B2B businesses need to conduct structured pricing research.
There are four ways to conduct B2B pricing research: direct price experiments, customer prospective opinions (conscious and unconscious), historical experience and hybrid methods.
Choosing the right pricing method for your organization is dependent on three factors: the number of new products, the number of products and the weight of investment in research.
Having a robust way to assess customers’ Willingness-to-Pay (WTP) is a key capability for all companies. It’s surprising to me how many B2B companies rely on gut-feel or ad hoc processes to get this done. This may be driven in part, at least, from not being familiar with the techniques and the various challenges each presents, along with a general lack of understanding of the importance of getting the price right.
Techniques to estimate Willingness-to-Pay (WTP) can be grouped as follows (I’m taking a ‘big-tent’ approach, so some techniques that give directional information are also included):
1. Direct Price Experiments
Testing different prices directly with customers during real purchasing decisions can offer great insight on WTP, but is often difficult or risky, and only works when the product is in-market.
Many of these techniques leverage existing data or insights to try to infer Willingness-to-Pay and price sensitivity. In most cases, they require the product to be in-market. They all suffer from being backward-looking.
There is a wide variety of techniques that can give important insights into prices. Which to use depends a great deal on three factors:
New or existing product(s)
Number of products
Importance of decision (driving size of investment in research).
The table below summarizes the options available against the first two of these factors.*
* Note, BPTO excluded since focused on brand, not number of products
In summary, a careful assessment of the most suitable techniques for your business can offer an excellent return on your market research and analysis budgets. Choose wisely.
Do you have any other techniques you use? Which are the most effective? Who do you see doing this well in the B2B space and what can we learn from them? Contact me if you’d like to review which techniques to use for your specific situation: email@example.com.
Dr. Ian Tidswell has 23 years of experience in Pricing and Strategy and holds a PhD in Physics from Harvard University. He worked for companies like McKinsey and headed pricing teams at Medtronic or Syngenta. Recently, Ian founded een Consulting where, as Lead Consultant, he is trying to solve the complicated B2B pricing puzzle.