How to Improve Your B2B Pricing Strategy
A critical element for a wholesale brand’s success is nailing down pricing and continually evaluating market changes that may affect the company’s economics.
While bad pricing practices can have a terrible impact on profit margins, the good news is no B2B business is doomed. It’s possible for both large and small wholesale brands to learn effective pricing strategies, and stay ahead of the game.
This post will cover some of the top ways B2B companies can improve their pricing strategy.
1. Understand the pricing of your competitors in your industry
The first way to make sure your prices are on target is to check out the competition’s prices. B2B buyers have a wide range of brand options when it comes to making wholesale purchases. The last thing you want to do is price yourself out of the market. If you do, you may see your most loyal buyers purchase from competing brands that offer similar products at better prices.
Competitive pricing is a strategy where you set your prices based on the prices of your competitors. To get competitive pricing right, it’s critical to conduct pricing research and carefully evaluate how other wholesalers set their prices.
As you conduct your research, remember to look specifically at competitors that are selling the same type of products. For example, if you’re an outdoor shoe brand, you may glean interesting insights by looking at other outdoor retailers. However, it won’t do you much good, unless you look specifically at the shoe prices at competitive outdoor wholesale brands.
Similarly, you’ll want to check out pricing across different verticals for the product you're selling. Let’s stick with the shoe example. As you know, consumers can buy a pair of boots at an affordable retail store for $40. They can also buy a pair of luxury boots for $1600. Where are you positioning your brand?
As you conduct your research, consider if you’re selling budget, normal, or luxury products, and then look at how your pricing compares with other wholesale brands in the same category.
2. Focus on wholesale price points
As you conduct your price research, it’s important to remember the difference between B2C and B2B. B2C companies sell directly to consumers, while B2B organizations sell to businesses (or retailers).
When you conduct your pricing research, remember that you are a B2B wholesale brand selling to other retailers. This means, instead of researching direct e-commerce prices or retail prices, you have to look into competitor wholesale prices and leave room for retailers to still make a profit.
3. Keep a close eye on what is happening in the retail industry
Since retailers are your clients, it’s critical to understand what purchasing trends are happening in the B2C retail world, not just the wholesale world.
Your clients are your retail buyers, and how retailers’ customers behave at different times will directly affect your prices. Let’s look at customer sentiment during the global pandemic, because it’s the perfect example.
McKinsey has been tracking consumer sentiment during COVID-19 and has captured some telling insights. As of the beginning of October, stats show that most consumers think the impact of the pandemic on their personal finances will last beyond the next four months. Additionally, consumers have reported a small decline in overall discretionary spending.
As a result of current consumer sentiment, it’s possible that some of your buyers will lower their order volumes or size thresholds to try and match current consumer demand.
As you work to understand what is happening in the retail industry, you’ll be able to make adjustments for your buyers that make sense for your brand, retailers, and retailers’ consumers.
4. Look into dynamic pricing
Dynamic pricing is the process of setting up flexible pricing based on market fluctuations. This practice helps brands learn when to lower or raise prices, so they remain competitive in the industry and also to avoid volume losses.
For dynamic pricing to be effective, McKinsey recommends a three-pronged approach, including:
- Using analytics for data-driven pricing decisions,
- Investing in change management and team members by including them in on the process, and
- Making procedural and organizational changes (e.g. creating a dedicated pricing unit) that support new pricing.
Building a dynamic pricing engine may be complicated at first, but it’s a solid way to make data-driven pricing updates and keep your business thriving. Keep in mind that the tools and algorithms you use for dynamic pricing will depend on your company and your goals and that the tools you use are only part of the dynamic pricing equation. According to research by McKinsey, it’s also critical to invest in people and processes.
5. Prepare realistic and instant prices for digital channels
If there is one thing that’s certain in today’s strange world, it’s that e-commerce is booming. With the push for people to self-isolate and businesses to reduce in-person capacity, it’s no surprise that consumers and businesses are going digital.
In the U.S. alone, online sales for September increased 43% year over year, and McKinsey colleagues said they were seeing an 80% surge in eCommerce orders in Italy during the outbreak, across B2B and consumer.
Research by Pricing Society has also shown that while businesses plan to shift sales to digital channels, many have been slow to enable self-service experiences for customers and to offer relevant pricing via digital channels.
In the meantime, businesses are showcasing a list price and opting for traditional price negotiation, which is resulting in price variation, doing no-one any favors.
Interestingly enough, research shows that most buyers are willing to pay 1-5% more for an easy, self-serve buying experience with instant pricing information.
Planning for successful digital transformation includes setting realistic prices for digital channels, and offering better self-serve buyer experiences.
Check out NuORDER’s platform to scale your online wholesale efforts
Re-evaluating your B2B pricing strategy truly is one of the most important things for B2B organizations to grow their online businesses. Thankfully, there are several B2B wholesale tools that help with virtual meetings, online ordering, mobile selling, and pricing.