3 things to consider when setting up your B2B pricing methodology
Pricing is a puzzling decision for any wholesaler and distributor. Read on to find 3 valuable tips that will help you decide on your methodology.
Is it too high or too low? Yes, the unbearable dilemma of pricing is an integral part of every wholesaler’s agony and stress. And we are sure that you have spent days and nights wondering if your prices are right.
The agony is indeed justified – especially if you take into consideration the fact that pricing is the only element in your business marketing mix that purely produces revenue.
An efficient B2B pricing methodology is critical to staying competitive in today’s globalised markets where you need to run against wholesalers and distributors from all around the world.
In fact, when pricing you need to consider many different factors. For example: Do your prices reflect your products value? Do you opt for lower prices in order to beat out your industry competition? Do they allow for discounts and/or exclusive offers for your VIP customers? How should you go about pricing custom products?
“If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business”, Warren Buffet, renowned business magnate and guru, has once stated.
In order to avoid prayer sessions, panic attacks, and dollar-related obsessions, we have gathered 3 tips to help you decide on your pricing methodology.
#1. Beyond price: Deciding on profit
When it comes to pricing, you need to answer one fundamental question: how much profit do you want to earn for each product that you make? Successful B2B companies usually create a pricing structure that allows them to amplify their profits per product and per customer.
If you price your good too high, then you might lose sales, but if you price them too low then maybe you won’t be able to convince your clients of their quality and worth.
To create the ideal pricing structure, you need to take into account a few variables. For example, you need to consider the cost of your products, your labour-related costs, and even shipping or packaging costs. Even more, you need to consider the market you’re selling to, your competition, as well as the customers you ultimately want to address.
#2. The price to pay: Key variables to take into account
As stated before in order to set the optimal price for a product, you need to consider many things. And while many things change, like local economies, there are three variables that should always be integral to your pricing policies: your product, your market, and your customer.
Commodity-type products are usually priced differently than custom or premium products. Even more commodities have lower profit margins than select and first-rate goods. The latter are usually more price-sensitive. In other words, different types of products have different pricing nuances and sensitivities. When putting a price on your offering, make sure you evaluate first the category your product falls under. As such, your pricing decisions should be based on whether your merchandise is a commodity or necessity, whether it’s premium or custom.
Yes, your client base also influences your pricing strategy. How? Each customer has their own specificities and expectations. In fact, each customer has their own unique perception concerning the value of your brand and your merchandise. Indeed: clients who think highly of your brand and share a strong connection with your B2B company are less price-sensitive than clients who are newly introduced to it or who are not as accustomed to your product line.
Apart from the relationship your clients form with your brand or your offering, surveys state that order volume plays a big part on how your customers react with your pricing strategies. Large volume customers tend to be more price-sensitive than smaller volume customers. In this respect, you may want to create different price-tiers or consider discounts tailored to the customers that usually buy certain products in bulk.
What is your market? Do you sell your products in one or more countries? The answer to these questions is significant when it comes to deciding the pricing of your products. you need to consider the specific industry you are operating in.
First off, you need to consider where your products and brand stand in terms of your competition. In some markets, a change in prices by the industry leader may impact the prices for all market players.
Your pricing may also be influenced if your products are raising the bar terms of the usual industry standards or by the general economic environment and needs of the local markets you are operating in.
#3. Value: Aligning customer expectations with your pricing
Do you bring in a special set of skills that impacts the way your products are manufactured? Are your products industry game-changers and innovative? Is your offering giving the best value-for-money ratio in the market? Much like B2C customers, B2B buyers also make their decisions based on the perceived economic and emotional value of your products.
If you use value-based pricing, you will price your merchandise based on the value customers put on it. So you need to have a deep understanding of your customers’ best alternatives and know the prices of these alternatives for every single product to really grasp your competitive edge.
Keep in mind that value-driven customers are less-price sensitive than buyers who have no emotional attachment to your brand or products. In this respect, you need to match your customers perceived economic value to your pricing methodology.
When it comes to B2B, the vast majority of buyers stand in the middle of this spectrum, meaning that they make rational and well-informed decisions. In order to make your value-based pricing efficient, you pricing methodology should take into account their business niche.
The price is right: From methodology to strategy
To set your business up for success, you need to contemplate quite a few things when it comes to pricing: your market, your customers, your labour and product niche, as well as the value-based perception of your products. Insufficient pricing is costing B2B companies millions in recurring revenue each year. It also affects sales and customer satisfaction. There is no golden solution to pricing, yet you need to consider which methodology suits your business cycle best.
Depending on your relevant resolutions, you can go about setting up your pricing methodology. Setting your pricing methodology may seem like a hard-to-tackle challenge, yet it is sets concrete and solid foundation for a successful B2B pricing strategy.
Is that all there is?
Keep in mind that your B2B ecommerce platform should be able to reflect your pricing strategy, through its functionalities. Click here to explore B2B Wave’s unique pricing features and start your free trial.