One of the challenges in a B2B environment is that, when re-launching or bringing a new product to market, it can be difficult to determine the right price. While in B2C pricing can be very transparent, in B2B pricing by other suppliers can lack transparency, which makes it difficult to use competitors' pricing as an anchor without competitive intelligence.
Similarly, in a B2C context there is often a wealth of information about consumer behavior that can be modeled to understand the price elasticity of demand, however, for many of our B2B clients this type of information does not exist and a decision must be made according to past experience, trial, or best guesses.
My colleague, Meredith Low, discusses in her blog some of the ways that price can be anchored in a B2B context, and we use many of these tactics to help our clients when undertaking a strategic pricing assessment. Usually the key areas we evaluate for clients are:
- Product benefits (e.g., cost savings or avoidance).
- Pricing of both direct and indirect competitors through competitive intelligence.
- What the initial investment in the purchase should be.
- Approach to pricing for service and upgrades if applicable.
- Approach to ongoing relationship with the customer (e.g., service package for home appliances and included benefits).
- The company’s internal financial realities (e.g., costs, expected volumes, acquisition costs, etc.) to determine if it can sustain the recommended pricing model or pricing range either set by competitors or desired by customers.
In our research, we usually analyze the overall market, including the competitive environment, and look at pricing ranges and models, then combine that with primary research on customers and non-customers to see if the market is meeting their expectations. These interviews are particularly important because they are with senior decision makers who are able to help us understand the process and key criteria they use to make decisions. Additionally, insights gained during these interviews can help our clients understand where there are gaps in the market and what services or offers can be provided to fill them.
Through our work we have noted in some industries, customers want to ensure they aren’t paying for something they don’t need, but they also don’t want to pay for every aspect of the product or service on a piecemeal basis (for very sophisticated customers this may be different). A common solution is to create a tiered pricing structure, where customers can make choices but still pay for a bundled package of features or services. The key to an effective tiered structure is to thoroughly consider customers’ needs (which the primary research will help inform) and make sure that as the bundle/tiers change or become more expensive, the differences are perceived as adding value for the customer and not creating an expectation of a discount for buying multiple items.
In your experience, are there any other tools for B2B product and service pricing?
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