Friday, June 15, 2007

10 Things I Know About B2B Product Pricing

Everybody knows 10 things about something, right?

After all these years in B2B Technology marketing, one of the things I know 10 things about is product pricing. I will, of course, have to qualify this a bit, as most of my career has been not just in B2B technology, but in enterprise/expensive B2B technology. None of those $99-a-pop widgets for me! So, most of what I know about B2B product pricing is about $$$$ pricing.

  1. If you have a price that's well above every other competitive product on the market, your product better provide more value than the competitors' products.
  2. Just because it costs you $X to build a product doesn't mean that someone will pay you $X for it.
  3. If you have to charge higher prices because your costs are higher than your competitors' costs, and you can't really figure out what the extra value is to your customers, you better find a way to lower your costs.
  4. Providing more value is not the same as having more features.
  5. Even if you don't provide more value for higher price, somebody, somewhere will buy your product. The trick will be finding anybody else willing to do the same on a regular basis.
  6. Eventually, if you don't provide more value for higher price, you will either have to lower your prices or go out of business.
  7. If you really are providing a lot more value than the competitors' products, but your customers don't perceive that what you're providing is all that valuable, you've got a problem: you can either tough it out until your customers see the light or adjust your prices. (It's really not your customers' fault if they can't see the value. Trust me, it is seldom the case that they are "too stupid to see".)
  8. High prices do, however, confer a "halo effect", leading customers to believe that they're getting more value than they may actually be getting. Up to a point.
  9. Good marketing can consistently make up for an over-price of  about 10-15%. Beyond that, the unenviable burden is all on sales.
  10. Figuring out how to establish product price  for complex, B2B technology is really, really hard.

Now, these aren't the only things there are to know about  B2B product pricing. They just happen to be the 10 things that I know.

4 comments:

Mary Schmidt said...

Maureen,

Matches my list if I did one! I'd add:

#11: The more complex/more expensive the product, the longer the sales cycle.

#12: If you want higher margins, compensate the sales people on margin.

Glenn Gow said...

Maureen, excellent points. I’d like to add a few more:

13) Price is a relative term. Is it the initial license price? The monthly fee? The TCO over 3 years? Over 5 years? Does it include professional services? So, you need to know how your target market thinks about it

14) Price should be evaluated relative to the best alternative to addressing the business problem solved. This may or may not mean a direct competitor. Customers have a lot of ways of solving their business problems, not all of which entail buying a product.

15) What part does your product or service play in the entire solution? The price of your component should appropriately “fit” the value provided relative to the other components of the solution. You shouldn’t be the most expensive component unless (in the eyes of the buyer) you provide the most value.

16) Price is the “I” in the ROI calculation being made by the buyers. Price sensitivity is relative to a clear understanding of the “R”. In other words, if you can prove a higher “R”, you can charge a higher price.

Hope this helps.

Glenn Gow, http://www.crimson-consulting.com/blog_glenn.html

Maureen Rogers said...

Mary & Glenn - Thanks for some good additions to the list.

I love Mary's #12 on comping on margins. Nothing like having a sales guy drag in a big deal that contributes to the top line and bleeds the bottom line.

And I'd never really thought about Glenn's point on making sure that your price shouldn't be out of whack with other components in an overall solution, unless of course it provides the greatest (or least) value.

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