B2B pricing is all about connecting the revenue model to the customer’s business case and then charging accordingly. Yet most B2B companies still practice simple cost plus pricing, thereby leaving substantial profits on the table.
Pricing in an international business is often divided into three disconnected practices, leading to sub-optimization and lost revenues. Divisions typically set introductory prices but are often not responsible beyond that. Local salespeople are most often responsible for final negotiations. In between these two, the marketing department is typically responsible for the pocket price waterfall, which is a way of determining why the target price was not met and for the development of programs that will improve returns. These three groups typically do not work together on pricing. Companies have often done very little research to find out the customers’ willingness to pay. The result is that pricing – and therefore profit! – is far from optimized.
Are your salespeople focused on the short term deal or
long term profits?
Businesses have long focused on the price of the products and services that they are best known for. As markets mature, companies will often do almost anything for their customers without charging for it in order to sell more. The focus is often on getting the deal, not realizing that the approach may lead to a long term unprofitable business relationship.
Differentiate your offerings by differentiating your pricing.
Our research and experience shows that it is not possible to provide services for free in a mature market, since the costs to provide services is constantly increasing while prices typically erode. The future of B2B pricing is to exclude all but the main offer from the base price, while charging for most of the extra services. The prices for these extra services must be based on their financial value to the customer. It is critical to connect your pricing to your customer’s business case and to negotiate deals that will result in an on-going profitable relationship. Businesses need to move away from cost plus. They must differentiate their pricing to reflect different customer needs and, beyond that, move towards true value-based pricing where the price is directly correlated to the customers’ perceptions of value.
Pricing projects produce fast results.
Businesses require quick return on investments, therefore it is vital to realize short term gains in parallel to implementing a new and better pricing strategy. Owners and management will simply not accept any long term projects that will improve business results only in the far future. PriceGain's proven expertise has helped many different B2B companies improve profitability short term and to develop a sustainable long term profit.
These are a few of the industrial sectors where our experience has proven itself:
