1. Pricing in B2B, providing customer-
value
Session 15-16
Term IX, 07-10
2. Underlying basis of price
• It makes it possible for transactions to take place.
• The customer receives the benefits from the
products in exchange for the price.
• The seller gets the price.
• Both parties expect that the outcome of the
transaction will enhance their total value.
3. Types of
situations
Important
dimensions
Pure
Competition Oligopoly
Monopolistic
Competition Monopoly
Uniqueness of each
firm’s product
None None Some Unique
Number of competitors Many Few Few to many None
Size of competitors
(compared to size of
market
Small Large Large to small None
Elasticity of demand
facing firm
Completely
Elastic
Kinked demand
curve (elastic
and inelastic
Either Either
Elasticity of industry
demand
Either Inelastic Either Either
Control of price by firm None Some (with care) Some Complete
ANALYZING MARKET STRUCTURES
4. KEY DECISIONS IN MANAGING PRICE
• DETERMINE PRICING STRATEGY– Develop specific approach
to achieve price objectives
• DETERMINE CHANNEL INTERMEDIARY PRICES, COSTS AND
MARGINS
• DETERMINE SINGLE PRODUCT AND PRODUCT LINE PRICING
– Develop pricing structures for substitute and complementary products
• DETERMINE WHETHER TO PARTICIPATE IN BIDDING AND
NEGOTIATION FOR SALES
• ESTABLISH A PRICING SYSTEM
– Based on the 4 C’s : Costs, Customers, Competitors, and Channels
5. Pricing in B2B
• Setting the price and changing it as the marketing
strategy rolls out.
Also may include:
• Providing finance
• Setting financing terms
• Allowing for several methods of payments
• Establishing payment terms & schedules
• Buy-back offers
• Calculating exchange rates for multi-currency
transactions
7. Pricing basics
• Involves a combination of analysis and creativity
• Analysis – Must address both – customer’s
perception of value relative to competition &
supplier’s internal cost structure
• Creativity – Using all the elements of pricing as a
jigsaw puzzle of total offering: Product, Brand &
Image, Service, Evaluated price, Customization, Non-
Price offers etc.
8. 1. Traditional Pricing
Approaches
Most firms in business markets rely on
one of these approaches:
1. Cost-plus pricing
1. Competition-based pricing
The (often implicit) assumptions underlying each approach are problematic.
9. 2. An Approach to
Value-Based Pricing
•Pricing a market offering based on its worth to customers
begins with the fundamental value equation:
(Valuef - Pricef ) > (Valuea - Pricea )
•which can be rearranged and then expressed as:
(Valuef - Valuea ) > (Pricef - Pricea )
Valuef,a > (Pricef - Pricea )
Pricef < Pricea + Valuef,a
10. Pricing to reflect customer value
• Two elements combine to make Evaluated
Price or TCO
• Price paid for the total offering.
• Cost of acquisition & use & disposal of the
product / service acquired by the customer
during its life time.
11. Strategic objectives of Pricing
• Achieving a target level of profitability
• Building relationship / goodwill in a market or
among certain customers
• Entry pricing for penetration
• Profit maximization for a new product
• Keeping competitors out of an existing
customer base
12. Tactical Purposes
• Winning the business of a new, important customer
• Penetrating a competitor’s major client
• Reducing inventory levels
• Keeping the business of disgruntled customers
• Encouraging customer to try a new product
• Leader pricing and encouraging sales of
complimentary products
13. Other influencing factors
• Stages of PLC & TALC
• Introduction – Objective to obtain adoption by
technophiles (who do not need the product anyway).
Customer’s perceptions are the limiting factors
rather than competitive pressures.
• Growth – Early adopters or visionaries are targeted.
Offering goes through rapid development & design
improvements. Customers can place a high value and
the pricing will tend to be relatively high.
14. Contd…
• In the later part of growth stage, price sensitivity,
competition, innovation & marketing strategies can
drive price in different directions. In some markets
rapid growth may be spurred by price reductions. In
technology markets, as standards emerge, the
dominant player will be able to command a
premium.
• As product augmentation opportunities shrink,
prices are driven lower
15. Maturity Phase
• Often consolidation of participants start. Markets
become more oligopolistic.
• Dominant players control the prices.
• Often they try to reduce the prices through reduced
costs.
• Current trend towards outsourcing of R&D in many
sectors is a result of this.
• Max possible differentiation is in CRM. Strong
relationships can earn premium.
16. Decline stage
• At this stage pricing depends upon the market
segments still served and the no. of
competitors left.
• Because of unique switching costs, some
customers may stay with old products &
suppliers.
• A premium is possible but the cap is set by the
switching costs.
17. Pricing Tactics
• Bundling
• Caution – The DMU consists of educated, informed
professionals who know the worth of every product
individually and who will bundle / unbundle as fits
their needs.
• Discounts & Allowances – Reward for some action.
• Buy in bulk, pay now, order now.
• Caution – Customers and dealers start expecting
them every time.
18. Competitive Bidding
• Sealed Bid - significant analysis is required to
prepare a bid. Creativity is in fixing the offer
price.
Cost Bid price Profit Prob.
(w)
Expected
Profit
19. Open bid
• Competitors can see each other’s offers.
• Idea is to let the competitive forces drive
down the prices to the lowest possible level.
20. Price Escalation Clauses
• Most of the long time delivery contracts have
Price Escalation Clauses
• Beyond a reasonable level, the supplier will
increase the price and pass it on to the
customer.
• Logical justifications have to support the
arguments for price increase.
21. Pricing by Negotiations
• Preparation stage – data collection, determination of
the negotiation strategy
• Information exchange – Probing, Verification of
information
• Engage in negotiation – Opening, discussing
positions, proofing stage, concessions & closing
• Understanding who has the leverage in the deal.
• Understanding the BATNA
