How to Name Your Price in Inflationary Times
Inflation is a new experience for many of today’s B2B marketers. Find out how analyzing your market segments and providing well-defined pricing guidelines to your sales force can help your brand weather these “interesting times.”
We’re all seeing it every time we make a purchase. Inflation, not growth or employment, has become the primary global economic issue for the first time in forty years.
Those of us of a certain age can remember the double-digit inflation of the late 70s and early 80s. Of course, we don’t remember it fondly.
Today’s inflation is largely of the “cost-push” variety. Supply chains are in disarray, Russian oil is under sanction and Ukraine’s wheat isn’t making it to market. All these supply constraints raise our cost of doing business.
Marketing Mix - Product, Place, Promotion and PRICE
The marketing mix’s traditional “four Ps” include product, place, promotion and price. With both consumer and producer prices having been so stable for the last few decades, a lot of marketers haven’t had to devote much thought to that fourth P – until now.
So, how do B2B marketers develop pricing strategies that respond appropriately to the challenge of inflation? Our world is different from marketing consumer packaged goods.?
As we’ve all seen at the service station and the grocery store, B2C pricing strategies have been reasonably straight forward. Brands have unceremoniously passed their rising costs on to consumers.
Pricing Isn't as Straightforward for B2B Brands
Pricing isn’t as straightforward for B2B brands. We may publish a price list, but everyone knows those list prices are relatively negotiable, depending on the client’s situation.
List price hikes often merely make up for discounts and other concessions brands have made to preferred clients over the course of the pandemic.
It’s an old cliché that the Chinese word for “crisis,”?weiji,?combines the words for danger and opportunity. My East Asian friends tell me that’s not altogether true linguistically, but there’s still a grain of truth to the underlying philosophy.
Today's Inflation Can Be an Opportunity for B2B Marketers
Today’s inflation can be an opportunity for B2B marketers, provided they learn to manage their pricing strategies carefully. A period of inflation creates an opportunity to proactively rethink your brand’s pricing structure.
Most people managing brands today aren’t used to considering how to pass on higher input costs to clients without the risk of losing market share or high-volume customers. Even so, to maintain a healthy profit margin, you’ll have to get used to this way of thinking.
One approach to revising your pricing model is market segmentation. By reviewing your customer base, you can probably isolate some client categories based on sales volume, profit margins, cost-to-serve and buying history, among other pricing factors.
Prioritize Market Segments Based on Pricing Strategy
On that basis, you can prioritize market segments based on categories whose business you’re willing to risk with a jump in price and those you plan to handle with care. Once you’ve defined those segments, you can draw up separate price lists for each customer category.
As I mentioned earlier, everyone on both sides of the negotiating table knows that B2B list prices are always negotiable. The larger the proposal, the more flexible customers expect your terms to be.
领英推荐
When rising input costs weren’t such a major concern, this discounting tended to be somewhat random. Pricing got worked out using a case-by-case approach.
More Methodical Strategy for Negotiating Contract Terms
When your brand faces pressure from rising supply costs, it may be time for a more methodical strategy for negotiating contract terms.
This is another way you can apply your market segmentation research. Along with separate price lists, your brand can also develop discounting guidelines by market segment.
Clients who fall within your high-value market segments might also warrant more latitude in terms of discounts or other concessions. Your brand would give lower priority client categories less flexibility for negotiation.
Make Discounting Rules Less Ad Hoc
Whatever your brand comes up with on discounting rules, the key is to make them less ad hoc and more rational and structured.
The people who will bear the brunt of your brand's pricing challenges will be your sales force. It’s stressful for a sales representative to be eyeball-to-eyeball with a customer who wants a discount. They need to be clear in their mind on how much leeway they have to offer more favourable terms. Otherwise, they may try to avoid the issue.
That’s another application for your market segmentation research. You can make pricing guidance available to sales staff in real time, either by client category or even by individual target customer. You can even let your sales force review customer history to give them an idea if there’s any rationale for flexibility.
Dynamic Pricing Leads to More Effective Market Monitoring
According to a study by Bain and Company, just under half of B2B companies now use these kinds of dynamic pricing strategies with their clients. Perhaps more importantly, those dynamic pricing firms were two-and-a-half times better at monitoring and responding to market conditions.
These dynamic pricing strategies improved sales performance. Experienced, high-performing sales reps have a feel for the right factors to consider around price negotiations.
Clearly Defined Pricing Policies Guide Newer Sales Staff
However, with today’s Great Reshuffle, most brands are faced with bringing newer sales staff up to speed. That’s where clearly defined pricing policies and customer data can provide support and guidance to shorten the sales force learning curve, especially those younger staff who’ve never experienced inflationary pressures before.
Inflation complicates an already challenging role for B2B marketers. Effective market segmentation analysis combined with clear guidance for the sales team can enable brands to navigate these “interesting times.”
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