CRUCIAL B2B PRICING. The Critical Differences and Core Concepts You Need to Understand About Pricing in B2B

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1 CRUCIAL B2B PRICING The Critical Differences and Core Concepts You Need to Understand About Pricing in B2B

2 No Matter What Others Say, Pricing Is Not All the Same Much of the pricing literature is about business-to-consumer (B2C) pricing in retail settings. Pundits and practitioners will often rationalize the use of B2C concepts in B2B environments. When practitioners do it, it s wrong...but when pundits push it, that s closer to malpractice.

3 The Pricing Dynamics In B2B Are Different and Unique B2B and B2C pricing do have many concepts in common---perceived value, segmentation, elasticity, etc. But the dynamics are so different in B2B that the concepts cannot be applied in the same way. Today, we ll discuss many of the differences, expose the dangers, and highlight the core concepts.

4 12 Ways B2B Pricing Differs... Negotiation is common and somewhat expected. Salespeople are heavily involved in the process. The decision is rarely made by one person. The money being spent is someone else s. Buying decisions are more rational by design. Business buyers tend to have much greater LTVs. Very little visibility into competitors actions. Price/volume elasticity manifests differently. Business customers are not as replaceable. Defection tends to take place slowly, over time. You know more about prospects and buyers. Direct comparisons are often more difficult.

5 Some Common B2C Strategies Can Be Dangerous In B2B Loss-Leader Pricing---B2B buyers are notorious cherry-pickers. Penetration Pricing---Leaves money on the table with most buyers. Competitive Matching---Assumes offerings are directly comparable. Brand -Driven Preference---Too focused on fuzzy intangibles.

6 Fundamental B2B Pricing Concept: Strategic Vs. Tactical Pricing TACTICAL PRICING: Managing day-to-day price-execution activities like updating price lists, assembling quotes, and correcting sales reps. STRATEGIC PRICING: Proactively creating the conditions under which better and more profitable pricing outcomes are the natural result.

7 Fundamental B2B Pricing Concept: Differential Value Perception DIFFERENTIAL VALUE REALITY It s all about the value differences...that buyers actually recognize. DIFFERENTIAL VALUE PERCEPTION YOUR VALUE THEIR VALUE YOUR VALUE THEIR VALUE

8 Fundamental B2B Pricing Concept: Genuine Price Segmentation CUSTOMER ORDER PRODUCT PRICE When, where, and why are different groups of customers willing to pay different prices?

9 Different Customers in the Marketplace Have Different Walkaway Thresholds COST: $120 $160 $180 $200 $220 $240

10 A Single Low Price Wins All, but Leaves Big Money on the Table PRICE: $160 COST: $120 $160 $180 $200 $220 $240 WIN WIN WIN WIN WIN

11 PRICE: $240 A Single High Price Generates High Margin Rates, but Loses Profitable Sales COST: $120 $160 $180 $200 $220 $240 LOSE LOSE LOSE LOSE WIN

12 A Single Average Price Loses Profitable Sales AND Leaves Money on the Table PRICE: $200 COST: $120 $160 $180 $200 $220 $240 LOSE LOSE WIN WIN WIN

13 Price Segmentation Allows Us to Maximize Sales and Profits at the Same Time $200 $220 $240 $180 $160 COST: $120 $160 $180 $200 $220 $240 WIN WIN WIN WIN WIN

14 Fundamental B2B Pricing Concept: Price Sensitivity / Elasticity SEGMENT A SEGMENT B SEGMENT C Which segments could absorb more price? In which segments might you tread more lightly?

15 Fundamental B2B Pricing Concept: Lifetime Value of Customers It s often tempting to view pricing performance from a transactional perspective. But given the nature of B2B markets and buyers, a purely transactional view is risky. Measuring the relative LTVs of customers and including it in your segmentations can help mitigate those risks. TODAY S ORDER FUTURE ORDERS

16 Fundamental B2B Pricing Concept: Internal Dynamics / Influence In B2B, pricing is a team sport usually involving lots of other people and departments. Internal negotiations and second-guessing can erode margins before buyers even have a chance to weigh in! Effective B2B pricers need to be masters of organizational influence and collaboration. EXECUTIVES SALES TEAM MARKETING

17 Wrap-Up & Final Thoughts... Recognize that the pricing dynamics in B2B settings are different and unique. Don t be too quick to emulate business-to-consumer pricing strategies and approaches. Learn all you can about strategic pricing, differential value, price segmentation, price elasticity and customer lifetime value. And master the principles of influence to navigate the corporate gauntlet.

18 Questions & Answers (Questions definitely. Answers hopefully.)