Executive Briefings

Five Beliefs 'Inhibit' B2B Companies in Their Pricing Strategies

When executives in business-to-business markets think about pricing their products, they often raise the white flag before even stepping onto the battlefield. Over the years, they've accumulated beliefs that limit their pricing effectiveness.   Five beliefs, in particular, have become ingrained in many companies to the point that they seem immovable.

They are:

• Our products are commoditized, so we must accept prevailing prices in the market.

• We can’t respond effectively against new, disruptive business models—much less figure out if we should be the disruptor—without jeopardizing our core business.

• We can’t constrain negotiations without killing the ability of our sales force to close deals.

• We need to maintain legacy channel discounts to motivate our partners, even though those discounts create complexity and obscure our view of profitability.

• It doesn’t matter if our list prices are competitive, because we hit the right price points through heavy, nonstandard discounts.

Fortunately, the experiences of leading companies in markets ranging from chemicals to technology to precision instruments point to several ways to break out of these self-imposed shackles. B2B companies usually have far more pricing flexibility than they realize.

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They are:

• Our products are commoditized, so we must accept prevailing prices in the market.

• We can’t respond effectively against new, disruptive business models—much less figure out if we should be the disruptor—without jeopardizing our core business.

• We can’t constrain negotiations without killing the ability of our sales force to close deals.

• We need to maintain legacy channel discounts to motivate our partners, even though those discounts create complexity and obscure our view of profitability.

• It doesn’t matter if our list prices are competitive, because we hit the right price points through heavy, nonstandard discounts.

Fortunately, the experiences of leading companies in markets ranging from chemicals to technology to precision instruments point to several ways to break out of these self-imposed shackles. B2B companies usually have far more pricing flexibility than they realize.

Read Full Article