How to Optimize B2B Pricing
In the research and interviews I’ve done over the years, I’ve invariably asked the question “what’s your pricing strategy?” The answers are not pretty. You’d think that with all the focus on value-based pricing, companies would by now, have benefitted. It’s not the case.
Many defend their pricing actions by saying that they are under competitive pressure and that they just have to nail the contract. As consumers, you know the deal; you see the product, scan the code, shop the stores (online and off), and make the purchase most appropriate for you. Unless it’s a luxury brand or something equivalent, you won’t pay a penny more than you have to.
In the B2B world, the customer is often personified, as in “the customer asked for….” In reality, your customer is not, and should not be the personification of the “customer company.” The notion of the customer is much more. This is because there are more “customers” in any customer company. These are people who play roles as users, influencers, and decision makers. I exclude buyers (as in procurement people) because value for them is impossible to convey.
Most product and marketing people today seem to pay more attention to users. They want to appeal to users so that they have the best experience, regardless if they’re the “customer” who’s the primary beneficiary of the value for the product. For example, others who may embrace a benefit, such as the CFO (the person writing the check) want the best return on the investment, or, the COO will more easily grab onto an operational efficiency over a user experience.
When I talk about the customer value proposition, I believe that we need to understand precisely who the customers are in the customer company and the roles they play. When we know these people and the things they’re trying to do in getting their jobs done, we have a better chance of discovering the best value proposition that will appeal to them. When we have this information (as in, they can get their jobs done faster and more efficiently – or, they can help their companies improve the bottom line results, we have a running start!
There is a technique I’d like to share with you to shape how you might improve your chances of creating a robust value-based price, targeted at the right customer. It’s pretty simple and is portrayed in the table below. The main idea is to try to find a path to the premium price, and then figure out how to translate this information so you can best direct your marketing efforts and where to point your salespeople.
Notice that you can enter information about a given products’ features or attributes in the left column. Then, you can add a score to each cell under each customer column. Scores are 1-10 where 1 represents the score that has the least benefit for that customer, and 10 represents the greatest value. For example, if a feature has great value to a user, put a 10 in the cell. If it’s of no value to the customer, it gets a 1. Then, you add up all the scores and compare them. The higher the score, the greater the opportunity you can price at a premium. The lower the score, the more that customer is going to be looking for big discounts. That’s the simplicity of doing this.
The benefit for you and your company is that you’ll be able to validate your segmentation model, prioritize the features most suitable to the customer you want to pursue, and gain the best possible market position because you can deliver a more compelling customer value proposition over your competitors.
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