Setting your B2B pricing is undoubtedly the most crucial aspect of your business and can be tricky because B2B buyers have requirements vastly different from B2C customers.
There are more decision-makers, approval workflows, the sales cycles are longer, and, in many cases, the products tend to be high-ticket, meaning that you can’t merely copy the pricing strategies utilized in the B2C eCommerce space.
This is a comprehensive post on the complete B2B pricing process, the impact your business model has on pricing, how to determine what strategy works best for you, examples of 8 pricing strategies to get you started and to give you a competitive advantage in the market, traditional pricing strategies, and pricing mistakes to avoid.
Contents
- Your Business Model Will Impact Pricing
- 8 Examples of B2B eCommerce Pricing Strategies to Get You Started
- #1 Customer-Specific Pricing
- Traditional Pricing Models
- When should you use value-based pricing?
- When should you use cost-based pricing?
- When should you use competition-based pricing?
- When should you use elasticity-based pricing?
- 15 eCommerce Pricing Mistakes To Avoid
- An eCommerce Platform That Lets You Do All Of The Above
Your Business Model Will Impact Pricing
Factors such as your brand positioning, customer loyalty, product differentiation, segmentation will greatly determine your pricing strategy.
The Impact of Branding
Customers often associate a higher price with a higher product value. Your target market and the brand recall and strength can dictate if you can use branding to influence or justify the pricing.
The Impact of Product Differentiation
You can determine a pricing strategy based on product differentiation if your products offer services or features that your competitor doesn’t. You can also provide price differentiation for different versions of the same product.
For example, price your base product at the average market rate, an entry-level product with fewer features at a lower price, and a premium product with full features at a premium price.
The Impact of Customer Loyalty
A prime example of pricing determined by customer loyalty is Apple. Apple products like the MacBook, iPhone or Airpods are priced in the top tier in their category. Yet, their branding and product differentiation when combined with unwavering customer loyalty, allows them to not only price their products as the most expensive in the market, but also consistently increase the price of their products without affecting their market share.
The Impact of Customer Segmentation
Let’s stick with Apple as an example because they do this so well. They have an iPhone SE for entry-level Apple customers who want to own an iPhone but may find it priced higher than their budgets. Then there’s an iPhone 12 for the average customer and iPhone 12 Pro Max for customers willing to pay a premium.
Optimize your prices by segmenting customers on what they’re willing to pay for your products.
8 Examples of B2B eCommerce Pricing Strategies to Get You Started
#1 Customer-Specific Pricing
Not all your B2B customers will be the same. You may have buyers ranging from small to mid-sized businesses to larger corporations or institutions. The volume or frequency of their purchases will differ, and so can the prices you offer.
#2 Dynamic Pricing
Dynamic pricing is a pricing strategy where you fluctuate the prices of your products based on real-time factors like market conditions, customer expectations or industry disruptions. Dynamic pricing is used in several industries, including retail, aviation, and transportation, specifically industrial and medical supplies in B2B markets.
Airlines are often called the trailblazers in dynamic pricing as they started using this strategy as early as the 1980s. A most recent example of dynamic pricing is the surge pricing of Uber, when the demand in some areas is higher than the number of drivers available to meet this demand.
B2B companies can use this same tactic in situations where demand for products is high but they cannot meet the demand immediately due to a lack of resources. This will work only if, as an industry, there is a shortage of resources.
#3 Predatory Pricing
Predatory pricing, aka underselling the product, is when you offer products at a price lower than their actual value to undercut a competitor. This pricing strategy can create a race to the bottom and eliminate competitors from the market by creating an unfair market advantage. Predatory pricing can be deemed illegal when done to the point of monopolization.
For example, 3rd party sellers on Amazon and Amazon themselves frequently lower their pricing to beat competitors to win the Amazon Buy-Box and entice customers to buy from them instead.
For B2B stores, an excellent time to use predatory pricing is when you’re trying to sell out inventory quickly and can afford to drop your price for some time without taking heavy losses.
#4 Product Bundling
The product bundling strategy is to bundle several products into one package. The package is then priced lower than the total cost of each product sold separately.
Product bundling is a great draw for customers and is a smart way to direct customers to specific packages that make the most sense when bought together and solve common related problems.
AT&T bundles of internet packages with voice or TV is an example of bundle pricing in action. This enables AT&T customers to solve multiple problems at once and also save money.
#5 Limited Time Only Pricing
This pricing strategy can be used when the demand for a product or service is high, and the supply is limited, and the product’s price continues to increase until both the supply and demand reach an equilibrium. An example of this tactic is when companies release new products or services and restrict access to invite-only, and once the product is rolled out to everyone, the price keeps increasing until it stabilizes.
