January 16, 2017
List price optimization is one of the core functions of the price-setting process.
In the B2C / retail world, list prices serve to communicate the value of the product to the consumer. But the perception of the “deal” drives the sale. Thus, even though list prices are required, the net price is important to the consumer. This net price is clearly visible on the company’s website and instantly becomes the input to the buying process for the customer.
B2B processes operate differently. In the B2B world, the product or solution is selected, negotiations occur, and the agreed upon price becomes the output of the buying process.
Generally speaking, the online business of a company tends to yield higher margins since the volume sold directly to the customer is lower when compared to the higher volume, negotiated parts of the business.
Web list prices must be set carefully by B2B companies to remain profitable as these prices can create a channel conflict with distributors or channel partners. For example, a lower price on a company’s website causes a conflict with the distributor’s “into-stock” price, which is higher than the web price.
B2B enterprises should look to ensure an optimized web price is in place as this is the first price point seen by customers. If this price is too high, you risk losing an opportunity to engage and win the business. If it’s too low, money is left on the table with significant impacts on revenue and margin for higher volume, negotiated business.
To help combat the struggles of balancing an e-commerce site and a negotiated price model, here are 3 tips for B2B companies to use to help optimize their web-based business.
- Identify Key Value Items (KVIs) – Understand the brand price perception for your products. This is not necessarily the high runner parts, but rather the products that built your company’s reputation and brand—the most recognizable ones associated with your brand name. These drive the highest value and promote customer loyalty.
- Monitor Competitive Prices – Monitor and set your price structure with your top competitors in mind. Do not rely solely on internally aligning your prices for various product lines by product marketing and business unit groups. These must work in tandem. Then, differentiate your prices based on attributes and features. Caution: Avoid price wars in the B2B space. No one wins.
- Price Elasticity – Measure some level of price elasticity for your high runner parts over the product’s lifecycle. As you introduce new products, this will provide a better idea of how demand shapes your price adjustment structure.
In order to accomplish the above, businesses looking to optimize their web prices must also consider the following 7 metrics:
- Input Costs
- Competitor Prices
- Regional Pricing
- Inventory or Supply Status
- Product and Technology Attributes
- Volume Impact Based on Forecasted Volumes for Price Increases
- Revenue Impact of the Run-Rate / Recurring Business for Price Decreases
B2B enterprises are working with much larger transactions, each with a greater impact on revenue and the bottom line. For those that also utilize e-commerce within their model, there is a lot to be learned and deployed from retail pricing strategies from B2C companies.