Taking the Art Out of Pricing in
Business-to-Business Markets
The Age of the Pricing Professional

• Pricing is now viewed as a strategic priority
• Core concepts of good pricing pract...
Moving From Art to Science

• B2C pricers have some great tools
   – Conjoint analysis
   – Price optimization software
• ...
What Every Pricing Program Must Have

                                                       Pricing
 Defined             ...
Choosing a Pricing Approach

                         The Expert believes that there is only one answer.
                 ...
Pricing Strategy
Making the Best Choice

                                            Three Choices
            1. Skim    ...
Elements of a Price Model
Good Price Metrics

• Relate to customer’s
         – Profit model
         – Ability to pay
   ...
Elements of a Price Model
The Matrix

• The specific offering elements and bundles that
  have prices attached to them
• O...
Price Levels

Align process with approach
                   Better                             Better
                   ...
Tying It All Together
Pricing Model Architecture Example

                                                               -...
Process and Task Level Criteria

Criteria for effective pricing processes
 System Level                      Definition
 R...
Final Thoughts

• There is a science to pricing
• Emphasize standards, processes, and
  definitions
• Facilitates understa...
Thank You!
Mark Burton
Vice President, Holden Advisors
mburton@holdenadvisors.com
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Pps Taking Art Out Of Bto B Pricing Final Sb 32906

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How to take a scientific approach to pricing in business-to-business markets

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Pps Taking Art Out Of Bto B Pricing Final Sb 32906

  1. 1. Taking the Art Out of Pricing in Business-to-Business Markets
  2. 2. The Age of the Pricing Professional • Pricing is now viewed as a strategic priority • Core concepts of good pricing practices are converging • This is a good thing! • Means that pricing can be: – More widely understood across functions – Based on consistent, repeatable processes – That are more likely to be accepted • Pricing is now more science than art! © 2006 Holden Advisors Corp., Concord, MA 2
  3. 3. Moving From Art to Science • B2C pricers have some great tools – Conjoint analysis – Price optimization software • Unfortunately these are of limited use in B2B – Complex buying centers – Smaller segments – Driven more by financial value than attitudes/perceptions • The focus for B2B pricers – consistent: – Definitions – Criteria for what is/isn’t effective – Processes © 2006 Holden Advisors Corp., Concord, MA 3
  4. 4. What Every Pricing Program Must Have Pricing Defined Strategy Polices & Pricing Controls Approach List List Net Prices Prices Prices Pricing Model Measurable Results Price Offering Price Metrics Matrix Levels © 2006 Holden Advisors Corp., Concord, MA 4
  5. 5. Choosing a Pricing Approach The Expert believes that there is only one answer. The Master knows there are many answers. • “Value-based” pricing is the long-run objective – Often difficult to start here • Requires cross-organizational buy-in – And capabilities development • Need to consider other options – Better cost-plus pricing – Better market-based pricing – Pricing to value • Better to plan for evolution - not revolution © 2006 Holden Advisors Corp., Concord, MA 5
  6. 6. Pricing Strategy Making the Best Choice Three Choices 1. Skim 2. Penetration 3. Neutral Principal Drivers Influencers • Product Lifecycle • Market Economics • Value position relative to • Competition • Cost position competitors • Response profile and history • Differentiated • Parity • Disadvantaged • Objectives for product/service line © 2006 Holden Advisors Corp., Concord, MA 6
  7. 7. Elements of a Price Model Good Price Metrics • Relate to customer’s – Profit model – Ability to pay – Willingness to pay • Can be easily audited • Limit gaming by sales and clients • Examples: – Power by the hour – Assets under management © 2006 Holden Advisors Corp., Concord, MA 7
  8. 8. Elements of a Price Model The Matrix • The specific offering elements and bundles that have prices attached to them • Objective is to enable segmented pricing • Think in terms of platforms – Silver - for price buyers – Gold - for the majority of customers – Platinum - for relationship buyers • Add in a la carte elements to move between – Provides means to trade price and value © 2006 Holden Advisors Corp., Concord, MA 8
  9. 9. Price Levels Align process with approach Better Better Pricing Cost-Plus Market-Driven to Value Pricing Pricing • Adjust cost multipliers • Base prices on: • Must understand based on perceived offering cost and • Qualitative indicators value revenue impacts for the of value customer • Low for low value or • Competitor price undifferentiated • And differentiation levels offerings relative to the competition • Use costs as • Higher for differentiated benchmark for low end offerings • Take a “fair” share of possible price range • Reasonable to target 10% - 40% © 2006 Holden Advisors Corp., Concord, MA 9
  10. 10. Tying It All Together Pricing Model Architecture Example - Region Deal - Competition Guidance - Strategic Importance +% - Project Risk Price Levers Price Levers Initial Fixed-Price Level Base Gold +% -% Package Package Set by: Type of Application Size Complexity -% +% SLA’s SLA’s Criticality Deal Guidance -% © 2006 Holden Advisors Corp., Concord, MA 10
  11. 11. Process and Task Level Criteria Criteria for effective pricing processes System Level Definition Repeatable Same input = same output Visible Communicated and well understood across entire organization Scalable Supports growth and staff transitions Trackable Data generated at key points in process and is easily accessible Standardization XX% of pricing covered in standard process, YY% exceptions Point to key information and process needs Relative Model & Transaction Value Competitive Comm- Process Customer Drivers Scanning unications Measures Policies Price Mgmt. Value © 2006 Holden Advisors Corp., Concord, MA 11
  12. 12. Final Thoughts • There is a science to pricing • Emphasize standards, processes, and definitions • Facilitates understanding of the pricer’s role • Predictability and visibility build – Trust – Confidence – Buy-in © 2006 Holden Advisors Corp., Concord, MA 12
  13. 13. Thank You! Mark Burton Vice President, Holden Advisors mburton@holdenadvisors.com

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