ASSIGNMENT OF B2B

Build Pricing Strategies and Pricing policies for any B2B Product.
Submitted by: Siddharth Kaushik (15SECE106001)
Integrated BTech+MBA
BATCH 2

B2B pricing is the process of setting prices on goods or services with the intent of marketing and selling

them to other businesses, and not directly to consumers.

B2B Pricing Strategies

Three common B2B pricing strategies are Value-Based Pricing, Cost-Plus Pricing, and Competitor-Based

pricing. The most powerful B2B pricing strategy is Value-Based Pricing, as it forces you to look outward

at your customers to form the perfect pricing strategy for your B2B business.

Overall a great B2B pricing strategy should be:

 Always evaluating its pricing

 Always testing its pricing

 Using personas for pricing

 Using the correct value metrics

 Basing price tiers off of pricing personas

 Listening to customers
Key Variables in Pricing Strategies

The optimal price for a product is influenced by many variables. Competition, the general economic
environment, perceived value, and emotional factors are just a few to consider. In addition, the product,
the customer, and the market all have unique price sensitivities to consider. Constructing an algorithm to
accurately factor in all variables is difficult, but by considering the heuristics for the product, customer,
and market price sensitivities, you can improve pricing performance for each transaction.

Three Product Types

Different products have different price sensitivities. Within your own product line, you may have
premium products, commodity-type products, and custom-type products. Margins on your commodity-
type products are typically lower and they tend to be very price-sensitive. They should be priced
differently than your premium or custom products, which are less price sensitive and have higher
margins. Your pricing strategy should reflect these heuristics. Begin pricing by correctly identifying the
product category based on price sensitivity.

Your Customer’s Profile

Every customer is unique and has their own price sensitivity. Large volume customers tend to be more
price sensitive than smaller volume customers. Customers who purchase frequently are also more price
sensitive than less frequent buyers. In addition, different customers have an individual perception of the
value of support and brand relationship. Customers who place a high value on relationship and product
support are less price sensitive than those who perceive these elements to be less significant. It also helps
to know where your customers are in their own business cycle and whether speedy delivery is something
they’d be willing to pay extra for.

Market Growth Dynamics

Each market has its own level of sensitivity, which greatly depends on market growth numbers and the
level of market saturation. Active growth and low saturation allow for better margins, while a plateauing
market entails increased price sensitivity. If your products serve multiple markets, you must consider the
sensitivity of the market as well as the product. The pricing environment of your industry is a variable as
well. In some markets, movement by an industry price leader can impact prices for all market players.
Align Economic and Emotional Value
Willingness-to-pay isn’t just a factor in the B2C marketplace. B2B companies need to consider it as well.
It’s the sweet spot where economic and emotional values intersect to create perceived value. If you are
targeting customers that are innovators and early adopters, they are less price conscious. This segment is
driven by the high emotional value of gaining a competitive edge and supports a high economic value.
On the opposite end of the spectrum are buyers that place no emotional value on your product. The
purchase has low to no emotional value and willingness-to-pay is low as well. You must carefully match
their perceived economic value to your price.
But the vast majority of your market lays in the middle, meaning that buyers are rational overall, but can
sometimes be subject to emotional surges. For these, you must price according to the economic drivers
specific to their niche. Your pricing must support their own pricing metrics and value models.

Pricing Strategies
Too often, cost-plus pricing is the standard strategy. It’s easy because it doesn’t require market research
or understanding the psychology of customers or competitors. It is also inefficient and does not maximize
profits. Cost-plus pricing assigns the same margin to every customer even though we know that
customers have different price sensitivities and emotional values. Cost-plus pricing can be effectively
used to set price and margin floors. These floors can be used as the starting point for developing a value-
based pricing strategy.
Competitive pricing is essentially price plagiarism. You look at what the competition is doing and price
your products accordingly. Using this strategy places no more value on your products or brand than that
of your competitors.
Value-based pricing takes time and data but it maximizes profit per customer. By pricing per customer,
per product, and per market, you focus on the customer to set your price. For example, large customers
with tremendous buying power are priced differently than small customers who make infrequent
purchases. Unlike static cost-plus or competitive pricing strategies, value-based pricing is more dynamic
and because it is more customer-based, it can improve marketing efforts as well. After all, once you
understand your high-value customers, you can grow by targeting leads that resemble these customers.

Example scenarios:

Jim Semick, who co-founded ProductPlan, has written in-depth about this for Pragmatic Marketing.
Here’s how Jim described using customer-value-based pricing when he was part of the founding team that
launched the conferencing app GoToMeeting:

“When we were determining pricing for GoToMeeting, we interviewed dozens of potential customers to
gain a deep understanding of the value they might receive from conducting online meetings with our
solution. We discovered:

 Lifestyle benefits from conducting meetings remotely

 Cost and time savings from reduced or eliminated travel

 Reduced frustration by not using complicated solutions

  Cost savings from switching to our solution versus expensive per-minute pricing of existing
solutions

By understanding this customer value, we developed GoToMeeting’s unique $49 “All You Can Meet”
flat-rate pricing (an industry-leading innovation at the time). Because the product was SaaS, we had the
flexibility to price our product different from the competition and create a unique product in the market.
In a sense, we made pricing a part of the product. It became a differentiating feature that marketing
promoted heavily.”

