7.

Pricing

Business to Business Marketing by Shah M Saad Husain 1

 Price is the value (usually measured in monetary terms) at which
the seller agrees to sell a product or service to the buyer and the
value at which the buyer agrees to purchase

 This Exchange Transaction can be either:

 Fixed: the price is given and the buyer either agrees or

disagrees.
 Negotiable: buyer and seller bargain in some way until a mutual

price is agreed.
 A variation: one or more elements may be fixed and other

elements negotiable

Pricing in B to B
 Pricing and marketing
 Product positioning
 B2B and B2C markets
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Price and the B2B marketing mix
Price and product
 Pricing across the product portfolio
 The relationship between price and product value
 Price and product value in B2C markets

 B2C
 o Emotional as well as rational needs o Rational and functional needs
 o Advertising and branding o Delivery
 o Ease of payment method o Innovation and technical input
 o Economic circumstances o Importance of product/service to company
 o Importance of the decision in optimizing market position
 o Type of product or service o Risk involved
 o Target segment o Product knowledge and training offered
 o Convenience o Other benefits such as service and quality
 o Other benefits such as service,
 delivery, knowledge, etc.

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Price and the B2B marketing mix

 B2B
 Rational and functional needs
 Delivery
 Innovation and technical input
 importance of product/service to company in optimising market
position
 Risk involved
 Product knowledge and training offered
 Other benefits such as service and quality

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Price and distribution
 Price and marketing indirect
 Management tasks performed by B2B intermediaries
 Offering an established route to market.
 Holding inventory at levels that will satisfy customer demand.
 Demonstrating, explaining and selling goods and services.
 Handling customer complaints.
 Delivering the amount when and how needed – this task can take on added
 Importance with the advent of JIT inventory adoption methods.
 Handling damaged stock and returns.
 Paying for stock and so offering the supplier a type of early payment.
 After-sales service
 Price and derived demand
 Role of the intermediary in B2C markets
 Price and marketing direct
 Managing prices and costs along the supply chain
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Price and promotion
 Advertising and price
 Sales promotions and price
 Price and trade promotions in B2B markets
 As an incentive to open new accounts.
 To stock new products.
 To encourage a buyer to take extra stock and keep out competition.
 To help sell on existing stock held by the buyer as well as the seller.
 To take on added value and complementary products or services.
 To help with cash flow.
 Reacting to competitors’ promotional activities.
 Price and sales promotions in B2C marketing
 Extra benefits rather than price cuts
 Using price as a marketing tool
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Husain 6
Using price as a marketing tool

 Pricing by behavior
 Pricing by time
 Pricing by speed
 Pricing by level of service wanted
 Pricing by quantity demanded
 Pricing by payment method
 Pricing by delivery method and distance

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Strategic factors determining price

1 Price objectives and strategies

2. Costs
3. Customers
4. Market structures
5. Level of demand
6. Competitors’ prices
7. Legal considerations.

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Price objectives and strategies
 Marketing objectives
 Pricing objectives in the public and NFP sectors
 Pricing in the not-for-profit sector
 Specific B2B strategic pricing objectives
 At the corporate level
 To fit with the corporate mission
 To obtain a required level of return on the capital invested .
 At the marketing level
 To reach sales targets
 To make a profit
 To improve liquidity levels
 To open new accounts
 To open new markets
 To build long-term relationships
 To reward loyalty
 To offer added-value choices
 To meet fixed and variable cost considerations
 To sell across the product portfolio mix
 To match the competition
 To defend or attack against a competitor.

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B2B pricing strategies

Pricing low compared to the market norm

 B2B markets
 To achieve and maintain market share
 To enter new markets
 B2C markets
 To achieve and maintain market share
 To enter new markets

Building relationships

Pricing high compared to the market norm

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Discriminatory and differential pricing

 B2B markets
 Competition
 Small customer base
 Increased information
 International and global companies
 Power.
 Legislation

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Discriminatory and differential pricing

 B2C markets
 Competition
 Large customer base
 Many different product offerings
 Increased information
 Power.
 Legislation

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Flexible and dynamic pricing strategies

 Flexible pricing
 Systems pricing
 Dynamic pricing
 Competitive harmony pricing
 Pricing across the product life cycle
 Strategic pricing of new products
 Strategic and tactical pricing
 Long-term or strategic pricing objectives

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Short-term or tactical pricing
objectives
 Loss of market share
 Defence against increased competition
 Cash flow difficulties
 Guaranteed pricing because of inflation
 Discount pricing as a form of trade
promotional incentive, e.g. taking extra stock
or pushing slow moving line

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Costs
 Different sorts of costs
 Fixed costs
 Variable costs
 Mixed costs
 Identifying where costs arise
 Direct costs
 Indirect costs
 Costs of goods sold
 Marketing spend
 Overheads
 Sales commissions
 Intermediary mark-ups
 Shipping costs to distributors
 Possible returns
 Profit objectives.
 Cost and profit centres

