Price, Cost and Value in Business MarketsBusiness Markets

Overview

Pricing importance!

IF OTHER ASPECTS OF MARKETING STRATEGY ARE

SOUND, BUT PRICING POLICY IS FLAWED THEN A

COMPANY MAY FAIL.

The Problems of Pricing

• Business marketers may have to negotiate

individually with each customer.

• They may to work to a fixed specification that

includes price.

• They may have long-term contracts that specify • They may have long-term contracts that specify

that the price reduces each year.

• They may not be able to identify their actual

costs.

• They have to estimate the customers full costs.

• They must also think about the value of his

customer relationship.

Profit

COMES BY PROVIDING A SOLUTION FOR A

CUSTOMER’S PROBLEM AT A PRICE THAT EXCEEDS

THE SUPPLIER’S COSTS.

But!!!!

• The value of a solution varies for each customer.

• Customers often find it hard to judge value.

• Problems vary in difficulty and costs vary accordingly.

• Customers may not appreciate this or pay for it.

• The difficulty of solving a problem depends on the • The difficulty of solving a problem depends on the

customers skills.

• Minor changes in an offering may have a dramatic

effect on supplier’s costs.

• Customers may value some relationships differently

from others.

B2C Vs B2B Pricing

The price that the customer is prepared to pay will depend on:

• The importance of the problem of the customer.

• The extent to which the offering provides a

solution to its problem.

• The value to the customer of its relationship

with the supplier.

• The total costs that the customer must incur in

order to obtain the solution.

• The number and characteristics of alternative

suppliers and offerings.

Pricing skills for the business marketer

• To identify the problems of different customers.

• To assess the price and other costs that each

customer is prepared to incur.

• To choose which customers and which of their

problems it will attempt to solve. problems it will attempt to solve.

• To develop an offering within its own cost

structure and the price the customer is

prepared to pay.

• To manage the process of fulfilling the offering

so as to ensure that received price exceeds

costs.

Pricing for simple customer problems

• Customer will have no need uncertainty.

• Customer has no market uncertainty.

• Main concern is its transaction uncertainty.

• Supplier must compete by reliably providing a

fixed offering at the lowest price.fixed offering at the lowest price.

• Profit will depend on its transfer abilities.

Pricing for complex customer problems

• It may be difficult for a customer to identify a suitable solution.

• It may also be difficult for a potential supplier to immediately provide an offering. offering.

• Solution may require adaptations by both the customer and supplier.

• Solution requires complex relationship.

Pricing for complex customer problems

(continued)

• Both customer and supplier find it difficult

to identify costs of solving the problem.

• If there is no relationship there is no

relationship then the supplier will have to

develop one. develop one.

• The supplier will need to include costs and

risks of relationship building and

adaptations in pricing calculations.

This depends on:

• The costs of solving the problem.

• The likely revenue.

• The effects of solving it on this and other

relationships.relationships.

• The effects on the relationship of not

solving it, or of failing to solve it.

Value Assessment in Business

MarketsMarkets

Value Assessment Methods

Value Assessment:Value Assessment: work process of

obtaining an estimate of the worth in

monetary terms of some present or

Business Market Management, 3rd edition 14

monetary terms of some present or

proposed market offerings or elements of

it.

Value Assessment Methods

Internal Engineering Assessment

Focus Group Value Assessment

Benchmarks

Field Value-in Use Direct Survey Compositional

Business Market Management, 3rd edition 15

Field Value-in Use Assessment

Direct Survey Questions

Compositional Approach

Indirect Survey Questions

Conjoint Analysis Importance Rating

Customer Value Management

Goals:Goals:

1. Deliver superior value to targeted market

segments and customer firms

2. Get an equitable return on the value delivered

16

2. Get an equitable return on the value delivered

To gain an equitable return on value, suppliers must

be able to persuasively demonstrate and document

superior value relative to next-best alternative

Customer Value Workshop

1. List all the elements for the marketing offering under consideration

2. Write a list of value elements, in a quick fashion, drawing on collective experience.

3. What are the next best alternative offerings 3. What are the next best alternative offerings in the minds of the customer for all segments to be investigated.

4. Apply the value equation

Customer Value Workshop

(Valuef– Price

f) >> (Value

a– Price

a)

Paper Jam Cost Savings B, A =

[(paper jambs per day x

minutes to fix jam) A - (paper

jams per day x minutes to fix

Product Solution Example: High end photo copier

(cost saving)

Business Market Management, 3rd edition -18

(Valuef– Value

a) >> (Price

f– Price

a)

��Valuef, a

>> (Pricef– Price

a)

jams per day x minutes to fix

jam)B ] / 60 minutes per hour

x operator wages per hour x

annual work days

Paper Jam Cost Savings B, A =

[(3 x 10)A – (1 x10)B ] /60 x

$31.82 x 240 = $2,545.60

Customer Value Workshop

(Valuef– Price

f) >> (Value

a– Price

a)

Auto Repair Cost Savings B, A =

[(discs used per day x minutes to

change disc on sander) A - (discs

used per day x minutes to fix disc

Product Solution Example: 3M Abrasive Disks

used by auto panel beaters. (cost saving)

Business Market Management, 3rd edition -19

(Valuef– Value

a) >> (Price

f– Price

a)

��Valuef, a

>> (Pricef– Price

a)

used per day x minutes to fix disc

on sander)B ] / 60 minutes per hour

x operator wages per hour x annual

work days

Auto Repair Cost Saving B, A =

[(50 x 5)A – (30 x5)B ] /60 x

$35 x 240 = $14,000

Tailored Pricing in Business

MarketsMarkets

Tailored Pricing

Summary

• Price is only one of the customer costs.

• The offering and the relationship have value to the customer and the supplier.

• A Supplier costs are not limited to those of • A Supplier costs are not limited to those of producing and delivering its offering.

• A marketer must have accurate and timely information on costs and revenue.

Summary

• A marketer must control discounts.

• The marketer must tailor price to

customer views and problems.

• The marketer must standardise price

wherever possible. wherever possible.

• Use value assessment and tailored

pricing methods to demonstrate

customer value,

You are welcome to contact Nigel Bairstow at B2B

Whiteboard your source of B2B Asia / Pacific

marketing advice

http://www.linkedin.com/pub/nigel-bairstow/6/41b/726

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