Pricing & Negotiation

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.

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.

B2B pricing strategy should be:

 Always testing its pricing

 Always evaluating its pricing
 Using personas for pricing
 Using the correct value metrics
 Basing price tiers off of pricing personas
 Listening to customers

The pricing process for B2B customers includes the following steps:

Product Understanding -> Price Model -> Price Research -> Price Strategy -> Index Price

B2B Tiered Pricing Model

The tiered pricing model is a pricing method based on different segments in the same price range
to attract a wider audience of B2B customers.

In wholesale, since the buying/selling product quantity will often be large, setting different tiers
for price and discounts will help stimulate B2B customers to buy more, which often results in
higher sales for your business.

This pricing model is best suited for the case of excess stock and category control, especially
when you already have an edge of pricing advantage compared to competitors.
B2B Dynamic Pricing Model

Dynamic pricing is a model that does not follow a fixed price but dynamically changes the price
to suit the actual situation and the factors affecting it.

B2B Lead Generation Pricing Model

Price and Pricing Decision for Business Markets: Factor influencing Pricing of New Products

1. Product Cost:

The most important factor affecting the price of a product is its cost.

Product cost refers to the total of fixed costs, variable costs and semi variable costs incurred
during the production, distribution and selling of the product. Fixed costs are those costs which
remain fixed at all the levels of production or sales.

The price for a commodity is determined on the basis of the total cost. So sometimes, while
entering a new market or launching a new product, business firm has to keep its price below the
cost level but in the long rim, it is necessary for a firm to cover more than its total cost if it wants
to survive amidst cut-throat competition.

2. The Utility and Demand:

Usually, consumers demand more units of a product when its price is low and vice versa.
However, when the demand for a product is elastic, little variation in the price may result in large
changes in quantity demanded. In case of inelastic demand, a change in the prices does not affect
the demand significantly. Thus, a firm can charge higher profits in case of inelastic demand.

Moreover, the buyer is ready to pay up to that point where he perceives utility from product to be
at least equal to price paid. Thus, both utility and demand for a product affect its price.

3. Extent of Competition in the Market:

The next important factor affecting the price for a product is the nature and degree of
competition in the market. A firm can fix any price for its product if the degree of competition is
low.

However, when the level of competition is very high, the price of a product is determined on the
basis of price of competitors’ products, their features and quality etc. For example, MRF Tyre
company cannot fix the prices of its Tyres without considering the prices of Bridgestone Tyre
Company, Goodyear Tyre company etc.
 4. Government and Legal Regulations:

The firms which have monopoly in the market, usually charge high price for their products. In
order to protect the interest of the public, the government intervenes and regulates the prices of
the commodities for this purpose; it declares some products as essential products for example.
Lifesaving drugs etc.

5. Pricing Objectives:

Another important factor, affecting the price of a product or service is the pricing objectives.

Following are the pricing objectives of any business:

(a) Profit Maximization:

Usually the objective of any business is to maximise the profit. During short run, a firm can earn
maximum profit by charging high price. However, during long run, a firm reduces price per unit
to capture bigger share of the market and hence earn high profits through increased sales.

(b) Obtaining Market Share Leadership:

If the firm’s objective is to obtain a big market share, it keeps the price per unit low so that there
is an increase in sales.

(c) Surviving in a Competitive Market:

If a firm is not able to face the competition and is finding difficulties in surviving, it may resort
to free offer, discount or may try to liquidate its stock even at BOP (Best Obtainable Price).

(d) Attaining Product Quality Leadership:

Generally, firm charges higher prices to cover high quality and high cost if it’s backed by above
objective.

6. Marketing Methods Used:

The various marketing methods such as distribution system, quality of salesmen, advertising,
type of packaging, customer services, etc. also affect the price of a product. For example, a firm
will charge high profit if it is using expensive material for packing its product.
Pricing objectives and Determinants

PRICING OBJECTIVES

1. Profits-related Objectives:

Profit has remained a dominant objective of business activities.

Company’s pricing policies and strategies are aimed at following profits-related objectives:

i. Maximum Current Profit:

One of the objectives of pricing is to maximize current profits. This objective is aimed at making
as much money as possible. Company tries to set its price in a way that more current profits can
be earned. However, company cannot set its price beyond the limit. But, it concentrates on
maximum profits.

ii. Target Return on Investment:

Most companies want to earn reasonable rate of return on investment.

(1) fixed percentage of sales,

(2) Return on investment, or

(3) A fixed rupee amount.

