In total, there are ten strategies, yet only these three pricing strategies are the most popular for B2B. Let’s discover why they’re used that much!
1. Cost-Plus-Pricing Strategy
The Cost-plus-pricing strategy is the simplest and easiest to implement of the three pricing in B2B marketing strategies introduced in the article.
Instead of having to analyse and conduct hours of surveys about the market or competitor, as a business owner, you can quickly come up with a price without wasting time or effort!
The mark-up percentage is calculated based on available market knowledge as well as the competitive ability of your business/product.
The target selling price at this time will ensure coverage of the general cost (development, production, shipping, marketing, etc.) and bring about an appropriate percentage of profit.
However, I strongly discourage you from using the cost-plus-pricing strategy for B2B clients because of its lack of initiative, isolation, and lack of customer engagement.
You should only choose this pricing strategy when:
- You don’t have enough time to do market, customer, or competitor research.
- You need to focus more on other aspects of your business, like shipping, marketing.
- Your product line does not have too much variation in price competition.
Besides, this B2B pricing strategy isn’t suitable for SaaS businesses due to the nature of the benefits of the product/service, which already outstrips the cost of creating the product.
2. Competitive Pricing Strategy
The competitive pricing strategy is a strategy frequently used in the market due to its convenience.
Either by wanting to gain an edge of advantage in price or merely raising it for a better profit, you can subtract or add a few percent to get the final price of your product.
This Business-to-Business pricing strategy is commonly used to gauge the price competitiveness of products relative to competitors, and in most cases, they are pretty accurate.
However, their disadvantages stem from their very nature. The final price offered by this pricing strategy often lacks the accuracy in evaluating your service/product value nature.
If you are not careful, you may miss the opportunity to make more profits or simply get caught up in the price race of B2B, especially in the e-Commerce market.
3. Value-Based Pricing Strategy
Instead of ignoring the customer factor and using pricing parameters to compete and determine the right price, a value-based pricing strategy uses survey sources and B2B customer data as the core of product pricing.
Price would be decided accurately based on the value of the product and the price that the customer is willing to pay for them.
Of course, this price policy has its drawbacks. The biggest downside of this Business-to-Business pricing strategy is the preparation time as well as the problem of data collection.
You must ensure three factors: data quality, preparation time, and monitoring process.
Key Factors:
- Data quality requires you to take a survey to get the most accurate B2B customer insights.
- Time is needed as the crawl will take long before finished.
- The monitoring process must be rigorous to secure the research information to perform continually.
To get the right price, you need to build a personal profile of each customer and determine what the fair price for them is.
Extra: B2B Pricing Personalization Display in Magento 2
What if you apply a competitive strategy or dynamic pricing model to your product but fear that your competitor will follow and imitate the adjusted price for the sake of gaining an edge on the market?
Default Magento 2 has no such hidden pricing function. The other useful functions, such as requesting a quote or setting custom prices, only appeared in Magento 2 B2B Commerce version, which costs a fortune to set up.
To understand your needs, BSS-Commerce has developed a solution for a more proactive display of prices on product pages: Magento 2 Hide Price extension.
You should use the Hide Price extension together with Magento 2 Request for Quote extension.
B2B customers are hardly satisfied with only the displayed price on the product page. Therefore, a quote could help buyers and store owners negotiate about product prices and then go to the end agreement.
Customers add products to quotes and submit them to store owners.
For even better pricing management, you can also choose to approve, reject or customize the quote as desired.
To let B2B customers browse the same category and product pages as B2C customers while seeing a different adjusted price, try using Magento 2 Custom Pricing extension. You can also set up specific price rules if needed for the suitable application of the B2B tier pricing model.
Comparing the Options
All three B2B pricing strategies have their pros and cons, and there are situations where a cost-plus or competitive strategy is the most practical option. But there’s a reason value-based strategies are generally considered the most effective.
Choosing Your Pricing Strategy
Here’s what to consider when you’re deciding which strategy is right for your company:
Know Your Value Metric
Your value metric is how you measure your product’s per-unit value, and ultimately one of the main factors in how you arrive at an actual price.
If you’re selling a straightforward product — say, pencils — your value metric would be per pencil.
If you’re selling a consulting service, your value metric would likely be per hour.
Decide on a Pricing Model
Value metrics also help you determine your pricing model. Your pricing model depends on whether you’ll charge one price for a product or different prices based on product packages or levels of service.
Your pencils, for instance, would likely follow a flat-rate pricing model (every pencil or pack of pencils costs the same amount).
Consulting services, on the other hand, may require a tiered pricing approach where buyers can decide on the level of service they need and be priced accordingly.
Utilize Buyer Personas
Buyer personas can be used to determine the price buyers would be willing to pay for your product.
A customer purchasing a high-volume of office supplies (like your pencils) is likely to have cost savings at the top of their priority list.
A large corporation purchasing an enterprise-wide software system and consulting service is likely to put more focus on value and relationships, then worry about price as one of many contributing factors.
Consider All Factors
Once you know your value metric, pricing model, and buyer persona, you have the framework in place for deciding on the pricing strategy.
Some recommendations for making a decision:
- Decide what’s most important for your company. A value-based strategy might be considered the holy grail in the B2B world, but if your product and business model are simple, a cost-plus or competitive approach could work for your company.
- Build a cross-functional team to contribute to the discussion. Your marketing, sales, and accounting teams are all going to have different perspectives, and the right strategy decision usually lies somewhere in the middle.
- Be flexible. Monitor your results and adjust your pricing strategy when necessary. Don’t stick with a strategy that’s not working just because you decided on it in the past.
What Not to Do: B2B Pricing Edition
Always Aim to be the Lowest
Don’t get stuck playing price limbo with your competitors — it’s not always about how low you can go.
Competitive prices are part of a comprehensive pricing strategy, yes. But they’re not the whole story. Don’t sacrifice assigning a fair price that aligns with the value of your offerings just for the sake of landing lower on the price scale than your competition.
Instead, be compelling about the added value that comes along with the higher price so that potential buyers understand that by paying more, they’re getting more.
Fail to Segment Your Customers
B2B offerings often include a wide range of products and services, and packages differ based on individual customer needs. That means prices will vary, too.
Don’t lump all of your customers into one pricing category. Instead, consider your buyer personas, their unique needs, and their budgets. Put together packages that align with those factors and offer options to your buyers.
Ignore Competitors
Don’t ignore competitor pricing, even when you don’t think it’s critical to your pricing strategy. Instead, know their value propositions and how they stack up with yours — and that doesn’t always mean thinking in terms of better or worse.
No two companies — even those in the same industry and with very similar product offerings — are exactly alike. Find out what makes your company and your products unique, and be ready to talk about it with your potential buyers, including how those differentiators contribute to price differences.
Leave Surprises Waiting
Have you ever booked a flight with a budget airline only to arrive at check-in to face exorbitant baggage charges? Before you knew it, your extra carry-on bag cost about as much as the more comfortable plane ticket you passed up in the name of getting a bargain. It’s annoying!
Nobody likes surprises when it comes to making a purchase. When you tack on additional fees later in the buying process without mentioning them first or being clear about what they’re for, you show poor transparency and a lack of respect for your customers.
When you’re pricing your products, don’t leave surprises waiting for buyers after they decide to make a purchase. Include everything in your original quote and be honest.
Your buyers might ultimately pay the extra fees you add on (just like you paid for your extra carry-on bag), but they’ll likely lose some trust in your company, too — a loss more impactful in the long term than that small bump in profit.
