In this article, Ian Tidswell shares a key to superior B2B pricing.
Providing high quality price guidance to your sales teams as they negotiate with customers can result in measurable profit increases. It really should be a core process.
However I’ve rarely seen clear quality price guidance. Here some key questions to ask:
- Why is price guidance important?
When your company hires sales reps, how important are Excel skills? Do you test them for data-driven insights? I didn’t think so. Yet somehow pushing a pricing dashboard at them is going to get them to the optimal price. I think that’s misguided: better to give them simple guidance on prices that aligns with your strategic goals, backed up by robust approval processes for when the (inevitable) exceptions occur.
Of course, an alternative approach is to have pricing decisions made by a ‘deal desk’. That’s a perfectly valid approach in many cases, although that sales process will feel very different.
- What type of price guidance to give?
Using the price waterfall concept, there are two basic options:
- Guidance on individual price adjustments, or
- Guidance on specific price points.
Price point based management almost always the better option when you have many products, and specifically the Pocket Price point. Trying to manage individual adjustments – like discounts and rebates – is too complex. They can be managed as part of annual contract or campaign processes. You just need to make them fit within the price guidance.
The Pocket Price point is generally the one to focus on, since it best incorporates drivers of overall financial improvement, such as payment terms and other non-cash costs, that are not included in net price. It may be a challenge to introduce this metric given it is not a finance metric, but if you are looking for a one-stop-shop for pricing metrics, you can’t beat it.
Finally, I’d go with a “price corridor” approach to managing prices. This should consist of a target price and 2-3 approval thresholds. The target is really important:
Communicates to sales the real value of your products
Provides a stretch target to get sales to start reaching up for better prices
Forms the basis for a Price Realization Score (e.g. where target price = 100) which is invaluable in normalizing out price achievement across product and customer segments (more on this another time, or drop me a line to learn more).
Key points include:
- How to get the sales teams to pay attention
- Approval thresholds
- What specific guidance to give
Read the full article, Five steps to effective B2B price guidance, on LinkedIn.