Pricing Strategies in B2B Marketing

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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].  

Republished with author's permission from original post.

Christopher Ryan
Christopher Ryan is CEO of Fusion Marketing Partners, a B2B marketing consulting firm and interim/fractional CMO. He blogs at Great B2B Marketing and you can follow him at Google+. Chris has 25 years of marketing, technology, and senior management experience. As a marketing executive and services provider, Chris has created and executed numerous programs that build market awareness, drive lead generation and increase revenue.

2 COMMENTS

  1. Hi Chris: Great summary of these ideas. Whenever I read these points (for example, #3), I wonder about the source of the finding. My experience has been somewhat different. Well, a lot different. So much so, that I keep a quote over my desk, “People make decisions based on emotions and back them up with facts.”

    I don’t have any research to prove this, but it’s a reminder that making the best “business case” or “proving the ROI” (Gag!) isn’t necessarily going to lead to a sale. In the heat of a sales engagement, I’ve failed to recognize other nuances more times than I’d like to admit.

    I’m interested in your 1:5 ratio in #2. If benefits are subject to SWAG’s as they often are, could a vendor assign a price pre-installation? Or, would the practice of assessing fees on a percent of expense reduction or revenue improvement (as is common in the information technology services vertical) become the pricing norm?

    Two great books I read put science and extensive research behind the intracacies of decision making: How We Decide, by Jonah Lehrer, and Predictably Irrational, by Dan Ariely. I recommend both for anyone who makes pricing decisions.

  2. Andrew, I agree with your points. There are numerous factors that go into making a sale and the relationship between emotion and logic, as well as all the other intangibles, is tough to quantify. In a B2B sales process, we are often dealing with multiple influencers and decison makers, who each have their own set of buying criteria. While I am using some “back of the napkin” ratios for establishing the ratio of perceived value to the cost of ownership, this is by no means a hard and fast rule.

    Generally, in a complex-sale environment, it is best to figure out the buyers’ preferred process and adapt accordingly, instead of trying to shove your selling process down their throats. For example, one prospect may buy your technology because they believe becoming proficient at it will enhance their resume while another may be heavily focused on ROI. As marketers, our mission is to provide the content and pricing that appeals to several types of buyers.

    Your question about assigning a price after benefits are proven, instead of pre-sale, is a very good one. I don’t believe this type of “value-based” pricing will become the norm, but it does have appeal and we are encouraging two of our clients to consider it as part of their pricing strategy.

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