2. Sales-related Objectives:

The main sales-related objectives of pricing may include:

i. Sales Growth:

Company’s objective is to increase sales volume. It sets its price in such a way that more and
more sales can be achieved. It is assumed that sales growth has direct positive impact on the
profits. So, pricing decisions are taken in way that sales volume can be raised. Setting price,
altering in price, and modifying pricing policies are targeted to improve sales.
ii. Target Market Share:

A company aims its pricing policies at achieving or maintaining the target market share. Pricing
decisions are taken in such a manner that enables the company to achieve targeted market share.
Market share is a specific volume of sales determined in light of total sales in an industry. For
example, company may try to achieve 25% market shares in the relevant industry.

iii. Increase in Market Share:

Sometimes, price and pricing are taken as the tool to increase its market share. When company
assumes that its market share is below than expected, it can raise it by appropriate pricing;
pricing is aimed at improving market share.

3. Competition-related Objectives:

Competition is a powerful factor affecting marketing performance. Every company tries to react
to the competitors by appropriate business strategies.

With reference to price, following competition-related objectives may be priorized:

i. To Face Competition:

Pricing is primarily concerns with facing competition. Today’s market is characterized by the
severe competition. Company sets and modifies its pricing policies so as to respond the
competitors strongly. Many companies use price as a powerful means to react to level and
intensity of competition.

ii. To Keep Competitors Away:

To prevent the entry of competitors can be one of the main objectives of pricing. The phase
‘prevention is better than cure’ is equally applicable here. If competitors are kept away, no need
to fight with them. To achieve the objective, a company keeps its price as low as possible to
minimize profit attractiveness of products. In some cases, a company reacts offensively to
prevent entry of competitors by selling product even at a loss.

iii. To Achieve Quality Leadership by Pricing:

Pricing is also aimed at achieving the quality leadership. The quality leadership is the image in
mind of buyers that high price is related to high quality product. In order to create a positive
image that company’s product is standard or superior than offered by the close competitors; the
company designs its pricing policies accordingly.
iv. To Remove Competitors from the Market:

The pricing policies and practices are directed to remove the competitors away from the market.
This can be done by forgoing the current profits – by keeping price as low as possible – in order
to maximize the future profits by charging a high price after removing competitors from the
market. Price competition can remove weak competitors.

4. Customer-related Objectives:

Customers are in center of every marketing decision.

Company wants to achieve following objectives by the suitable pricing policies and
practices:

i. To Win Confidence of Customers:

Customers are the target to serve. Company sets and practices its pricing policies to win the
confidence of the target market. Company, by appropriate pricing policies, can establish,
maintain or even strengthen the confidence of customers that price charged for the product is
reasonable one. Customers are made feel that they are not being cheated.

ii. To Satisfy Customers:

To satisfy customers is the prime objective of the entire range of marketing efforts. And, pricing
is no exception. Company sets, adjusts, and readjusts its pricing to satisfy its target customers. In
short, a company should design pricing in such a way that results into maximum consumer
satisfaction.

5. Other Objectives:

Over and above the objectives discussed so far, there are certain objectives that company wants
to achieve by pricing.

They are as under:

i. Market Penetration:

This objective concerns with entering the deep into the market to attract maximum number of
customers. This objective calls for charging the lowest possible price to win price-sensitive
buyers.
ii. Promoting a New Product:

To promote a new product successfully, the company sets low price for its products in the initial
stage to encourage for trial and repeat buying. The sound pricing can help the company introduce
a new product successfully.

iii. Maintaining Image and Reputation in the Market:

Company’s effective pricing policies have positive impact on its image and reputation in the
market. Company, by charging reasonable price, stabilizing price, or keeping fixed price can
create a good image and reputation in the mind of the target customers.

iv. To Skim the Cream from the Market:

This objective concerns with skimming maximum profit in initial stage of product life cycle.
Because a product is new, offering new and superior advantages, the company can charge
relatively high price. Some segments will buy product even at a premium price.

v. Price Stability:

Company with stable price is ranked high in the market. Company formulates pricing policies
and strategies to eliminate seasonal and cyclical fluctuations. Stability in price has a good
impression on the buyers. Frequent changes in pricing affect adversely the prestige of company.

vi. Survival and Growth:

Finally, pricing is aimed at survival and growth of company’s business activities and operations.
It is a fundamental pricing objective. Pricing policies are set in a way that company’s existence is
not threatened.

DETERMINANTS OF PRICING

Competition

A competitive pricing strategy, where prices for a product or service are set based primarily on
the prices of the competition, is best suited for a price-sensitive and highly competitive market.
Whether you use this type of strategy or not, you should always take your competition’s pricing
into account when setting your own pricing, unless you hold a monopoly. If consumers perceive
your product and your competition’s as having equal value, you could lose out in a big way if
your competitor’s price is lower than yours is.
Market Demand

The laws of supply and demand should always come into play when setting your pricing. If a
product is in high demand, particularly if demand exceeds supply, then the market can bear a
higher price. Conversely, if demand dwindles, consumers will not be willing to pay higher
prices. Your pricing should remain relatively stable over time, but you can put promotions in
place to discount the price when needed.

