B2B Marketing

Pricing
Pricing Process
Pricing Objectives
• Profit-oriented
• Speciality products
• High Margins
• Niche Markets

• Sales-oriented
• Low prices
• Mass market
• Capture market share

• Pricing as per market

Pricing Strategy
• Factors That Influence Pricing Strategy

(1) customer demand

(2) the nature of derived demand
(3) competition
(4) cost and profit relationships
(5) the market’s reaction to and perception of price, and
(6) government regulation.

Each of these dimensions is independently and jointly significant in the

pricing decision
Pricing Strategy
 Factors Influencing Pricing Strategy- Customer
Customer Demand
• The importance of the product to buyers’ end products . For these reasons, potential demand,
sensitivity to price, and potential profitability differ across market segments. In setting price to
influence demand, therefore, industrial marketers must understand how products are used,
recognize the potential customer benefits, examine the cost of owning and using the products,
and determine product values from the customer’s perspective.

Analyzing Customer Benefits: Product benefits may be functional, operational, financial, or personal
Analyzing Customer Costs
• In addition to weighing benefits, organizational customers assess the costs associated with
owning and using the product. By applying life-cycle costing, a method that calculates the total
cost of a purchase over its life span, the buyer evaluates all relevant costs Maintenance, repair,
operating costs, and useful product life are included in life-cycle costing analysis.
• Effective cost analysis should also include less obvious costs such as product failure or potential
production delays, particularly when these events represent un-acceptable risks that
customers will pay a price premium to avoid.
Factors Influencing Pricing Strategy-
Customer
Customer Price Sensitivity
• Product value is related to the buyer’s sensitivity to price. Price sensitivity
varies with purchasers, over time, and from one set of circumstances to
another. For instance, the buyer who can pass on the cost of a purchase (to a
subsequent customer) is less likely to be price sensitive than one who cannot.
Product price may be less important to engineers than performance variables
• The price of the product in relation to the total cost of producing an end
product can also influence a buyer’s sensitivity to price, as can the uncertainty
that accompanies a switch from a proven source to a new supplier.
• The customer’s price sensitivity is increased substantially where switching
costs are low
• Satisified customers are less price sensitive
Factors Influencing Pricing Strategy

Competitors
• In evaluating competing suppliers, organizational buyers assess the benefits of each
supplier’s total offering in relation to the price quoted.

Environment
• government regulations including
• price controls, import duties and quotas as well as taxes will have a major effect upon pricing
possibilities. Inflation is another important factor in pricing strategy

Distribution
• The costs associated with the services performed by distributors will have a major effect
upon the final price paid by the customer.

• End Market : Crucial to identify the trends in final consumer markets

Understanding Competition
• Competition plays important role in setting the upper price limit
• Degree of pricing power of a firm depends a lot of perceived level of
differentiation by the buyer
• Marketer can gain advantage over competition by differentiating on
technical expertise, delivery reliability, reputation, service & support
Pricing Methods
1. Cost + Profit Method
2. Target Costing
• Identify the market segment
• Identify the level of quality, features, service is required to succeed in the
segment (What benefit the customer is seeking?)
• Set target selling price (What is the best price the customer will be willing to
pay?)
• Set profit expectation from the product/ service (GM)
• Calculate the allowable cost (Cost of Goods Sold )

Classifying Costs
PRICING POLICIES
• Pricing policies include deciding upon list price and discount levels,
allowances, rebates, and geographic differences (standardization vs.
differentiation)
TERMS OF SALE AND PAYMENT
Competitive Bidding
Closed Bidding
• Formal invitation is given to potential vendors (RFP) to submit written
sealed bids
• All bids are opened at the same time
• Lowest bidder is mostly awarded the contract
• Can be manual or online

Open Bidding
• Sellers can keep changing their bid upto the last date
• Buyer may be communicating with the bidders during the process
• Useful when non-standardised product is to be bought
• Products/ services of the suppliers may vary substantially