pricing strategies

pricing strategies

Kedar Gharpure shares an article on pricing and why you should think twice before lowering price to increase sales. 

Price is an important negotiation element in any B2B sale – and often made out to be a sticking point by the customers. Hence, it is no wonder that B2B companies often consider discounting their prices to win a deal or to secure more volume. However, most companies usually underestimate the incremental volume that they will need to sell to make up for the profits lost due to discounting. Not convinced? Read further…

Price has a disproportionate impact on EBIT

The impact of 1% price increase on EBIT vs. that of 1% volume increase is probably common knowledge by now. This insight was published as far back as 1992 in a HBR article based on financial data of c. 2500 companies. The analysis was further updated by McKinsey & Co. to include S&P 1500 companies in early 2000’s. Both analyses show that EBIT increase due to 1% price increase is more than 3 times of what can be achieved by selling 1% more volume. We took that analysis a step further and found that the impact of price on EBIT can be even more dramatic for a B2B company depending on the underlying business model.

For our analysis, we considered 3 archetypes: i) Trade Co.: Trades products or services for a small profit and has a significant proportion of variables costs; ii) Capex Co.: Works in capex intensive sectors and has a significant proportion of fixed costs; iii) Average Co.: a typical manufacturing company with a balance of fixed and variable costs.

 

Key points include:

  • Pushback
  • Volume
  • Recommended approach

 

Read the full article, Watch Out Before You Discount Price to Gain Volume, on LinkedIn. 

Ian Tidswell provides an article that highlights multiple ways to assess customers Willingness-to-Pay (WTP), which is a key capability required of all companies.

Having a robust way to assess customers Willingness-to-Pay (WTP) is a key capability required of 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 more general lack of understanding of the importance of getting price right.  

Techniques to estimate Willingness-to-Pay estimation can be grouped as follow (I’m taking a ‘big-tent’ approach so some techniques that give directional information are also included).

Direct Price Experiments

Testing different prices directly with customers during real purchasing decisions can give some great information on WTP, but is often difficult or risky, and only works when the product is in the market.

Prospective Price Opinion: Survey Response

These techniques ask customers directly how they would respond to different price points. They all run the risk of respondents being unwilling to expose their Willingness to Pay.

 

Key points include:

  • Prospective Price Opinion: Unconscious Reaction
  • Historical Analysis: various techniques
  • Hybrid methods

 

Read the full article, B2B Price Research Methods to set list- and target-prices, on EenConsulting.com. 

 

 

Ian Tidswell shares pricing information on creating and capturing value in an informative infographic.

Success in the Medical Technology industry requires constant innovation. However, capturing a fair share of the value (pricing) from that innovation throughout the product life cycle is especially challenging given multiple market access hurdles, constrained healthcare budgets, and diverse stakeholders.

The infographic below outlines the 6 steps to creating and capturing value in MedTech, from offering design through market access and reimbursement approval to new product transitions. Each step highlights some of the key concepts and tools.

These steps will be discussed in detail during the EPP Virtual Live MedTech Pricing training March 25-26 2021. Covering both industry-wide challenges and your specific improvement opportunities, you’ll leave with an understanding of how leading companies are achieving success with pricing, and the confidence to tackle all your pricing challenges.

 

Key points identified include:

  • Market access with value recognised
  • Value delivered and captured
  • Segment and target buyers
  • Gain effective market access

 

Read the full article and access the infographic, 6 Key Steps to create & capture value in MedTech: Infographic and Online Training March 25-26 2021, on Eenconsulting.com.

 

 

Ian Tidswell and Norbert Paddags co-wrote this article on what bankers should learn about innovative pricing approaches to increase profitability.

Pricing – What private bankers can learn from Porsche

Banks have learned a lot from industries like the automotive sector in the past, but they still have some catching up to do. This includes innovative pricing approaches to increase profitability.

Imagine you want to buy a sports car, for example a Porsche. Maybe a 911. You call a dealer and want some information, including the price, because you can’t find it on the Internet. The dealer does not answer the question, but kindly invites you to an appointment and you discuss for two hours what you need the car for and what it should do. In a second appointment you will then receive a suggestion for the 911 and take a short test drive. They ask whether there are alternatives, for example an SUV for the family or a car for long trips or an entry-level model. All this is denied by the dealer, but he praises the different color and engine variants. Ultimately, you’re talking about the price, which is $ 130,000 on the first offer. You ask politely, almost shyly, whether something could be done. And the seller replies without hesitation that he can leave you EUR 15,000.

Pricing: Porsche vs. Private banking

Is this a completely absurd story? In the automotive industry for sure, but is it a good – admittedly exaggerated – description of the situation in private banking? Comparisons of this kind are never perfect, but they are often illuminating. One difference, of course, is that the sports car is a highly emotional product and the private banking service is a less than inspiring service. Nevertheless, the target groups are similar and the costs of a private banking mandate over the term of the customer relationship quickly reach the price of a Porsche. Three aspects of the “absurd” story need to be discussed for private banking:

(Still) lack of price transparency: The private banking customer (still) has to make a significant effort to get an overview of the usual market conditions, as these are not disclosed by the institutions. Typically, the customer only receives a specific offer in the second interview. Ie although the services are essentially similar, the pricing is discretionary. Even if this can be a very comfortable situation from the perspective of the private banker, it is questionable how long it will last.

 

Key points include:

  • Why pricing is important
  • Brief excursus on pricing theory
  • Pricing approaches or what needs to be done?

 

Read the full post, Pricing – What private bankers can learn from Porsche, on Paddags.com.