What Is Different In B2B Pricing 📑 Podcast Ep. 117
In this episode, we’re going to talk about B2B pricing.
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TIME-STAMPED NOTES:
[00:00] Introduction
[01:10] What do businesses consider when it comes to B2B pricing?
[7:05] How is B2B pricing different to B2C?
[11:55] Why are businesses find B2B pricing as challenging?
[15:03] The Difference That Value Discovery Process In B2B Pricing Makes
What Is Different In B2B Pricing?
Aidan: At Taylor Wells, we have worked with quite a few B2B businesses over the last couple of years, but one of the things I think nearly every company says when you start working with them is, do you know my industry?
You know, we’re different, our industry’s different. That won’t work here. And I suppose in today’s episode, we were going to structure it a little bit like an interview format. We are gonna talk about B2B and we’re gonna kick off by asking Joanna, what is different about B2B?
Joanna: Well, different to what I think in terms of difference B2B is considered different because it’s complex. And often I hear a lot of our clients saying, “We do operate in a very complex market and our business model and operations are complex.” And look, they really are, if they’re a manufacturer, for instance, they’re selling often through multiple channels.
They’ve got resellers, they’ve got channel partners to consider when they’re pricing. They’ve also got specific customers that buy from them on contract, customers that buy from them on through like a spot price market system.
And overall, when you consider all those different price points and all those channels that can lead to a fair bit of channel conflict and pricing complexity, especially if, for instance, there’s no pricing to manage the prices or there’s not a disciplined way to manage and set prices.
Aidan: You know, I think that point you made there about the different channels, like generally, you ask a B2B, many of them, “How will you sell a product?” And they’ll be like, “However a customer will buy from me. They almost are open to everything.” Whereas B2C, it’s often, “We are retail, you know, we sell through stores. We are an online selling business, and we’re a direct mail marketing business.”
So I think that is interesting. And I suppose, do you think that’s a negative for some B2B?
Do you think the fact that they don’t have a strict, I suppose it’s almost a strict business model? You know, they provide a service, but the way they charge for it, the way they sell it, the way they deliver it, is not always a set. It’s not set in stone.
Joanna: Yeah, I don’t think it often starts that way.
I think over time, B2B businesses, acquire other businesses. Then, they acquire new people. They acquire a new operational model. They also acquire inventory and often it gets bundled together with their existing and over time if that keeps happening and then you acquire their customers and all of that. The complexity involved increases and the understanding of the original value proposition are lost.
I honestly don’t think that a company starts without knowing what its value is because they don’t last for long. And a lot of our clients, you know, the multimillion-dollar companies, they’re successful and they did start with a very strong core purpose and mission.
But over time a disruption accelerated, competitor intensity in certain markets, and as well as mergers and acquisitions, you know, it muddies the water and our customers, sometimes they lose their way. So a lot of the advice is going back to core pricing and value principles to reinstate a new proposition that works for a new market, a new industry, and a new customer.
Aidan: Yeah. I suppose on that point about channels, one thing I still think is a bit surprising is how websites and selling online are still not that big for a lot of B2B, at least in Australia. It’s still primitive. Not primitive, sorry, but underdeveloped might be the word I want to use. And of course, this does not apply to all B2B companies, but I think, I suppose I’ll ask Joanna. Is there room for improvement in that as a sealed, as an efficiency, as a method?
Joanna: Yes, there’s definitely, it’s a great opportunity, you know, the rest of the world is doing it. There’s definitely disruption in the B2B market to use an e-commerce system to, in a way bypass distributors, and resellers that are modding the waters and increasing price complexity and going straight for customers, making it easier for customers to buy from them as unfortunately from what we’ve seen though, it’s not a quick and easy channel to transition to, even though it is a very popular channel.
And it makes a lot of sense. And the reason behind this comes down to very simple things. Often many B2B businesses are running off legacy systems, the payment systems right through to the website.
Really not capable of managing and delivering proper e-commerce level of service for customers. It actually makes it harder to buy and is quite a frustrating experience to buy still to this day. And often when you’re talking about transitioning online and you are actually talking about introducing a whole new level of capability in the team, which often is not there.
Or it’s overlooked and then I suppose it’s an investment in it. I think there is, in Australia anyway, quite a bit of hesitation to move quickly to e-commerce platforms, even though it makes sense and the rest of the world is sort of doing it. There’s not that investment and impetus really here that I’ve seen.
