Pricing has both elements of hard rational science and the soft intuitive and insightful. Here we consider not only pricing but the terms of payment offered. Do not divorce the two, value is a subtle play between your pricing and the terms of payment offered. We have discussed the pitfalls of doing business with large powerful buyers (or suppliers) such as multinationals or corporate entities, para-statals or even the government itself. They seem great until terms of payment are discussed.
According to Bain, and with ample evidence to support this claim, one of the biggest areas of value leakage across all B2B businesses is pricing.
Strangely, while companies dedicate resources to continually reduce costs or sell greater volumes, they rarely invest to the same extent in their pricing capabilities. As a result, they leave money on the table and leave the door open for competitors that understand the power of effective pricing.
As the data shows, clever pricing can overshadow the collective efforts of managing direct and variable costs. It is also better to price your existing share of the market cleverly and properly rather than to chase growing your market share and not pricing your market share correctly. It seems so obvious, but sometimes when caught up in the day to day running of a business, the forest is obscured by the trees.
These are guidelines, not rules or laws. There are always exceptions, so use your good judgment
|Keep it simple!||Your licensing model should be transparent and easily understood, and easier to deal with than the competition|
|No surprises||Related to above, avoid offering a plethora of chargeable “extras”. Customers don’t like these kinds of surprises, and you erode goodwill but don’t do every “extra” for free either!|
|Stand Your ground||Do not bend over backwards and be too flexible. You have a great product it is fairly priced, don’t let them bully you and take advantage.|
|Be clear on what you offer||Make sure you differentiate between the different services you offer, don't let false assumptions breed bad blood.|
|Keep your end goal in mind||Scope and mission creep might have some fortuitous urban legends, mostly they end in misery|
|Think ahead||You know there might one day be an upgrade or a change in regulations, think ahead, make your customer's lives simpler.|
|Factor in Terms of payment||Taking 90 days to pay is very different to cash upfront. 90 is about a quarter of a year, and you don't want top be funding someone else's business for a quarter of the year now do you?|
That said when following these guidelines do NOT make these mistakes
And don't adopt these beliefs without testing them properly, as they are often VERY wrong
Despite economists being discredited, they do have a few interesting points to consider, and can be useful. With all things that economists pontificate about, YOU MUST CHECK THEIR ASSUMPTIONS and INITIAL CONDITIONS!
The basics of pricing in Micro-Economics:
This looks all muddled but the general case must cater for the different combinations that various businesses have, some must pay for their inventory before receiving it, and others can pay later.