Overall Perspectives... Cost-Plus, Penetration, and High-Low are dangerous in B2B and should be avoided. Attach-rate pricing can be effective under certain circumstances. Customer lifecycle pricing is a nice idea, but difficult to pull off. Skimming is extremely limiting without flanking offerings. Neutral pricing is a total cop out. The combination of value-based and market-based pricing is hard to beat.

14 A Powerful Combination MARKET-BASED PRICING VALUE-BASED PRICING DEV INTRO GROWTH MATURITY DECLINE EOL

15 The Pricing Practitioner s Primer on What B2B Pricing People Need to Understand About Salespeople and Sales Processes