If any business hopes to survive in today’s competitive environment, they must learn how to set prices. Companies that over-value their products and services and set prices too high will not sell products; their customers won’t think their offering is worth the asking price. On the other hand, companies that charge too little may undercut their own value, and still fail to make a profit. There’s enough space between both extremes to develop a significant margin of error for even the savviest of business owners. With this in mind how can you use your B2B pricing strategy to maximize your sales?
Often, B2B companies face a great deal of challenges regarding pricing strategies, as their businesses are complex. Research has suggested that up to 20% of most B2B companies overprice their transactions, and a massive 50% of B2B companies underprice. Unless you’re part of the lucky 30% that have found a smart pricing strategy, you should take a closer look at your pricing and try to avoid the most common mistakes made when developing a pricing strategy as a B2B business.
Mistake 1: Failing To Identify the Value Metric
Knowing how to identify your value metric, and adjust your pricing strategy accordingly can help to move your business out of the realm of “surviving” and onto the track for success. Simplistically put, a value metric is what you’re charging for and how you’re charging. In the B2B world, determining the most effective value metrics can help to ensure that your customers are buying your services because they think the pricing of the service is equal to the value they are receiving from it. In order to use a value metric properly, it’s important for businesses to adjust their pricing strategy to reflect the things that their customers feel are beneficial and important in your services. In other words, your value metric should align with your customer’s needs and outcomes.
Mistake 2: Using One-Size-Fits-All Pricing
By using a “One-size-fits-all” pricing strategy, companies risk sending customers who are willing to pay more for better services to competitors, while scaring away customers who want fewer services for a lower price. Some businesses have avoided this trap—which can make them less appealing to sub-segments of their target market—by using adaptive pricing. With adaptive pricing, companies have the opportunity to reach out to different sub-segments of customers that define value differently. In our work, we describe this as customers having different value drivers. Here is a sample list of value drivers that lay the foundation for adaptive pricing:
- Workflow Productivity
- Brand Experience
- Enterprise Integration
- Technical Capabilities
The driving force behind this concept is the idea that price, just like size, color, or material, is just another of a product’s attributes. Just as a company may make a product with high-end materials, or in a smaller size to appeal to different types of clients, pricing can change when products and services sell to customers with different business models or sell through different channels. With adaptive pricing, companies can alter the attributes of product to appeal to their clients’ sense of value – without reducing profits.
Mistake 3: Offering Too Many Options
Most of the time, B2B pricing strategies work better when they are simple and easy to understand. A company should display their pricing strategy in a way that is transparent, clear, and easy for clients to match to their own perception of value for the product or service. Some businesses, when employing concepts like adaptive pricing, take the model too far, and offer excessive options. Unfortunately, too many choices can lead to decision fatigue, and stop possible customers in their tracks. In these circumstances, clients end up walking away because it’s too difficult for them to figure out the best next step.
Mistake 4: Resorting to Discounts
When stuck in a particularly competitive industry and failing to make the right number of sales, many B2B companies turn to discounts as a way of attracting and maintaining customers. Unfortunately, discounting products without careful consideration is a risky business, which may devalue your brand, and set a poor precedent for your customers. Offering discounts can lead customers to expect lower prices from you in the future. If people get used to paying a certain price for a particular product when discounted, it’s much harder to restore value to that item back to its original price when demand picks up again.
Pricing Is Important
The best way to reduce your risk of falling into these B2B pricing traps is to ensure that you treat your pricing strategy with due respect. The prices you choose for your products or services are a core part of your business, and they may be something that you need to re-evaluate and test – particularly if you decide to utilize tie-ins and packages in offering extra value to your customers.