Brand Strategy

Cost of Goods Sold

Price models and skills, Pricing tactics, Negotiated pricing

Price models

Cost-based Pricing

This is perhaps the most-common way to price the products that you take to market. With this
model, you are going to use the cost of production as the basis for the final price that consumers
see when they make a purchase. The multiple that you use to price your goods is going to depend
on the industry in which you are working. Some industries see multiples around 2-3 times the
cost of production, while other industries are around 5 times or higher.

Portfolio Pricing

This is a great model to use if you are offering a service or, more specifically, a selection of
services. In the portfolio pricing model you are going to set up a pricing structure that makes
sense throughout your product or service line. For instance, if you run an accounting agency, you
may offer basic tax preparation services for a certain rate. Then from there, your more advanced
accounting services move up the pricing scale. It makes sense to price out all of your services in
this way so that each of your customers feels they are getting a good deal.

Market Pricing

As the name would indicate, this pricing model is all about the market conditions that you find
around you. Fortunately, in the internet age, it is relatively easy to determine market pricing for
just about any product or service. A quick internet search should lead you to the prices of your
competitors, and you can then react appropriately. Trying to sell a product that falls well outside
the market norms for pricing is always going to be an uphill battle, so the market pricing model
is a smart one to use.
Flat-rate pricing

Flat-rate pricing means offering one product, with the same set of features, for one price.

This model is easy to sell and communicate. Sales and marketing can focus on a single offer that
is clearly defined.

Freemium Pricing

The last model on our list is one that will only work for a specific segment of the market. In
freemium pricing, you give away your base service or product for free, in the hopes that satisfied
customers will decide to pay for more advanced features.

Pricing tactics

There are several different value metrics to consider:

Users: Customers pay more as the number of individuals who can access the product increases

Active users: Customers pay more as the number of people using the product increases

Feature usage: Customers pay more as the number of features they use increases, regardless of
the number of users

Activity: Customers pay for each activity conducted. For example, email marketing platform
users could pay per email sent

Negotiated pricing

A price agreed upon for the supply of goods or services by both buyer and seller. The final price
for a deal is determined through Negotiation between the buyer and seller. The effect of
Negotiation on pricing depends on the negotiating skills and positions of both parties, as well as
the commitment of both parties to pursue a long-term business relationship.

Pricing Skills

Results Orientation: We heard negatives about analysts who think the analysis itself is the
objective. On the other hand, we heard positives about analysts who recognize that their work is
a means to an end, and who always “keep their eye on the prize” i.e. business and financial
results.
Change Management: Most participants cited a need for pricing analysts to understand
organizational dynamics and how to go about fostering change within their organizations. They
expressed a need for pricing analysts to be masters of “influence without authority”. As one
participant put it, “Pricing is 40% figuring out what to do and 60% getting the company to do it.”

Problem Solving: We heard strong negatives about pricing analysts who could identify potential
problems, but had no idea how to go about solving them or preventing them from happening in
the future. Positives were expressed toward analysts who were capable of devising multiple
potential solutions to the same problem or issue.

3 C’s of pricing cost

Customer: Who is your customer? Have you done your market research to determine how much
they would be willing to pay for your product or service? Which customers do you want to
attract? Is your product or service aimed at a smaller group of customers willing to pay a higher
price for a premium offering? Or does it have mass appeal? In which case you might be looking
more at budget pricing.

Competition: You need to analyse your competition; and their pricing structure. Because you
can bet your bottom dollar that’s exactly what your potential customers will be doing. That’s not
to say you should always price match; indeed this can be a risky policy for small businesses as
competitive pricing results in a narrower profit margin, making your business vulnerable if costs
rise. As a smaller business think about value pricing, what are you offering that your competitors
are not?

Costs: A fundamental consideration in pricing is that you need to cover your costs and make a
profit. After all, we’re all in business to make money. How much does your product cost you?
Don’t forget that the cost of a product is more than the actual cost of an item, you’ll need to
factor in your overheads. Here at Johnston Associates South we can help you determine the
prices you should be setting for your product or service by ensuring you have a fuller
understanding of your costs and overheads.

Price positioning
Price positioning is the act of setting a price on a particular product/service that is within a
specific price range. The price positioning shows where a product is positioned as regards to its
competitors in a particular market as well as to the customer’s perception. With price
positioning, you will know whether the product is viewed as cheap (low-priced) or expensive
high-priced). Price positioning is significant to businesses that are trying to persuade customers
to buy a certain product/service.

