The document discusses the evolution of pricing from an art to a science in business-to-business markets. It advocates for establishing consistent definitions, criteria, and processes for pricing to make it more widely understood, repeatable, and likely to be accepted across business functions. The key components of an effective pricing program and model are defined, including pricing strategy, policies and controls, pricing approach, price metrics, price matrices, and price levels. The document provides guidance on choosing a pricing approach and tying all the elements of an effective pricing program together.

1. Taking the Art Out of Pricing in
Business-to-Business Markets

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Thank You!
Mark Burton
Vice President, Holden Advisors
mburton@holdenadvisors.com