And it’s a bit like treading water really. I think a lot of businesses know it’s a good thing, but maybe they don’t know how to do it or they don’t have the funds now, especially after Covid and all of that sort of stuff, to really make a full investment in that particular area.
Aidan: I think I’d agree with that. Like a lot of B2B, when I’m saying B2B, for some reason I’m thinking more industrial. There are, I suppose some of those companies that are mid-market, they’re not major national companies, but they’re in the hundred million, 200 million revenue category they’re facing, imports, potentially cheaper imports, potentially larger corporations and multinationals and that sort of thing.
So I can why they’re threatened. You know, when I think of B2B, certainly from a pricing perspective, it’s certainly different to B2C and you’re up against procurement when you’re selling to a customer. There are a couple of questions, I think I’d like to put in this and ask Joanna.
The first one is, how do B2B do value discovery? You know, if you’re selling a consumer product, it’s much easier to ask many thousands of people, and quite often they’re happy to give reviews on review sites when you’re selling a product to a business. Oftentimes that business might be a procurement who is in their interest almost to tell you that your product’s not that good or underplayed.
How do you go through value discovery and I suppose, you know, what does going up against procurement, what does that really mean?
Joanna: I suppose, we’ve heard about this, the rise of procurement is a trend, more than a trend now. We’re all experiencing it and it’s acceleration over the last 10 years to the point now that, most B2B have faced quite, you know, hard-nosed procurement people and procurement.
Our, in turn, looking at B2B pricing are very interested in looking for price inconsistencies in suppliers, and product inventories to then go “Aha, I see, I see my opportunity to ask for further price reductions at a price unit level.” So look, I suppose what I’m saying really is. They’re more prepared, in our experience for those price negotiations than many suppliers, even though suppliers are experiencing this sort of tough hard-nosed procurement almost, smoke and mirrors type of negotiation.
Unfortunately Aidan and I, I think, you know, value discovery, even then, even the term value discovery is something that a lot of B2B businesses, but they haven’t yet implemented and they don’t know how to do it.
And often, unfortunately, we see, you know, really great salespeople going up against a more prepared procurement team and not being able to defend the value of their offer. And partly because, as I said at the beginning of this podcast, is because they don’t understand the offer themselves. They, you know, after many years of complexity, it all gets very, quite difficult to explain and often they end up just, order taking really.
That’s a preference for most businesses just to take the order, “Mr Customer, yes, I want this.” But with procurement, unfortunately, yes, they’ll give you the order that they want, but they’ll also ask for a huge discount and then a rebate on top of that. And all in all, what that does over time, it just increases all that price complexity for the supplier because, you know, there’s a proliferation of discounts and rebates and incentives in the system at a specific customer level and product level.
So you can imagine it, and that would be like millions of price points in the system. And getting back to the point of, you know, Well, yes, the solution would be great. Let’s implement some value discovery so we can start identifying what our value offer is in terms of economic terms, psychological terms at a unit price level, and customer level.
But sometimes I find with clients, they get a little bit reluctant and they react, they say, “Oh no, we can’t do it. We’ve got deals.” It’s almost like this firefighting mentality. “We’ve got deals, and transactions to make. Now we don’t have time for all of that stuff.”
And the more that they say that sort of thing, the more they get into a deep, do themselves into a deeper hole, really.
Aidan: Yeah, look, I think it’s that old thing that I hit when people say in interviews. I don’t see problems. I say I like challenges.
Personally at Taylor Wells, I love seeing when we get an inquiry from a B2B business. And the reason is that generally, we know we can help them. And I would argue more so than probably a company in the retailer, in the online, in the SaaS sector, you know, whereby we’ve discussed the problems, but basically when we’re, if we just in a short conversation, we’ve listed off a new, a number of problems.
But that basically means that there’s a huge opportunity to improve things in an industrial or any sort of B2B business and let’s assume it’s a semi-industrial, light industrial business which proliferates in Australia.
You know, whatever it is from the piping to, I don’t know, to air conditioning, whatever that company would do, if you can slightly improve the pricing approach, you know, your margin. If you can improve at a small 1 or 2% margin, you know my word, you can absolutely, you could potentially double profitability and transform the business. I suppose I’d ask Joanna about her thoughts on that.
Joanna: Yes. You know, I think. On that point, clients get overwhelmed with changing pricing because they think, “If we change it, that’s it, we’re gonna lose volume, we’re gonna lose revenue. We can’t make those changes. Maybe we don’t know how to.”, but the funny thing is, at the same time they’re making price increases.
