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Business has recently taken a brutal blow. When a huge ship called Ever Given ran aground in Egypt’s Suez Canal, it had a worldwide impact. And as we try to get out of the pandemic, other serious supply chain problems have emerged.
Given this volatility and unpredictability in the economy, corporate profits are diminished. But what can B2B companies do about it?
When profitability suffers, the first task is to reduce business costs. The lean process improvement model to ensure the efficiency and effectiveness of all tasks and workflows can have a lasting positive effect on the end result.
Companies can also consider outsourcing functions such as IT, payroll, and even manufacturing. Your company may never have understood that alternative raw material suppliers, contractors and temporary workers are able to bring instant skills to the workplace for less.
But cutting costs can only get your business that far. To maintain profitability, companies must also take pricing action.
There are different approaches to increasing prices, but price increases must always be implemented carefully and with a view to the competition.
Four ways to strategically increase prices
Any pricing initiative should begin with an understanding of the company’s growth engines and key sources of volume. Making changes that affect them is bad business.
It is also necessary to keep a close eye on market participants, as competition and differentiation set the limits on pricing. Improving the differential value of offers makes it even easier for customers to pay more.
At the heart of the business strategy is segmentation, which is based on a solid understanding of the performance requirements, purchasing process, and customer criteria. Do you want to buy directly or through a distributor and where are price sensitivities?
This information makes it easy to identify less profitable SKUs and sell them through alternative channels such as e-business. Then you can proceed more aggressively in terms of prices in segments in which there is no clear substitute.
Also, value propositions need to be fine-tuned for each target segment. Do the company’s offers help customers reduce costs or increase sales? Find your unique selling proposition and reinforce it.
Beyond general business strategies, let’s talk about the specific ways you can increase prices without making your customers pack.
1. Get creative with pricing models
Think uniquely: Products, services and parts can be classified according to their uniqueness for your customer.
- Tag custom products and parts while keeping items like nuts, bolts, and hoses cheaper to avoid swaps.
- Create “Good,” “Better”, and “Best” products for entry-level, target, and show-off products; it allows price flexibility.
- Offer cheaper offers with higher margins, such as B. own-brand items or purchased entry-level products that have their place in the range.
Think about bundling: Items that are normally bought together can be bundled into an assembly or dispersion that speeds up further processing.
- Parts that are used for routine maintenance, including consumables, are good for bundling. Imagine the convenience of a seal replacement kit that saves time and drives to the hardware store.
- Bundle prices can be slightly lower than the sum of the parts, or higher if there are efficiencies.
Think about the timing:
- When an offering is late in its lifecycle and sales decline, customers can be migrated to SKUs with better margins.
- Use the price elasticity with high switching costs or a high degree of customization.
2. Customize how your product is defined
Different tactics for redefining your product may work depending on the industry you are in.
- Add a valuable service component to a physical product; B. an installation or a vendor-managed inventory.
- Market and produce supply or maintenance contracts for better price differentiation.
- Make simple changes to product packaging – add color coding to boxes or offer liquid container quantities – to allow price adjustments.
- Change the pricing structure with a different unit of measure, e.g. B. Billing based on activity such as hours flown, gallons pumped, or number of students trained.
- Consider when renting or buying directly: industrial customers often prefer rent to buying, while government customers may have easier access to capital budgets; Subscription models are popular in the software and can also be used for consumables or rental equipment – and adding automatic renewals makes the relationship even stronger.
- Use variations of fixed price and variable price with the same product: Certain customers prefer a monthly fixed fee with a variable usage fee over a higher fixed fee with a limited variable.
3. Be competitive in terms of value
Many companies shy away from communicating quality and value, but it is worthwhile to make the price position of a product clear in the market. Don’t let prospects guess; Having a unique or high quality product will help justify a higher price tag.
Examine customer activity in detail and determine what end uses your product offers. Then you can rate the price accordingly while being highly collaborative on innovation and product development. You can even generate new demand with a product and price comparison tool on your website.
4. Play the Terms of Service to your advantage
It may seem trivial, but some companies are reaping tremendous benefits by changing the terms of use for their various products and customers.
- Change the pricing context by highlighting freight and rush orders or adding a surcharge for small orders.
- Engage new customers with a basic service and then offer self-service upselling for more functionality.
- Change cut-offs and target values for volume discounts and rebates to improve margins.
- Enforce surcharge rules in contracts for fuel, shipping costs, or commodity price pass-throughs.
- Optimize the price for high usage / high utility SKUs.
Even if price increases feel risky, your business will take up a large chunk of your wallet by carefully weighing your industry, your product, and the best pricing to your advantage.
How to implement B2B price increases wisely
Even if you think you’ve found the magic pricing strategy for your business, it is good business practice to put together a cross-functional pricing team that includes sales, marketing, finance, and operations before making any raises.
When making adjustments, use a calculated approach, checking prices line by line, taking the following into account:
- SKUs that haven’t seen a recent increase may be under-rated. accordingly there is less resistance to bumps.
- Always offer product and service options to retain price-sensitive customers. Cheaper, scaled-down “good” versions are good for retaining customers, as are cheaper offers that are made available in limited quantities.
Justify your decision when communicating price increases. Don’t be afraid to mention how long it has been since prices were previously adjusted or how much the customer increased their own selling prices.
It also makes sense to signal upcoming price increases directly to important customers. The announcement of imminent price movements by the trade press is not an agreement and gives competitors the opportunity to follow this example and increase the profitability of the industry on a broad front.
Tie everything together
It is difficult to enforce a conventional price hike without doing proper market research and carefully weighing the pricing strategy. Effective pricing begins with segmenting the market based on customer needs. When the vulnerabilities are well understood, an offering that meets the needs of the segment can be designed and assessed according to the value it offers.
The addition of service components or innovative pricing models such as subscriptions or activity-based pricing can help differentiate. Regardless of how a company comes up with a price, it’s important to communicate the value of every product and service.
More resources on B2B pricing strategy
Seven tips for optimally organizing your conversion pricing page
Price trends for paid search agencies
13 psychological price hacks to increase sales [Infographic]
