CRUCIAL B2B PRICING

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

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.

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.

• 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.

12 Ways B2B Pricing Differs...

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.

Fundamental B2B Pricing Concept:

Strategic Vs. Tactical Pricing STRATEGIC PRICING:

Proactively creating the conditions under which better and more profitable pricing outcomes are the

natural result.

TACTICAL PRICING:

Managing day-to-day price-execution activities like updating price lists, assembling quotes, and correcting sales reps.

Fundamental B2B Pricing Concept:

Differential Value Perception

YOUR VALUE

THEIR VALUE

DIFFERENTIAL VALUE

REALITY

YOUR VALUE

THEIR VALUE

DIFFERENTIAL VALUE PERCEPTION

It’s all about the value differences...that buyers

actually recognize.

Fundamental B2B Pricing Concept:

Genuine Price Segmentation

PRICE

CUSTOMER

ORDER PRODUCT

When, where, and why are different groups of customers willing to pay different prices?

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COST: $120

Different Customers in the Marketplace Have Different Walkaway Thresholds

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COST: $120

PRICE: $160

A Single Low Price Wins All, but Leaves Big Money on the Table

WIN WIN WIN WIN WIN

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PRICE: $240

COST: $120

A Single High Price Generates High Margin Rates, but Loses Profitable Sales

LOSE LOSE LOSE LOSE WIN

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PRICE: $200

A Single “Average” Price Loses Profitable Sales AND Leaves Money on the Table

COST: $120

LOSE LOSE WIN WIN WIN

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Price Segmentation Allows Us to Maximize Sales and Profits at the Same Time

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$180

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$220

$240

COST: $120

WIN WIN WIN WIN WIN

Fundamental B2B Pricing Concept:

Price Sensitivity / Elasticity SEGMENT A

.3

SEGMENT B

1.1

SEGMENT C

2.4 Which segments could “absorb” more price? In which segments might you tread more lightly?

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

EXECUTIVES MARKETING SALES TEAM

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.

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.

Questions & Answers (Questions definitely. Answers hopefully.)