 Penetration Pricing is the favoured alternative when a business is trying to attract a new
customer and convince to try the new offering by initially providing a lower price. In
doing so, it helps a new product/service enter the market and entice customers away from
rivals. The aim of a price penetration strategy is to convince customers to try a new
 product and create a market share with the expectation of keeping the new customers
when prices go back to normal levels.
 Neutral Pricing is the most common strategy and preferred option when the market has
fierce competition and little differentiation among competing offers. Prices are set so that
customers are somewhat indifferent between your product and your rival’s product after
considering all features and benefits, including price.
 Skimming Pricing is the opposite of penetration pricing. In price skimming, a business
sets the initial price high and then lowers it over time. During the new product launch,
when companies skim, they sell to customers with a high willingness-to-pay. As the
demand of the first customers slows down, the company lowers the price to attract
another tier of customers.

Roles of sales force in pricing

Sales management comprises the sales force, operations and practices to make the business reach
its target sales. Altogether, the management keeps up with the changing business trends of the
industry to stay ahead of the competition.

Sales Management Get Involved in the Pricing

 Identify market trends like what is selling the most

 Know what the competitors’ prices
 Affordability of the consumers
 Review old accounts to keep track of accurate pricing
 Inform guidelines to find the best customer pricing
 Educate sales force with value-based pricing and negotiations
 Analyse contracts and provide recommendations

Auction Sale
An auction sale is a public sale. The goods are sold to all members of the public at large who are
assembled in one place for the auction. Such interested buyers are the bidders.

The price they are offering for the goods is the bid. And the goods will be sold to the bidder with
the highest bid.

The person carrying out the auction sale is the auctioneer. He is the agent of the seller. So all the
rules of the Law of Agency apply to him.

But if an auctioneer wishes to sell his own property as the principal he can do so. And he need
not disclose this fact, it is not a requirement under the law.
Online Auctions
An online auction is a service in which auction users or participants sell or bid for products or
services via the Internet. Virtual auctions facilitate online activities between buyers and sellers in
different locations or geographical areas. Various auction sites provide users with platforms
powered by different types of auction software.

An online auction is also known as a virtual auction.

Ethical aspects of B2B pricing

Pricing a product ethically is a major decision for any business. Businesses who use ethical
pricing strategies to sell their products and earn a profit are far more respected than those that
hurt and defraud competitors or even consumers. To practice ethical pricing, you need to be able
to spot the ethical issues that hinder fair pricing.

An ethical pricing strategy goes beyond simply following the law. Similarly, not all unethical
pricing strategies are fraudulent or illegal. Ethical decisions are difficult sometimes because there
isn’t a defined line for morally right and wrong decisions. As with many ethical problems in
business, we need to take a step back, and view our decisions as a greater part of the business
community, and set ethical standards for ourselves.

Industrial Sales force management

A salesperson not only communicates product information to customers but also relays the
reactions of customers towards company and its products to his employer. Hence, the
management of sales force is an important aspect of marketing management. It is concerned with
the task of selection, orientation training, supervision, motivation compensation and evaluation
of the sales force of the company.

Recruitment & Selection of Sales Force

Right salesmen can help company achieve marketing objectives. Recruitment and selection are
two important decisions in sales force management that concern with ensuring the right type
(right qualities, right qualifications, and right experience) of sales personnel.

Problem of recruitment and selection arises when:

1. Starting a new company

2. Resigning and retiring of existing salesmen
3. Death of existing salesmen
4. Suspending of existing salesmen
5. Growth and development of company’s operations
6. Entering into new territories
7. Developing and introducing new products
Sales Force Motivation

Sales is one of the toughest jobs out there simply because of the number of rejections involved to
reach a sales target. You have to go against your better nature to make a sale.You need guts to
pick up the phone, not knowing what your potential customer might answer.You need guts to
approach someone whom you do not know, just to pitch your product.And you need persistence
to keep doing it time and time again, so that you become an excellent sales person.

Sales Motivation

On an average, only a few prospects out of hundred actually become clients. But because there
are sales targets for your sales staff, they have to keep approaching new customers so that they
can achieve sales targets. Because of this  unsure and hectic life of sales, where performance is
completely measurable against results, your sales staff requires sales motivation from time to
time.

There are various ways to provide sales motivation to your staff. One core method used for
motivation of any kind is “Recognition, Rewards and remuneration”. This can loosely stand
for

 Recognition – Growing people in your organization

 Rewards – Rewarding them for their work and
 Remuneration – Offering incentives or salary hikes to appreciate them.