Spotify uses a limited time only pricing strategy to roll out new availability in newer markets and encourage premium signups.
#6 Regional Pricing
Regional pricing is when the prices for products vary based on location. Several factors like accessibility, remoteness, demand, cost of living, average income, legislation, taxes etc., can determine if customers in different areas, regions, cities or countries pay a lower or higher price than those in a different location.
An example of this is gas stations in urban areas have a different price than gas stations in the country.
#7 Members vs Non-Members Pricing
Membership programs provide different pricing structures for members vs non-members or additional features and discounts for members while non-members pay a standard price.
#8 Freemium Pricing
The freemium pricing model is popular among SaaS companies where a base product is offered for free. To unlock additional features and benefits, customers have to pay a higher charge. Different pricing structures are offered for small or large customers based on number of users, etc. Another example of a freemium pricing strategy is Spotify where a base product is available.
Traditional Pricing Models
A stellar pricing strategy can give you an edge over your competitors. Below are some traditional pricing models with pros and cons listed to help you get a deeper understanding into pricing for B2B eCommerce.
# Value-Based Pricing Model
The focus here is on the customer. The product is priced on the deemed value and benefits of the product for the customer.
The luxury brand Louis Vuitton is an example of value-based pricing. Louis Vuitton branding creates a consistent aesthetic and aspirational value of a high-quality brand that allows them to charge a higher price for their product.
Pros of value-based pricing
Allows for high-margins as the price is based on a deemed value and not on the cost of goods.
Cons of value-based pricing
To set a value-based price for products, you need a firm understanding of your target market, buyer personas, aspirational values etc. The value-based pricing strategy can vary by product niche, and though competition doesn’t determine how you price your products, it can still have an overall impact on your brand.
When should you use value-based pricing?
Use a value-based pricing strategy if your product holds an emotional appeal to your target audience or if there is an element of scarcity attached to it.
# Cost-Based Pricing Model
In cost-based pricing, the price of the product is based on the cost to make, distribute, store and market the product. Once the cost is determined, a desirable profit or markup is added to decide the selling price of the product.
Many eCommerce stores that buy their products at a wholesale price use a cost-based pricing strategy and sell their products to buyers at a retail price after adding a profit percentage markup.
Examples include large retailers like Walmart or Target, who buy products in bulk at wholesale prices, add their markups and sell to their customers in their retail or eCommerce stores.
Pros of cost-based pricing
A cost-based price is very easy and straightforward to determine. You do not need to factor in any market vagaries, competition, value, etc. This strategy is useful when determining the price of new products where there are no parallels to draw or any established method to determine price with any other pricing strategy.
Cons of cost-based pricing
Since a lot of factors are not considered, you can overprice or underprice products without considering the demand or competitor pricing.
When should you use cost-based pricing?
Use this pricing strategy when releasing a new product with limited market data. Add a profit percentage markup to the product cost after factoring in the CoGs. You can later build another pricing strategy when you have additional information and data.
# Competition-Based Pricing Model
The competition and how they price similar products is taken into account when pricing products using a competition-based pricing strategy. When the products are similar and the market is competitive, you can price your products in the same price range as your competitors but differentiate your products with branding and marketing strategies.
For example, brands like Coke and Pepsi offer similar products, but their brand positioning and marketing differentiates them from each other, with both having a set of loyal customers.
Pros of competition-based pricing
A competition-based pricing strategy, like the cost-based strategy, can be quite simple to implement and offers a lower risk than the other pricing strategies.
Cons of competition-based pricing
Unless your branding game is really strong, you can get lost in the noise, leading to missed opportunities.
When should you use competition-based pricing?
This pricing strategy works best in a crowded market. Determine your price based on competitor pricing , and then focus on creating a strong brand with recall value through your marketing, branding and customer service strategies.
# Elasticity-Based Pricing Model
Let’s start off with an example of elasticity-based pricing. The price of an iPhone when it was first launched was $499. Smartphone prices now go over $1000 in a market that has remained quite steady in the last few years. This is called the elasticity of a product, i.e. does the price of a product change if the demand remains unchanged? Smartphones are inelastic, i.e. the demand does not determine the price. An item with a higher elasticity will see its demand drop if prices were increased.
Pricing elasticity refers to how the demand for a product changes according to changes in price. This is how you determine elasticity-based pricing.
Pros of elasticity-based pricing
An elasticity-based pricing strategy will not need to be changed very often.
Cons of elasticity-based pricing
New products and innovations can make your products redundant for instance, VCR tapes became redundant with the advent of streaming platforms like Netflix and Hulu.