Another example: Marketing author Bob Bly uses the 10x strategy in pricing his books and other
information products according to customer value. He argues that your products should provide yours
with 10x the value of its price.

If Bly releases an eBook about becoming a better public speaker, he will describe the return on
investment to the customer using the value-based strategy. Let’s assume the book costs $20. Bly will
explain that if the reader can apply even a few of the book’s tips to become a more effective public
speaker, this could lead to more speaking opportunities. Just one possibility will be worth many times the
book’s price. If the reader uses a tip or two to become more persuasive in meetings at work, the benefits
to that person’s career will be worth far more than $20.

Bottom line: The best SaaS pricing strategy is value-based pricing.

Step 2: Quantify your buyer personas

The buyers of B2B SaaS products are often not the same people as the end-users of those products. They
are managers, heads of departments, and company executives.

Your next step in deciding how to price your products will be to learn who these people are and how best
to approach them. Price Intelligently offers this advice for quantifying your buyer personas:
  Conceptualize your most important personas. Build unique personas for the three or five types
of B2B buyers you want to target. These will vary by job title, company size, industry, and the
specific functionality in your product that each persona will care about most.

 Determine what data you’ll need about each persona. You’ll want to learn, for example, about
each persona’s price sensitivity, budget, and willingness to pay. You’ll also want to find out
which features will have the most appeal to these personas, and which types of value messages
will resonate with them.

 Collect the data. You will use surveys and one-on-one interviews with each of the buyer
personas you’ve identified.

 Analyze the data. In this stage, you’ll segment and study the answers you’ve gathered from your
survey respondents and interview subjects. Your analysis should lead you to conclusions about
how much your personas value your product and how much they’ll be willing to pay for it.

 Target the high-value personas. Finally, you will take these learnings and arm your sales and
marketing teams with the information they need to pursue the buyer personas most likely to
become customers.

Step 3: Calculate the average customer’s lifetime value (LTV)

The lifetime value (LTV) is the total revenue a customer will add to your product’s bottom line, minus the
total costs of acquiring and keeping that customer.

For example, Jim Semick discusses this scenario in his Pragmatic article:

“If you license your software at $25 per month, spend $5 a month delivering and supporting the service,
and keep an average customer for 18 months, your rough LTV is: (25-5)*18 = $360.”

As products and companies mature, their overall costs stabilize, and those companies can begin enjoying
the economies of scale. When this happens, a product team can enjoy revenue streams that increase
relative to their costs—resulting in a higher average customer lifetime value. But as Jim points out, your
cost-to-revenue ratio could be higher during your product’s early years.
Understanding your customer LTV will help you price your products more accurately and strategically.

Step 4: Choose a pricing model

SaaS companies price their products using a wide range of models, so you will have many options to
review. Here are several SaaS pricing models, along with examples of real SaaS businesses that use them:

 Per-user (many SaaS products)

 Per-user with free participants (GoToMeeting, ProductPlan)

 Storage (Dropbox)

 Features (plans based on feature tiers)

 Project (Basecamp)

 Freemium (LinkedIn)

 Per item/contact (AppFolio, Hubspot)

 Per Node/Server (Hadoop)

 Processor time/Data transferred (Amazon Web Services)

 Per Visitor/Traffic (AdRoll)

 Open Source (free with paid services)

 Advertising (Facebook)

 Broker fee (AirBnB)

When selecting your preferred pricing model, you will want to choose a model that aligns with your
customer’s goals and ability to pay. If possible, you should also use a pricing model that allows you to
stand out from your competition. Jim and his team at GoToMeeting did this, for example, with their “All
You Can Meet for $49” flat monthly rate.
Step 5: Experiment and learn

At this point, you’ve identified value-based pricing as your strategy. You’ve developed a picture of your
most valuable buyer personas, built an estimate of customer lifetime value, and chosen a specific model
for your pricing.

Now it’s time to test those details in the market. Today you have many tools and approaches available to
make it easy and affordable to learn the ideal price both for you and your customers. For example,

 A/B split tests. This approach involves segmenting your ad or landing page to different audiences
and changing only the price.

 Offering tiered pricing with different levels of service. This strategy employs price anchoring,
a powerful psychological tool that influences a buyer’s perception of one price based on the
availability of a similar product at a different rate. If you offer a standard and premium version at
various price points, for example, buyers are more likely to perceive the standard price as
reasonable because the premium is far higher.

 Free, limited-time trial period to use your SaaS solution. One of the most powerful aspects of
this approach is that it removes the friction that buyers always experience when asked to pay even
a small amount.