This post will tell you why B2B pricing is interesting, at least to me. (B2B being business to business marketing). I’ll point to some useful advice. That said, the advice also illustrates the conceptual challenges with pricing in channels. The challenges are so significant that it is sometimes hard to keep clear what is being said.
Advice On B2B Pricing
Eric Almquist, Jamie Cleghorn, and Lori Sherer have a piece on B2B pricing that does a good job of giving some advice on B2B pricing. I am not a fan of their use of the idea of rational and emotional approaches. Still, their central point makes sense. You shouldn’t think that B2C pricing is all clever psychology and B2B pricing is all hard numbers. Both are pricing. They have a lot in common.
The authors finish the article with a lot of sensible advice about pricing for B2B marketers. Of course, the authors being from Bain they can’t help but use Net Promoter as their measure of success. (For more on Net Promoter see here.)
Definitions Are Important But The Challenge Is A Reason B2B Pricing Is Interesting
Where I found the article challenging was their use of terminology. The authors may have had the ideas clear in their heads but it wasn’t clear to me. They made much of the idea of subjective considerations. This is a very tricky idea in B2B. Most obviously whose subjective considerations we are talking about needs to be very clear all the time. To illustrate, right at the beginning they say that “subjective criteria figured in as well. For instance, the vehicles have to reflect the company’s brand”. (Almquist, Cleghorn and Sherer, 2018, page 75). Is brand consistency subjective? What if there is a detailed style guide? The Target logo, for example, has very strict ways you can use it.
Taking a broader look beyond the style guide might allow one to say it is subjective but this gets confusing quickly. Is a Buick right for your company car? This might be subjective but whose subjective notions counts. The purchasing manager? Those driving the company cars? Those looking at those driving the company car? To my mind, this is what makes B2B especially interesting. It can get all very complex around the Cognitive Hierarchy. This is where we use differing levels of thinking. I think about what you are thinking. You think about what I am thinking you are thinking. I think about…. It makes one’s head hurt pretty quickly. This means you need to be especially meticulous with your definitions.
Challenge Of Ethical Standards
The authors try and shoehorn all their ideas into a Maslow’s Hierarchy of Needs type diagram. One can discuss how useful Maslow’s ideas are but it certainly makes for a good picture. The problem is getting their separate concepts in the right place. The most glaring challenge was that Ethical Standards are at the base of the pyramid. In contrast, social responsibility is at the top. The logic is that ethical standards are required to do business. What they call table stakes. Still, it is hard to see how ethical standards and social responsibility are so far apart. Can you have one without the other?
The authors also choose not to ask their survey respondents about what they thought of ethical standards. They said this was because ethical standards are table stakes — ethics are required so not differentiating. At the risk of sounding cynical, I wouldn’t have wanted to ask people whether ethical standards are important to them. This can mess up any survey. I’m guessing the answer is always yes. Those who care about ethical standards will say yes and those who don’t care about ethical standards won’t mind lying and saying ethical standards are important to look good. The authors thus neatly avoided a bear pit in their research with a plausible-ish explanation.
Terminology At The Same Level?
A final challenge I’ll point to is the problem of getting all the terms on the same level. By the same level, I mean that the terms are directly comparable. The alternative is that some terms might be causes of, or at least not totally different, from other terms. If terms are overlapping (heavily correlated) it can be hard to meaningfully separate them.
Take the idea of cost reduction. This is a fairly low-level dimension for the buyers. As such the authors’ thesis would suggest that there might be a tendency for most people to think this is more important than it is. (The argument is that people tend to over-rate such lower-level dimensions and under-rate higher-level attributes like ‘reduced anxiety’). Yet, other levels have terms that are likely causally linked with cost reduction. Configurability is a desirable feature. Why? Maybe because it reduces costs? Similarly, simplification can reduce costs as can time saving and reduced effort.
I don’t actually have a problem with trying to separate items. Just saying everything is connected to everything else is likely true but it isn’t a recipe for action. Still, it is worth bearing in mind that using a survey with conceptually overlapping terms is problematic.
In summary, B2B pricing is interesting. This article is likely to help in B2B pricing. Yet, it is far from a definitive, or to my mind perfectly cogent, view. For more on pricing see here and here.
Read: Eric Almquist, Jamie Cleghorn, and Lori Sherer (2018) The B2B Elements of Value, How to measure—and deliver—what business customers want, Harvard Business Review, March/April, 73-81