Q&A: How to Find Willingness To Pay in B2B Customers
Question: Hi Mark, How do you find out willingness to pay in B2B in particular when you’ve only had one price increase? Do you rely on your sellers? Thank you, M.
Answer: Hi M. You surely have a specific situation in mind when you ask that question, but since I don’t know your specifics I’ll try to answer generically.
First, your comment on having only one price increase implies you want to do an elasticity study. Please be very careful with these because they are so often used incorrectly. Price elasticity is a great concept for an industry, but very misleading for any product with competition. That is not what I recommend.
Differences in B2C and B2B Pricing
There are two big differences between B2C and B2B in pricing. B2C often has a lot more data. B2B often has a committee of people making a decision. Some people think in B2C you have to care more about non-rational behavior (psychological pricing) but trust me it exists in B2B as well.
There are statistical techniques you may be able to use with whatever purchase data you collect, especially if you allow salespeople to negotiate prices. Negotiated prices provide variance which you can often use as your dependent variable in statistics. I know, you’re starting to get excited because this sounds like fun. However, those techniques are not nearly as reliable or as effective as what I’m about to suggest.
Go talk to your customers and buyers. Don’t worry about learning how much they are willing to pay. Instead, learn how much value they get or expect to get from your product. How do they think about value? How will they measure your success? Do they compare you to a competitor? If so, which ones? How much value do they think they get from your differentiation?
Once you know the answers to these questions, setting prices becomes much easier. (I mean KNOW, not think you know.) In fact, if you know the answers to these questions, you personally have a ton of value inside your company. I’ve worked with and taught hundreds of companies and it’s pretty rare that anyone understands what value their product truly delivers. Many claim to, but once we start digging in, they realize they don’t.
I know, you’re probably a pricing geek and feel much more at home with numbers in spreadsheets. So am I. Even if you have data and you can do fantastic analytics, nothing will give you the amount of insight you gain from talking to your market. It’s worth the effort.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.