One thing I tell clients I work with is that B2B pricing is one of those subjects that can get really complex, really quick.
Sometimes when talking to leaders of organizations, one of the key things I get is, “can’t we just go in and change the price”? My response, well can’t we just go in and change all the supply chain delivery routes? Or, maybe we can just go in and change the commission plans for all your salespeople?
I digress a bit to make a point here: B2B pricing is not as easy as going in and changing the price, although many of us that have held pricing positions would love it to be. The good thing is that in the last five years, there has been a renewed emphasis on commercial excellence and B2B pricing, so it is receiving more and more attention. And in turn, key parts of the organization are getting a ‘level up’ in what good B2B pricing really means.
And this is important: The more your organization understands what B2B pricing and execution means, the better an organization you will become in the long run.
A Key Shift to Make in B2B Pricing
Let’s illustrate this with one of the key shifts an organization can make: the move from cost-based pricing to value-based pricing. In my experience, especially in industries that have more traditional market standards (the norms that govern the industry), this is one of the key change hurdles an organization has to get over. And it is not an easy one.
Think about it like this: Cost-based pricing in organizations is an institution, the incumbent that has been working for a long time, so why should we completely abandon it? Well, while some will profess the reasons against it are quite extensive, what we can objectively say is that there are other methods that have shown to be more profitable.
Think value-based pricing. That’s good stuff right there.
The genesis of a change of methods such as this often lives within a commercial excellence or pricing department. Many a leader thinks that it stops there. Again, the “can’t we go in and change the price” viewpoint.
The reality is that in many cases, it simply begins there. Once a company chooses to embark on the journey of improving its go-to-market methods through pricing and commercial excellence, a B2B pricing team is helping develop, synthesize, and drive the strategies.
They are talking to leadership about strategy and results.
They are talking to product management about value and how products and services should be positioned.
They are talking, usually a lot, to the salesforce to get everyone aligned on how the organization is coming to market (can reference part 2 of my last blog).
They are also talking to finance about impact and forecast profit.
And all of those departments are giving feedback and, in a perfect world, working together under a common marching theme.
What this illustrates is that getting better in pricing is really a team sport, one that brings multiple parts of the organization together. When done correctly, it will act as a glue, creating a stronger and more aligned organization. However, if done incorrectly, it can create dissension from within.
A Changing Playing Field
As we look around at the modern landscape of business, B2B pricing has become a focus for a variety of reasons. One, it’s a great profit driver. In general? A 1% increase in price results in 10% in profit. That’s powerful.
Also, the world has become more dynamic. Prices are changing all the time to keep up with the effects of the pandemic, and before that, the volatility in the commodity markets. I personally believe the trend of prices changing often, usually by increase, is no longer a trend but a reality. Organizations will need the tools to react in the marketplace, tools that help them manage B2B pricing and execution in efficient ways.
Just as important is the need for the organization to rally as a team around improving their commercial excellence capabilities. As an organization evolves in these capabilities, such as switching to more modern methods of B2B pricing, the organization benefits from everyone contributing and coming to market with a unified viewpoint. The delivery of a single number to the market – a price – truly is a team sport.