How to Create a Killer B2B Pricing Strategy (That’ll Grow Your Business)
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How to Create a Killer B2B Pricing Strategy (That’ll Grow Your Business)

B2B Pricing Strategy WordPress

Setting your B2B pricing is undoubtedly the most critical aspect of your business.

If you price your products or services too high, you risk losing customers to a competitor. But if your price is too low, your business won’t grow at a sustainable pace. 

Finding the right price is tricky for any business and this is where your pricing strategy comes in. With a solid B2B pricing strategy, you’ll have a competitive advantage in the market, keep a steady flow of customers, and reach your company’s financial goals. 

But first things first.

What is a B2B pricing strategy and where do you even start? 

In this article, I’ll go over everything you need to know to make a killer pricing strategy for your business.

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Table of Contents

1. What Is B2B Pricing?

2. Three B2B Pricing Strategies

3. Key Points in Your Pricing Strategy

What Is B2B Pricing?

B2B pricing is the process of setting and communicating prices to businesses and organizations your company sells to.

It sounds simple enough, but it’s often one of the largest challenges companies face. Why? Because companies get stuck on finding the best pricing strategy for them. 

The simplest ones are easy to execute but often don’t end in the best results. More complex strategies are robust and they allow you to reach your goals, but they require a lot of data. 

To help you choose the right pricing, I’ll go over the three most common B2B pricing strategies you can use for your business.

B2B Pricing Strategies 

The three main B2B pricing strategies are cost-plus pricing, competitor-based pricing, and value-based pricing. 

Below we go into further details on each strategy. 

1. Cost-Plus Pricing

Cost-plus pricing is the most straightforward B2B pricing strategy. You take the cost of making your product or service (material costs, labor costs, and overhead costs), then sell it for more than it cost you to make it.

When determining your profit margin, consider how much you need to sell at that price to pay the rent, your employees, or any other operation cost your company has. The strategy requires next to no market research, consumer demands, or competitor strategies. 

Retail companies often use a cost-plus pricing strategy. It’s also an excellent starting point for new online stores looking to incorporate pricing into their e-commerce strategy

Say, you’re selling hats and these are your costs:

  • Material costs: $2
  • Labor costs: $5
  • Overhead costs: $6

Your total cost is $13. If you mark it up by 50 percent, the formula looks like this:

Selling price = $13 (13 x 0.5) = a markup of $6.5 

Your B2B consumer selling price for each hat is $19.50. 

This pricing strategy has both advantages and disadvantages. The advantages of cost-plus pricing:

  • It’s simple for anyone to understand. You don’t need to conduct market research, competitor pricing analysis, or consider consumer demands. 
  • It provides a consistent rate of return. When calculated right, this pricing strategy should cover all costs and provide you with a consistent income. 
  • The price can be justified. Customers generally understand shifts in product pricing since manufacturing prices are forever changing in our global economy. 

The disadvantages of cost-plus pricing:  

  • With minimal market research, the cost-plus strategy creates a profit losing culture. You should be aware of your competitors’ costs and customers’ perceived value of the product to set the prices.
  • You could set the price too high, resulting in customers moving to your competitors. 
  • As sales volume is projected before pricing the product, you may not cover all costs if you make few sales. 

2. Competitor-Based Pricing

Competitor-based pricing is often used to test product pricing. You begin by researching what your competitors are doing, what they offer, and at what price. 

When you’re starting to get your first customers, you may not have enough data to get the perfect price for your customer base. Competitor data that has been in the market for a long time can give you a headstart. 

In a competitor-based strategy, you need to consider two types of competitors: direct and indirect. 

You can, for example, examine five direct and five indirect competitors and add them into a competitor analysis spreadsheet along with their pricing for a similar product.

Now, see where your product and brand fit between them. 

Now that you know where your product fits in the market, you can set a price for your product. There are three ways to do this.

i. Pricing above the competition

If you think your product offers better quality than your competitors, you can sell it as a higher-end version at a more expensive price. 

ii. Pricing on the same level

Also known as price matching, you can price your product the same as the competitor with the product most similar to yours. Focus on the added value of your product even if your features are the same.

iii. Pricing below the competition

Setting your prices lower than the competition can grab the customer’s attention, increase sales and brand value. Be aware that you may need to limit your product’s features and functionality to reach your desired profit. 

Advantages of competitive pricing:

  • Competitor-based pricing requires little research and insight. All you need to do is compare yourself to your direct and indirect competitors and price your product where you feel it fits. 
  • It’s low-risk since your competitors have been in the market for a while and have experienced trial and error. 
  • By making prices similar to your competitor’s, consumers will be less inclined to switch from your brand to the other, allowing you to maintain your market share. 

