To truly differentiate yourself in the market, top companies think about how they can better align their pricing models to the preferences of their target audience. As you head into 2019, question the existing norms. Ask how you can differentiate yourself.

Are you a company that evaluates your pricing as part of an annual process?

 

Congratulations, you are in select company.  The majority merely glance at the competition, evaluate their price, and make minor adjustments.  The better organizations look at their solutions relative to the competition, identify where they are on the premium to bargain spectrum, and price accordingly.  The best take a path that truly takes into consideration the preferences of the buyer, and prices accordingly.  This puts them into a unique category, that can lead to a sustained competitive advantage.

 

How a Differentiated Pricing Method Can Set Your Company Apart

 

Salesforce.com pioneered Software as a Service pricing, rapidly gaining market share, because it deviated from the traditional Contract and Maintenance model.  Today, we live in a subscription economy, where contracts seem antiquated.

 

Google Adwords captured marketing dollars through an auction – where advertisers can assess the value of an individual click and bid accordingly.  This model killed obscure and hard to decipher traditional web-based marketing contracts.

 

Are these the right models for your company?  It depends.  The question top pricing experts ask themselves is “Does my pricing model match the way my customer derives value from my product?”  There is no silver bullet model across the B2B spectrum. However, there are plenty of terrible ones that stall sales, and hamper your growth.  Ask Siebel how contract and maintenance pricing worked out in the CRM space 15 years ago.

 

Download the Strategic Pricing Framework Guide to discover how top companies think about their pricing, evaluate the proper way to think about your own pricing strategy, and leverage different pricing strategies, structures, levels, and executions.

 

What Are the Most Common Pricing Methodologies in B2B Organizations Today?

 

To bring you up to speed, here are some of the most common pricing methodologies used by companies today:

 

  1. Pay Per Use

     

    The Account pays based on usage metrics.  Popular in utilities, and areas that have a high amount of variable costs associated with consumption.

     

    • Obscure Price Metrics: As our technology advances this can be applied in even more obscure ways. Many customers who purchase GE engines now pay for them on a “Per Hour” basis.

       

  2. Auction

     

     Used when there is limited availability, where the highest bidder(s) get the item.

     

  3. ROI (Portion of Value)

     

     Popular with many services like purchasing groups or travel agencies, where the entity captures a portion of the savings that the client realizes.

     

  4. Contracts

     

    Used in large scale purchases, where a vendor agrees to fixed cost of certain amount of time in exchange for the service.  Note:  Maintenance is often added to these contracts (although this part is really a subscription).

     

  5. Rental

     

     Popular in businesses that prefer OpEx to CapEx spend. Rentals are usually found in large capital equipment manufacturers.  One of our clients installed high-scale fences on the sites of their clients, and “rented” the fence to the vendor on the property.

     

  6. Subscription

     

     The model that revolutionized the software industry.  Here, an account pays on a desired interval, and has the option of ending the contract on every interval, or after a predetermined number of intervals.

     

  7. Freemium

     

     A derivative of subscription, where a product or service is free, but there are incremental charges for enhanced features, features, or goods (virtual or physical).

     

  8. Licensing

     

     There is the traditional software license that we are all aware of.  But some firms license their IP to a firm – whether it’s training courseware, or something as advanced Microprocessor chip technology.

     

Questions the Top Pricing Experts Ask Themselves Every Year

 

As you begin your planning in 2018 – here are the core questions every pricing expert should be asking themselves in the next cycle:

 

  1. Which model works best for our company and buyers?

     

    Nobody has a better experience in pricing in the last decade than the music aficionado.  At the begging there were bulky albums, where we paid $15 for 1-2 songs we wanted.  Then came itunes, which allowed users to only purchase the singles they chose.  Now there are streaming services, that give you a musical library unimaginable 30 years ago, for $10 a month.  Each successive model was more aligned to way a customer derives value for a product.

     

  2. How is the competition pricing, and is it impacting our business?

     

    In the pricing game, you can gain a competitive advantage by understanding the strengths and weaknesses of your competitors plans.  Southwest takes advantage of hefty change fees charged by traditional airlines, and charges nothing.  Google Docs used a subscription based program for Businesses using their services (quickly followed my MS Office). 

     

    The minute an industry gets comfortable with standardized pricing model is the moment an upstart competitor will swoop in with a superior one.  Pricing experts must constantly question if their methodology should be changed.

     

  3. Can we adjust our model based on Customer Segments?

     

    Different buyers have different amounts that they are willing to pay at different points in their time.  Consider many software companies that offer “Student” packages that is an exact replica of their Corporate package. The difference?  The ability for these students to pay. If you’re a local Floridian, Disney World recognizes your willingness to pay will be lower relative to an out-of-towner.  Specific industries, like Aerospace and Medicine, are much more willing to pay a premium on products.

     

    Some companies recognize and build a pricing module accordingly. In this same vein, different customers have different methods of paying – Startups prefer a monthly subscription.  The bureaucracies of purchasing if you are associated with the government make long-term contracts much more appealing.

     

What You Can Do To Ensure Pricing Is Part of Your 2019 Plan

 

Are you considering these factors in 2019?  Or are you going to continue to go with tried and true?  To truly differentiate yourself in the market, top companies think about how they can better align their pricing models to the preferences of their target audience.   As you head into 2019, question the existing norms.  Ask how you can differentiate yourself.

 

Use our Pricing Strategy Framework guide, or reach out to one of our experts, for more help on the subject.

 

Download the Strategic Pricing Framework Guide to discover how top companies think about their pricing, evaluate the proper way to think about your own pricing strategy, and leverage different pricing strategies, structures, levels, and executions.

 

 

Additional Resources

 

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ABOUT THE AUTHOR

Drew Zarges

Helps companies overcome their biggest sales and marketing challenges to accelerate revenue growth.

Prior to joining SBI in 2011, Drew worked in the intermediary investment sales world. During that time, he worked his way up the ladder from client service representative to leading and coaching his former company’s sales team on the west coast. At SBI, Drew has served some of the company’s most prestigious accounts as a consultant. For these clients, he successfully executed everything from sales process and lead generation projects to highly technical account segmentation work.

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