B2B International
B2B International

August 21, 2009

At a time when consumers and businesses alike are watching the purse strings, Carol-Ann Morgan reiterates the importance of understanding what buyers of your products and services really value.

The newspapers tell us today that the recession is subsiding, and that we are fighting back to economic recovery. Times have been hard for businesses and for individuals, and everyone has felt the need to tighten their belts. We find ourselves watching the bank balance, cutting costs, and curbing spending; frugality is in and excess is out (for now at least!). This, in turn, can impact on the pricing strategy adopted by many companies, as some consumers change behaviours of past times; buying less, buying differently, reappraising the value of their purchases. This pattern then impacts down the supply chain, affecting both B2B and B2C companies.

Price has always been a subject of much debate; how to do it, how to value products, competitive pressure, product lifecycle, buyer behaviours, customer loyalty, etc, etc. However, the key element of price is in the value of the product and/or service to the customer, and strategies have to reflect this.

Market segmentation enables companies to better serve the market, developing and marketing products which resound more closely with the intended customer base. Most needs based segmentations will reveal a price driven segment; one where, above all, the price is the major decision making driver. Interestingly, it is usually a much smaller segment than people suppose. Of course, price always has a role in decision making, and it is important to establish how and where it is positioned for our customers and potential customers.

I see several typologies for price positioning, based on the relationship between price and perceived value. These four, in particular, are common and easily recognisable…

  • Cheapest Price: Firstly, price driven buyers who are simply looking for the lowest price available in the market. Nothing else matters, lowest price is king. These buyers are the absolute price segment. They are easy to spot, and they search around looking for lower and lower prices, sometimes using a competitor price as a bargaining tool. They are not concerned about brand and tend towards the view that all products are the same and the additional cost is in name only.
  • Best Price in Class: This group values certain products/services and their features. They are more choosy about what they want and may operate within a “brand division” and only place products from certain brands in their consideration set. For example, they want a premium quality boiler and will only look at products within this product value grouping. However, they will consider any of the brands in this grouping and will buy the cheapest they can get within the division. They value the product group (e.g. premium boilers) but are looking for the best possible price across the brands that fall into that group, without being hard set on one particular brand.
  • No Compromise: They know what they want (exactly!) and are usually unwilling to compromise on what they want (product, model, brand, supplier, etc). They negotiate hard to get the lowest price for this. They use other suppliers’ prices as bargaining tools but their choices are limited, usually to a specific product and a specific, (often) very well known, reputable brand they value highly, usually from recommendation, from reviews or from personal experience. They will, however, settle for a price above what they wanted to pay if they cannot get suppliers to meet their need on price, such is their desire for the particular product and brand.
  • Value Pricer: This group will be likely to balance price against the value that can be gained from a certain product and a certain supplier/brand. The value to them may be in safety, security, image reflection, performance characteristics, reputation, etc, but whatever it is, it has a value which they are prepared to pay for. The higher that value to them, the higher the price tag they are prepared to pay. It is a question of identifying where the value is. However, if the product/service fails to meet the standard, a “value gap” occurs which can cause re-evaluation of that value to them.

The question now is whether or not the global frugality has made us all more price conscious than we were previously. Thus, the way in which the price and the product are valued needs to be understood in depth in order to accurately evaluate the position of price in the mind of our target customers. This is especially the case for B2B companies where the value of an order or longer-term supply relationship can be critical to business survival.