B2B Marketing

PRICING

Customer Value
Core

Benefits
Add-on
Customer
Value

Acquisition
Sacrifices

Processing
Usage

IIM Ranchi PGEXP 2014-16

Total Cost-in-Use
Acquisition

Price
Paperwork cost
Transportation cost
Expediting cost
Cost of errors in ordering
Prepurchase evaluation costs

Processing

Interest
Storage costs
Quality control
Taxes & Insurance
Shrinkage & Obsolescence
General internal handling costs

Usage

Installation
Training

User labour costs

Replacement costs
Disposal costs

IIM Ranchi PGEXP 2014-16

Value-based Strategies
Shift selling proposition from current prices and
individual transactions to relationships built around
value and lower total cost-in-use
Differentiator ranking (Ulaga & Eggert, 2006)
1.
2.
3.
4.
5.
6.
7.

Service support
Personal interactions
Suppliers know-how
Ability to improve customers TTM
Product quality & delivery performance
Operation costs
Price
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Pricing Process
Multi-dimensional
Elementary considerations
Pricing objectives
Demand determinants

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3Cs of Pricing
Cost
Customer

Competitor

Price
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Customer
Price sensitivity

Search behaviour

Satisfied customers are

less price sensitive
Product/service
complexity
High degree of
customisation

Ease of search
Comparability

Ability to pay

End use
Switching costs

Importance of the
product/service in the
cost structure of the
customers product

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End-market focus

Customers & Demand

Perverse

Normal

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Inelastic Demand

Urgent
Strongly differentiated
Few alternative solutions available to customer
Complex
Difficult to compare
High switching costs
Increased cost can be passed on downstream

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Other Customer Aspects

Value perceptions
Product/firm perceptions
Ability to pay

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Cost-based Pricing
Cost-plus
Break-even

IIM Ranchi PGEXP 2014-16

Cost Determinants
Cost-plus vis--vis Target costing
Profit management tool
Marketdriven
Costing

Consumer
demands

Product specification
changes

Product-level
Target
Costing

Cost-reduction
pressure

Supplier cost
estimates
IIM Ranchi PGEXP 2014-16

Componentlevel Target
Costing

Competition
Sets the upper limit on price
Differentiation

Hypercompetitive rivalries
Create temporary advantages and destroy competitors
advantages by creating market turbulence

Gauging competitive response

Estimate cost structure of direct competitors and potential
substitute manufacturers
Experience curve

Behaviours to prevent price war

Price leadership
Price stability
IIM Ranchi PGEXP 2014-16

Price Attacks
Compete by providing superior value
Rules of competition (Cressman & Nagle, 2002)
Never participate in an engagement you cannot win
Compete from a position of advantage fight by your own
rules, not by the competitors

Evaluate the competitive threat

IIM Ranchi PGEXP 2014-16

2 More Cs
Customer
Competitor

Cost

Channels

Price
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Context

Channels
Costs
Capabilities
Power centre
Dependence asymmetry

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Context
Also environment
Elements
Currency
Economy
Regulations

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Relationships & Pricing

Influenced by pricing structure and rules over the
expected life of the relationship
Manufacturers gain from trusting supplier
relationships yet pushing for regular price
reductions
Also for suppliers to large retailers
Discounts
Trade discounts
Negotiated
Confidential

IIM Ranchi PGEXP 2014-16

More IOR Issues

Transactional
Bundling vis--vis unbundling
Milking customers
Short-term ROI vs. CLV

Collaborative
Premium pricing opportunities
De-featuring
Information sharing & value of
learning
Price reduction pressure and trust
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Intra-organisational Aspects
Finance

More control and say

Shorter-term perspective
All products must always make profit

Accounts

Cost-plus
All costs fully allocated
Less inclined to respond to market pressures

Marketing

Respond to competitive action

Build customer relationships
Generate demand for complementary products

Sales

Informed decision on pricing incentives based on bottomline

Lesser authority more margins
Pricing decisions leading to sub-optimal profits
Path of least resistance
Insufficient knowledge of customer price sensitivity
Price war
More aggressive negotiation from buyers
IIM Ranchi PGEXP 2014-16

Thank You!!

IIM Ranchi PGEXP 2014-16