Question: Hello Mark, First of all, my best wishes for 2020! I was wondering about your views on the main profit challenges for industrial clients. I am thinking of the B2B, manufacturing companies, with medium size (less than 250M$ ?) who often do not have a (dedicated) pricing function in-house. Often I noticed profit leakages, habits or not realizing impact, and this is where I usually start investigating and helping to convert into value for the company. What do you teach them first? – C
Answer: Hi C. My head is spinning with ideas, but you did say “first”. What you’re currently doing is probably good in that it finds the low hanging fruit and adds value to the company. However, these are not your client’s biggest problems.
Shifting to Value Based Pricing is Key for Increased Profits in B2B
The word manufacturing implies a physical product with a real COGS. That makes it extremely likely they are using cost-plus pricing. My first goal would be to convince them to shift to value-based pricing. They might give lip service to VBP (value based pricing), but they are probably not really doing it. However, if they at least acknowledge it’s what they want, you can move to the next step.
Once you get buy-in on VBP, now you need to teach them about value.
- What does it mean?
- How do their buyers perceive their value?
- How does that translate to pricing within the company?
Probably the single biggest thing that EVERY company needs is to understand its value. It shocks me that people say value-based pricing … a lot, yet are completely clueless about how their buyers perceive value.
I hope that helps.
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Tags: ask a pricing expert, value-based pricing