I’ve been researching B2B pricing and its important role in digital transformation for industrial manufacturers. New “as a service” business models offer opportunities for manufacturers, but they can also increase margin risk. Industrial manufacturers already manage a complex matrix of price lists. These might include global corporate pricing agreements and distributor prices. But to support new business models, they now need tight integration with applications like CRM and enterprise resource planning to price product and service bundles.
Why B2B Pricing Matters To Industrial Manufacturers
Industrial manufacturers sell through their own direct sales forces. They also use online and offline channels, including distributors. Each route to market incurs costs, in the form of incentives and discounts. These reduce manufacturers’ “list price” to “realized price.”
Cost To Sell
Pricing was once the domain of marketing and sales. But these days, product, channel, and financial management all play a role in pricing. Electronics manufacturers offer “price protection” to channel partners in the event of new product releases. Pharmaceutical and life science companies agree on national prices as part of their compliance with licensing authorities. Original equipment manufacturers agree on special prices with value-added resellers based on expected, or achieved, sales volume.
Manufacturers’ B2B pricing applications help direct sales forces and channel partners to offer the correct list price. But manufacturers sometimes must match a rival bid, while apparently random discounts from list prices disconcert customers. Rational pricing and discounting encourages repeat buying and increased customer lifetime value. B2B pricing applications can help. They provide a price envelope to distributors and sales teams and manage their appeals for concessions beyond the envelope.
Cost To Serve
But to provide tires or jet engines as a service, the “cost to serve” includes custom logistics and field support. It also includes the cost of embedded software. Highly effective B2B pricing ensures that pricing takes account of “cost to serve” as well as “cost to sell.”
Please look out for more research on new business models, new routes to market, and new B2B pricing applications.