When should you use elasticity-based pricing?
This pricing strategy is best used for products that are considered commodities. You can then fluctuate the price based on increases or decreases in overall demand.
15 eCommerce Pricing Mistakes To Avoid
Now that we’ve got a complete understanding of various pricing strategies, both new and traditional and the factors that affect them, let’s look at some common mistakes while pricing products and how you can avoid them.
Mistake 1 – Lack of consistent pricing across channels
Inconsistent pricing will affect how customers perceive your brand. Pricing some products higher on your website and some at discounted rates on other marketing channels creates inconsistency in how your brand is portrayed to customers.
To prevent this, you should have a uniform pricing strategy across all your channels to not have too many different tiers for product pricing.
Mistake 2 – No control in discounting
Discounting is a great way to sell more products, especially slow-moving ones and to boost brand awareness. However, if products are discounted frequently, your customers will be conditioned to expect discounts always. It can also reflect on your brand as a bargain brand.
Instead, plan your discounts around holiday seasons or around special times when everyone else is doing the same.
Mistake 3 – Non-existent customer segmentation
Customer segmentation is important; it lets your frequent buyers know they are special. Do not offer the same discounted price to everyone. Instead, personalize experiences based on login to offer tailored experiences to loyal and repeat customers vs new customers.
Mistake 4 – Focus on being the cheapest
If you always focus on being the cheapest, you’ll end up in a race to the bottom. Try out different pricing strategies to find what works best for your brand.
Mistake 5 – Not aligned with competitor and market pricing
Not knowing what competitors are charging for the same product will lead to you pricing your products either more or less than the acceptable market rate.
Researching the market is necessary to build a pricing strategy that works for your business. You can charge higher than the market if you provide enhanced customer service, support or after sales service, etc. Or lesser if you source your products at a better cost. But you will not know how to position yourself if you are unaware of what your competitors are doing.
Mistake 6 – Not considering the branding when setting the price
The way you brand your product should determine the price you charge. Many factors affect branding, like quality, customer experience, customer support, etc. If you charge a premium price for your product, everything else about your brand, the marketing, customer service, etc., has to be stellar. It should justify the price you charge.
Mistake 7 – A lack of transparency in pricing
Premium brands are trusted by customers, as they have proved their value and longevity. Failing to do so will eventually backfire, with customers left questioning the price you charge.
Highlight the reasons that make your brand premium and why you charge what you do. You can use testimonials, reviews, etc., on your eCommerce website, social media and through email campaigns.
Mistake 8 – Being opportunistic in pricing your products
Premium brands are trusted by customers, as they have proved their value and longevity. Failing to do so will eventually backfire, with customers left questioning the price you charge.
Highlight the reasons that make your brand premium and why you charge what you do. You can use testimonials, reviews, etc., on your eCommerce website, social media and through email campaigns.
Mistake 10 – Hidden prices
Do not hide prices like shipping, handling, etc., in the fine print. An unexpected charge at the checkout page will lead to shoppers abandoning their shopping carts.
To prevent this, list your prices clearly on your product page. If shipping and handling are exorbitantly high, mention this and the reasons why. Customers should be aware of what they are adding to their cart without seeing a huge charge during checkout.
Mistake 11 – Not listing a price on the website
Many B2B eCommerce companies hide the price of the products listed on their website to keep competitors in the dark.
However, this turns off customers who have to put in extra work to know the price of the products. Not many will attempt and go instead to your competitor’s website.
Mistake 13 – Running campaigns with outdated prices
Change the prices on your website to be aligned with any campaigns you run. Remember to change prices on your website once the campaign ends or let customers know that a campaign is for a limited time only.
Mistake 14 – No pricing options or discounts for volume buys
Make buying in bulk worthwhile for your customers. Bundle products or offer discounts if shoppers buy in bulk.
An eCommerce Platform That Lets You Do All Of The Above
Now that you’ve got an in-depth understanding of pricing strategies, best practices and the pitfalls, choosing an eCommerce platform that lets you segment customers, offer differentiated pricing, run campaigns, etc., is very important to your B2B eCommerce business’ success.
VARStreet’s eCommerce platform enables you to manage all of the above and a lot more to give your customers the best online shopping experience.
We also have direct integrations with over 45 IT and office supply distributors in the United States and Canada with real-time price and inventory updates. Managing inventory is very easy with VARStreet. You can easily set up pricing rules at the backend, and they will dynamically be applied to any updates from the distributor.
Bundled pricing, personalized pricing, dynamic pricing and more are all available with VARStreet so that you can implement any pricing strategy that best suits your eCommerce brand.
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