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Costs
 Activity based costing (ABC)

 Activity based management (ABM)

 Selling at or below costs

 As a loss leader
 To break into new markets, for new customers
 Spare capacity
 To gain overall economies of scale
 Predatory pricing

 Bad debts and costs

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Customers and prices

 Pricing for different segments

 B2B markets

 B2C markets

 Customers in the public sector market

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Market structures and price
 Monopoly
 Controlled monopoly
 Oligopoly
 Monopolistic competition
 Free competition
 Adulterated competition.
 Public sector’s influence on commercial markets
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Other aspects of Pricing

 Price and levels of demand

 Competitor response to pricing
 Price and role of legislation in B2B markets
 Anti-competitive pricing legislation
 Pricing and incomes policies
 Subsidies

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Other aspects of Pricing
 Price elasticity in B2B
 The value that product or service represents to the buyer
(commodity or premium?).
 The importance of the component in the cost structure of the
customer’s product.
 Information available on alternative products and prices.
 The costs involved in switching from one supplier to another.
 The risks involved in moving supplier.
 The ability to pass on costs.
 The amount of competition.
 The availability of substitute products over both the short and
long term.

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Other aspects of Pricing
 Price elasticity in B2C
 The amount of disposable income enjoyed by the consumer.
 The basic need for the product.
 The importance of the product to a certain lifestyle and the
availability of substitute products, e.g. petrol.
 The availability of substitute brands; consumers tend to buy from a
repertoire of acceptable brands.
 The strength of brand in building loyalty. Advertising and global
branding can create a sense of uniqueness that will appeal to
consumer emotions and through this build in more inelasticity.
 Switching costs are less than in B2B and it is relatively easy for a
consumer to move from one retailer to another and from one
product to another as long as substitute products are available.

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Other aspects of Pricing

 Price negotiations
 Cooperative or adversarial approach
 Cooperative strategic pricing
 Price negotiation in B2B
 Price negotiation in B2C

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Other aspects of Pricing

 The internet and its effect on pricing

 The internet and differential pricing
 IT technology, computer software and its effect on
pricing

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Other aspects of Pricing
 Price and global markets
 Standards of living will vary from country to country and a reasonable price in one country will
seem exorbitant in another.
 If production is in the home country, then the same costs will dictate the price wherever
products are sold. This has driven many organisations to outsource production to the lowest
cost countries.
 By custom and practice prices across the whole market may be higher or lower than in the
seller’s home market.
 Similarly culture may have an effect on the way that prices are negotiated, agreed and then
paid for
 If production is in the peripheral country where the products are to be marketed rather than in
the home country, costs would probably be lower and so the price can be lower.
 Where exchange rates fluctuate, price changes can cause buyer concern and loss of sales if
the products become too uncompetitive. Long-term contracts and/or the use of a universal
currency such as the euro can help alleviate this.
 Transfer pricing by global companies can push the costs and profits to the most propitious
and beneficial country.
 Although countries are forming large trading blocs moving towards similar market conditions,
legislation, tax laws, subsidies and barriers to market entry will still possibly vary from country
to country. These factors will all have an effect on the prices that can be charged.

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Other aspects of Pricing
 Strategic and tactical methods for determining price
 Cost-plus pricing
 Going rate pricing
 Break-even and target revenue/profit pricing
 What-the-market-will-bear pricing
 Customer-driven pricing.
 Psychological pricing
 Lease pricing
 Sealed bid pricing
 Open bid pricing
 Auction pricing
 Bartering
 Reciprocal arrangements.

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B2B and B2C Pricing Differences
B2B
 Price negotiation possible
 Consultation through group qualitative and quantitative research
 Costs as well as price discussed
 Price auctions used
 Price bidding used
 Flexible pricing linked to customized products and services
 Individual company pricing
 Large and complex DMU involved
 Pricing to build supplier/buyer relationships
 Relationships more important than price
 Long-term contracts
 High pricing on premium products based on functionality
 Elasticity of price quickly filters through to buyer price
 Cooperative pricing along the supply chain
 Difficult to price discriminate - few customers and easy access to information
 Payment by extended credit

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B2B and B2C Pricing Differences
B2C
 Little price negotiation
 Individual discussion on price
 No discussion on costs
 Little use of price auctions
 Little or no price bidding used
 Little price flexibility
 Pricing by group segments
 Small, simple DMU
 Pricing to build mass loyalty
 Price more important than relationships
 No contracts
 High pricing on premium products based on brands and emotion
 Elasticity of price takes longer to affect consumer price
 No cooperative pricing
 Easier to price discriminate because of mass markets and lack of information
 Credit card, debit card or cash

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