In our latest installment of Revenue Roundtable, we explore how one particular topic may be a concern of many B2B companies, but it isn’t as relevant as they may think.
Mitchell Lee, Profit Evangelist at Vendavo, is joined by David Anderson, Business Consultant and Strategic Pricing Advisor, to dig into the subject. Below is a somewhat longer and unabridged version of their conversation that gets into more of the details.
Mitch: So today, we’re going to talk about price elasticity, right?
Dave: I meet with hundreds of B2B businesses a year who are considering or engaged in efforts to improve their pricing. One thing that I generally notice in these discussions is a general fascination and focus on the notion of “price elasticity”, or the volume impact of price improvement (increase) decisions. In many scenarios, there’s a desire to measure the price-volume relationship and use that formal numerical measure as part of price increase modeling and considerations.
Mitch: It’s a very intuitive concept…
Dave: Right. Now, I’m not discounting that there can be volume sensitivity to changes in price, but I would like to make the case that if you are selling your products or services with a sales team and with sales-led engagement with customers, there’s a long list of pricing priorities that should take precedence over a focus on measured price elasticity. Indeed, in B2B businesses it can be counterproductive and a fools-errand to focus on using elasticity measures in predicting the volume impact of price.
The entire premise of price elasticity projects is to attempt to document the change in expected volume, based on a change in price. This concept has relevance in “remote” selling scenarios (like retail sales) where selling is not influenced by a sales team, and products may be a commodity. In B2B however, any documented price-volume measure and its effect on sales & price acceptance is massively overcome by sales factors and selling context.
In my opinion, the following list of focus-areas are much more important areas of focus in any B2B commercial transformation effort:
- Understanding how you drive value with customers
- Understanding how sales can capture value with value-based selling efforts,
- Understanding how to support sellers with the best information to support their understanding of customer context to support a sales event (historical sales data, peer customer sales data, segment insights & price recommendations, etc.)
- Improving the efficiency of the selling process to improve customer-response quality & timing, and improve “selling time” for sales (eliminating process friction, and minimizing administrative effort for sellers)
- Improving the information provided to pricing teams for their price setting efforts
- Automating the manual effort associated managing price and pricing data movement in an organization
The things that sales teams do in a sales effort determine a customer’s acceptance of price, much more than any simple change in price. The basic high school economics concept of “you will sell more at a lower price, and less at a higher price” does not necessarily hold true in the world of complex product and solution sales in a B2B context.
Your sales team’s ability to understand customer context, to understand your products’ value drivers for customers, and their ability to convince customers of that value overwhelm any natural price-volume effect, and should be the focus of your efforts. Don’t live on the “price curve”, rather move the “price curve” with information and value-led selling.