1. Pricing in B2B Marketing
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2. What is Price? Strategic element of marketing mix
Indication of value or worth of something
Without it, transactions could not take place
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3. Perceived Value and Evaluated Price
Value Based vs. Cost Based Pricing
Value Based Pricing - difficult to establish
Cost Based Pricing - easy and often mistakenly used
Costs important in determining profit levels
Beyond this, cost has little to do with price
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4. Value elements Product quality Process quality of the suplier
Technical
capabilites of the
supplier
Delivery timing
Pre-sales services
During sales services
After sales services
Trust
Supply flexibilites
Cooperation
Communication
Ease of doing business
Return polices
Responsiveness
Frequency of customer visits

5. Price is critical for B2B buyers
Roughly 6 in 10 B2B buyers from industrial sectors indicate that at least 60% of their purchase decisions are dominated by the price of the product,
In all, price dominates in 55% of purchases, relatively unchanged from 57% in a similar study conducted in 2011.
Interestingly, buyers are now conducting more extensive research for smaller purchases.
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7. Elements of the Offering:
The Total Offering
Elements of the Offering:
Product
Service
Image
Availability
Quantity
Evaluated
Price
Suppliers creatively combine components of the total offering that contribute to value for specific customers. Components will vary depending on specific customer needs and the customer’s cost structure.
The customer perceives price as a cost in its offering. While some customers will be able to directly fund purchases, others will require financing assistance (GE Credit Corporation finances customer purchases.) Other customers may require JIT delivery while others may find value in the brand or image of a particular supplier, particularly if that image can add value to the final product (Intel Inside).
Exhibit 10-1
Value Activities
Value Enabling
Value Creating
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8. Maximum/Minimum Price
Exhibit 10-5
Attributable cost per unit
$ Equivalent
Value
Competitor’s Offering
Minimum Price per Unit
Competitor’s Price
Maximum Price per Unit
Customer view – Maximum worth of product
Cost
Acceptable Price Range
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9. Contribution Margin
Difference between ongoing costs and ongoing revenue
Represents portion of revenue that contributes to:
Fixed Costs
Indirect Costs
Profit
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10. Supply, Demand, Pricing Demand Supply Price Quantity Exhibit 10-7
Elasticity at P1Q1
(Slope of demand curve) Q1
Quantity
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11. Economic Fundamentals of Price
Demand levels differ at different levels of price
Changes in price yield reaction from customers
Changes in price yield reaction from competitors
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12. Strategic Purposes of Pricing
Achieving target level of profitability
Building good-will or relationships (in a market with certain customers)
Penetration of a new market or segment
Maximizing profit for a new product
Keeping competitors out of an existing customer base
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13. Tactical Purposes of Pricing
Winning business of new, important customers
Penetrating a new account
Reducing inventory levels
Keeping business of disgruntled customers
Encourage customer trials
Encourage purchase of complementary products
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14. Market Skimming and Market Penetration Pricing
Skimming: Charging relatively high prices that take advantage of early adopters’ strong desire for the product. Penetration: Charging relatively low prices to entice as many buyers as possible into the early market.
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15. Market Conditions Necessary for Success in: Skimming and Penetration
Perception must reflect high price
Market is inelastic
Sustainable market advantage
Competitive market entry blocked
Production levels profitable at lower volumes
Penetration
Market somewhat elastic
Low price acts as barrier
Economies of scale are necessary
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16. Pricing Decision Process
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17. Hypothetical Example: Competitive Bidding
Cost
Bid
Profit
Probability of Winning Bid
Expected Profit
$20,000 $0 .2
$22,000
$2,000 .5
$1,000
$24,000
$4,000 .7
$2,800
$26,000
$6,000
$3,000
$28,000
$8,000 .4
$3,200
$30,000
$10,000 .3
$32,000
$12,000
$2,400
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18. Determining a Bid Price
Expected Profit at a Given Price
ØE(PF) = PW(Pr) x PF(Pr)
Where:
ØE(PF) = Expected profit
ØPW(Pr) = Probability of winning the bid at price Pr
ØPF(Pr) = Profit at price Pr
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19. Final Negotiation Considerations
Who has the authority to make final decisions?
What are the bargaining styles of participants in bargain decision?
Is bargain perceived as transaction, relationship or both?
What evaluated price range is the customer expecting?
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