Wholesale Pricing Model
In wholesale, since the buying/selling product quantity will often be large, setting different tiers for price and discounts will help stimulate B2B customers to buy more, which often results in higher sales for your business. This pricing model is best suited for the case of excess stock and category control, especially when you already have an edge of pricing advantage compared to competitors.
B2B Dynamic Pricing Model
Dynamic pricing is a model that does not follow a fixed price but dynamically changes the price to suit the actual situation and the factors affecting it. To name a few, inconsistent cost, different timing, or multiple customer segments could be the standard for the change of dynamic pricing.
Dynamic pricing also isn’t a new pricing model but has been applied a lot in areas such as aviation, transportation, tourism, or even chemicals. These are all areas that require price flexibility to minimize costs/increase profits for each service execution.
Applying dynamic pricing for B2B, prices will need to change flexibly based on your subjective and objective assessment of a different B2B audience or group of customers.
You will undoubtedly need data and temporary insights to be able to divide them into groups of customers with certain similarities and consistency.
B2B Lead Generation Pricing Model
Typically, only service-related businesses use lead generation pricing models for B2B customers since it depends on the marketing costs for the service.
To put on a suitable price, you would use marketing parameters:
- PPL (pay-per-lead)
- PPC (pay-per-click)
- PPCALL (pay-per-call)
Combining them all with other production costs, you should determine the correct price to satisfy the upcoming demand.
The 3 Suggested B2B Pricing Research Approaches
Before choosing B2B pricing strategies, you must conduct pricing research to learn more about your product/service. And there are many ways to learn and determine how to price a product, which is divided into:
- Direct research technique: Evaluate and determine the price through knowledge and understanding of the value of the product/service.
- Indirect research technique: Review and compare prices with other attributes of the product/service as well as the whole package.
In this section, I will introduce to you the top 3 approaches to study your product price for suitable B2B pricing strategies.
The Academic Approach
A pleasing way to consider and choose the right price strategy is to answer Van Westendorp’s set of four price questions (also known as Van Westendorp’s price sensitivity meter).
- At what price would your customers think of your product as a bargain – a great buy?
- At what price would your customers think your product is getting expensive yet still consider buying it?
- At what price would you begin to think your product is too expensive for a buying decision?
- At what price would you begin to think your product is so inexpensive to question its quality?
Answering all the questions and putting them on the chart would give you an idea of what your acceptable range for the product is.
The Pragmatic Approach
To make pricing research more accessible and more relevant for B2B customers, you can use other practical, pragmatic approaches.
Use these set of questions below as a reference for planning the acceptable pricing range of your product/service:
- At what price range is your product/service worth to your customers?
- What problem does your product/service solve?
- How costly is that problem? (with or without your product/service)
- At what price range can your customer afford to pay for your product/service?
- How much does it cost to produce/deliver your product/service?
- What do your customers perceive as the value you’re offering?
If your #5 answer is higher than your #1 and #3 answer, then your cost is certainly higher than your profit, which means big trouble.
These six questions would be a good starting point for you to choose an appropriate pricing strategy from the three that I have listed above.
The Conjoint Analysis
Conjoint analysis, also known as discrete choice analysis, is a form of determining the best pricing strategy for B2B customers.
This approach allows you to test different prices under different circumstances to figure out what is the most profitable and most profitable range of prices.
Participants are shown 3 to 4 matching products/services at the same time. Each product/service will list different attributes, such as size, colour, features, durability, etc.
The participant must choose only 1 product/service in it, and they mustn’t give you the reason for their choice. They would have to repeat this test multiple times, and each time the product attributes would be scrambled, and they had to reselect the product.
The result will give enough data to analyse which properties are preferred and what their essential values are.
From this information, you can quickly determine which price range is preferred and what pricing strategy is most fitted to your business.
General B2B Pricing Models
When picking a pricing model, you need to consider a few different questions.
1. Single or Multiple Price Points
A single price point is easy for customers to understand but leads to lower revenue. The price might be set too high for price-sensitive customers. Or it might be too low for customers who are willing to pay more for a premium service.
Offering multiple price points can often be the best approach, especially if a company has complex solutions. But too many price points can be a problem. Psychologists such as Barry Schwartz have demonstrated that when buyers are faced with too much choice, they may be paralyzed into inaction. The purchase may be deferred to a later date if it happens at all.
Most companies try to find a balance by either:
- Offering a small number of pricing tiers
- Using a pricing model that’s linked to product usage or the number of users
This approach means that each buyer only sees a small number of pricing options, but because each buyer’s usage levels vary, there are many different possible pricing options in the market.
2. Choosing a Value Metric
There are several different value metrics to consider:
- Users: Customers pay more as the number of individuals who can access the product increases
- Active users: Customers pay more as the number of people using the product increases
- Feature usage: Customers pay more as the number of features they use increases, regardless of the number of users
- Activity: Customers pay for each activity conducted. For example, email marketing platform users could pay per email sent
When choosing a value metric, you should consider the benefits that customers are receiving from the product.
Popular B2B Pricing Models
Flat-rate Pricing
Flat-rate pricing means offering one product, with the same set of features, for one price. This model is easy to sell and communicate.
Tiered Pricing
Most companies with tiered pricing models offer 3-6 tiers or packages. The most common tiered pricing model is linear. Needs-based tiers can be very powerful as they can be tailored to specific customer personas.
Usage-based Pricing (Pay As You Go)
The more you use a service, the more you pay. Amazon’s Simple Email Service charges per email sent or received.
Per-user Pricing
Most popular for SaaS companies. Pricing is based on the number of users or active users, which encourages company-wide adoption.
B2B Pricing Approaches
Cost-plus Pricing
Calculate how much a product costs and add a fixed profit margin.
Marginal Cost Pricing
Focus on variable costs, ignoring sunk or fixed costs.
Value Pricing
Focuses on perceived value to charge a premium price.
Product-line Enhancement
Set prices relative to existing products to maintain market balance.
Dynamic or Tailored Pricing
Prices vary based on customer size, location, or demand.
Market Penetration
Set low prices to maximize market share.
Market Skimming
Set high introductory prices and gradually reduce them to capture more market segments.
