Pricing Strategies in B2B Marketing
There is no magic bullet in pricing. However, we can all agree that maximizing our value to customers is a very good thing for both the top line and bottom line. I happened to attend a very good presentation on this subject at the Inverness Group meeting in Denver. The speaker was Jonathan Bein, Managing Partner at Z2M4, Inc. Johnathan is a noted authority on pricing strategies. Following are a collection of thoughts on pricing, both courtesy of Jonathan and my experiences at pricing both products and services.
Hopefully, you will find a nugget or two in these ideas that can help you in your quest to maximize the revenue your company receives for whatever it is that you do:
1. Treat pricing seriously because, on average, every one percent you increase your prices, leads to a 10% increase in profits.
2. Here’s a rough rule on pricing: you can get $1.00 in revenue for every $5.00 of benefits you deliver to the customer.
3. Business buyers tend to buy for “rational” reasons while consumers tend to buy for “emotional” reasons. Of course there are exceptions to this generalized rule.
4. Business buyers are demanding hard facts to justify an expenditure, most notably a strong return on investment (ROI). It is best if you can show that the price you are asking is a “no brainer” even when using conservative assumptions about ROI.
5. In a competitive market, sellers are price-takers, not price-setters. Sellers of “commodity” products or services tend to be price-takers.
6. The best way to be a price-setter, not a price-taker, is to differentiate your products and/or services in ways that are appreciated and valued (monetarily) by the prospect. This starts with a clear and compelling branding strategy. See my post at Develop a Brand Strategy for more information on how to do this. I also have a new white paper on branding and positioning. If you would like a copy, send me a note at [email protected].
Bill Petro
Chris,
Great post!
I’d tweak #3 a bit: everyone buys for both reasons. People tend to make their decision emotionally, but have to justify it rationally.
This speaks to the value of financial justification. In business, the price tag is bigger, and the justification may need to be made to the CFO.
For consumers, there’s the $300 rule. Anything above that amount has to be justified to the spouse.
fusionm1
Bill, your points are well taken. I agree that even in a business-bo-business sale there is an emotional component, but probably less so when someone is spending company money instead of their own. But the really important thing is to determine how your own buyers purchase – and what it is that they value enough to pay you a decent price for.