Routinely now they’re either too big, too small, and not getting the return. So it sorts of a contradictory type of statement. Something has to be done. You can’t just keep doing the same sort of thing, but really what needs to be done, it’s mindset difference, thinking that there is opportunity.
Positive thinking and its change don’t have to happen overnight. It’s a step-by-step process. And as you were saying Aidan, even simple pricing analysis and techniques and cleaning up sort of a list price and price model. You can. You can gain between 2 to 9% additional margin percentage points from doing very simple things.
But you want people to believe in it. It’s not complex. We gotta get people to believe that this is the source of value, that we can get a return on our investment, and that we can sell our products easily. We can make it easy for our sales team. To sell these products. If you haven’t got that in place, people don’t use a price list, even if it’s been optimised, it’s like very similar to a system.
They don’t use fancy pricing systems or ERP systems or CRMs. You know, we were here, we’ve got a great sales force in, but nobody’s using it or they’re just putting junk in it. But because they don’t understand the rationale for change.
At Taylor Wells, we put a lot of importance on B2B pricing.
You know, yes, in terms of technical things that can drive EBIT, but the people behind the transformation, ensuring the mindsets people are aligned, they understand the rationale for change. They understand what they need to do, they understand how they’re gonna feed into the pricing project.
There’s a development plan and a blended sort of training and coaching plan that can help keep people in the organisation doing what they need to do to implement a price increase from start to finish, not just a generic type of training course that tells you theoretically what to do.
So it’s really embedding that learning that really gets the long-term sustainable value.
And you know, I often say, it’s great to get a price list that’s up-to-date market relevant. But with all those other problems that we’ve discussed, if people don’t use it, people don’t trust it, or people are just used to pricing, you know, discretionary pricing, pricing themselves without understanding the ramifications of why cost plus may not be the best methodology for a particular product or client, then they’re gonna continue doing it.
So pricing really is a culture change. But it’s a journey and along the steps, you can make significant changes that impact positively culture as well as financially.
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Bottomline: B2B Pricing
Aidan: Yeah. Look, I think a lot of B2B companies, they’ve got great products, they’ve got great services, they could be very well financially run, good CFO, good system, good capital controls, all that sort of stuff.
But, you know, how many really great commercial teams, how many great commercials focus?
I wouldn’t say it’s a blind area, but you know, when we talk about pricing, that’s what we’re really talking about. Commerciality, you know, maximising your selling price, maximising your profitability over time.
I sometimes think that this could be a misconception, but you know, I think people often focus on what they care most about. And I think a lot of companies, they care so much about their product, their service, their delivery, those sort of aspects. But maybe they haven’t put the focus on selling.
Sometimes they’ve put the focus. Like a lot of it, you think about certainly an industrial business, they started probably manufacturing, industrial services.
That’s where they came from. They didn’t start as a selling business. And maybe, maybe they need that extra push, that little extra expertise in selling commerciality profitability, pricing focus to hold it all together.
Joanna: Yes, I think so. The commission structures in a lot of sales teams are still emphasising volume and often at a reduced price to push a deal through. So in terms of increasing commercial capability and sales teams, yes, I, I absolutely think that’s important because currently what we’re getting is, salespeople who are going well, we’re being rewarded for doing that.
Why? Why would we do anything differently? Even though we know sorts of people are saying, let’s improve the profit on each sale, but still, I’m being incentivised and getting to do the other, so I’m gonna continue doing that because it’s easier for me.
And then you get that taking orders rather than sort of increasing share of wallet, understanding a customer’s business, understanding a customer’s commercials and objectives from buying from you, those discussions don’t happen. If you’ve got that sort of limited, “I’m going to take your order, Mr Customer,” and that’s it, because I know that’s easier than actually asking you questions.
I think this is the essence of a great value discovery process because there’s no point looking at a commercial model quite yet.
If you don’t know what customers value and you haven’t asked the questions about what pressures they’re facing economically. They’re trying to achieve from their strategy and ultimately why they’re buying from you.
So really asking the questions is imperative. And I think the number one thing that a sales team should do to help a business transform into a new business, an operating model, and to really get a business to understand its customer base. After that, you can then apply more fancy commercial models and then, the sales team explain the economic value of the deal to the customer.
Aidan: I think I’m all outta questions. So that’s it from me. It feels a bit like an interrogation. Sometimes. But we’ll leave it there today, have a great weekend.
Joanna: Thanks a lot. Thanks for listening.
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