Disadvantages of competitive pricing:

  • A competitor-based pricing strategy can work during the initial stages of market entry. But in the long run, your competitors may change their pricing to focus on different market segments. So, this pricing strategy can work better to attain short-term goals. 
  • When you implement a competitor-based pricing strategy, you may not catch errors your competitors make. If they go wrong, so do you. 
  • Pricing your product the same as your competitors makes you one with the herd. Your brand may struggle to stand out.

3. Value-Based Pricing

Out of the most common pricing strategies mentioned above, value-based pricing is the most complex one. It requires in-depth research into your target audience, the market, and your competitors’ products. 

However, the research is well worth the effort. When you execute this strategy, not only do you gain the best profits, but you also learn significantly about your market and its demands. 

Utpal Dholakia, a marketing professor at Rice University, defines value-based pricing as “the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor.”

Value-based pricing is a strategy for reaching long-term goals. Companies can build a framework that leverages their brand, product features, market position, and audience demographics.  

So, what goes into a value-based strategy?

i. Understanding your target audience

Perceived value is determined by customers. Starting with market research is crucial in understanding how your product affects your customers’ lives. 

This research is a combination of demographics combined with qualitative information you can get from interviews. Try to understand the problem your product is solving for the customers, as well as what they’re willing to pay to solve that problem. 

ii. Researching your competitors

Any time you price a product, you must be able to justify the price. If your product is $40 more than your closest competitor, you should ask yourself the following questions:

  • Is my product considerably more durable?
  • Does my product look and feel like it’s made out of quality material?
  • Does my product offer more features?
  • Are my manufacturing costs higher than competitors?

Many businesses believe that value-based pricing is all about the value of their product. The reality is, your product’s value is only relative to what’s on the market. That’s why researching competitor pricing is essential for your B2B pricing strategy. 

iii. Determining the value of your differentiation

Now it’s time to put a quantitative value on the features you’ve discovered in your competitor research. You don’t need to assign a value to every product feature—simply calculate the value of the features that differentiate your product. 

Remember Maslow’s hierarchy of needs and try to add value to the top of the pyramid. 

Focus on how your product will make the buyer feel. Will the product help your customers add value to their business? Will it help your customer reach their financial goals?

iv. Building pricing and marketing campaigns for your market

Now that you have a solid understanding of your audience, your competition, and your product’s value, you can start building your value-based B2B pricing strategy that is optimized for your product.

Advantages of a value-based pricing strategy:

  • Pricing your products according to your customers adds value to your brand in the eyes of your customers.
  • You can increase your profits much more compared to the other two pricing strategies. 
  • Adjusting the price to your buyer’s needs will increase customer loyalty and give you a more substantial clientele base. 

Disadvantages of a value-based pricing strategy: 

  • You may find yourself serving a niche market. In many cases being in the niche market is more profitable. However, it may be challenging to expand your business. 
  • Competitors can create the same products and sell them at lower prices using the cost-plus or competitive B2B pricing strategies.
  • You may need to go through a long period of trial-and-error to find the right pricing balance. 

Key Points in Your Pricing Strategy 

Finding the perfect price for your product is no walk in the park. It’s influenced by many factors such as the general economic environment, competition, perceived value, and emotional factors. Besides, every business you sell to has its own price sensitivity. 

Here are a few key points you should consider to create a robust B2B pricing strategy:

1. Product Type

You may have both premium products, commodity products, and custom products within your product line. 

Commodity products usually offer lower margins as they tend to be highly price-sensitive. They should be priced differently than your premium or custom products, which are less price-sensitive and have higher margins. Begin by identifying your price categories based on the product types.

2. Market Growth Dynamics

Active growth and low saturation allow for better margins, while a plateauing market means increased price sensitivity. Your industry’s pricing environment influences your strategy, too. In some markets, an industry price leader’s movement can impact prices for everyone. 

3. Customer Traits

Customers who buy in large volumes tend to be more price-sensitive than others. Those who purchase frequently are also more price-sensitive than the rest of your customers. Finally, customers who place a high value on relationships are less price-sensitive than those who look at other values. 

It helps to know where your customers are in their buying cycle.

Want More Conversion Optimization Tips?

We’ve put together 12 CRO resources to help you drive more leads and revenue.

Whether you’re looking for satisfaction guarantee examples or product page examples, we’ve got something for you.

You’ll also get immediate access to 23+ other bonus resources, categorized in Notion for your convenience.

Download Swipe File Now →

Conclusion

When it comes to setting your B2B pricing, you have a few strategy options to consider. 

The pricing strategy you follow will depend on where you are as a business. For example, if you are a new business, you may start with a simple approach such as a cost-plus pricing strategy until you have enough data to develop a value-based pricing strategy. 

Don’t be afraid to test the waters. Try alternatives and see what works best for your business.

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