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Identify the optimum pricing model and point

Business-to-business (B2B) pricing research

Circle is an expert in business-to-business (B2B) pricing research.  Through a programme of primary research we’ll identify:

  • The impact of different pricing models on demand
  • Levels of price sensitivity and what justifies a price premium
  • The specific price point which will maximise sales and/or revenue
  • How adoption levels are likely to change in response to shifts in price

Based on these insights we’ll then make clear recommendations on the best pricing strategy and forecast the commercial returns you can expect by adopting this.

Over the last decade we’ve supported dozens of world-leading B2B brands by identifying the optimal pricing strategy for their products and services. Brands like Premier Farnell, Merck, Citrix and Mastercard. We couple this extensive experience with an intimate understanding of pricing dynamics in B2B environments and a suite of smart techniques which probe far beyond the superficial.

The result is research which makes a real difference.

Our point of view

Our point of view

Based on our extensive experience and the self-funded research undertaken by our CircleLabs™ team, we’ve developed an exclusive model which explains the dynamics of pricing in B2B markets. This model guides (but never constrains) our approach and is based on five fundamental observations:

1. Sometimes price isn’t given much thought. This is often the case if the purchase is perceived to be low value or it’s a repeat purchase from an existing supplier. However, if price is a consideration, what a buyer is willing to pay for your offering is influenced by the value they see in it. The greater the perceived value, the higher the price it can command

2. Perceptions of value are typically formed through an evaluation of seven core elements of the offer each with a different level of influence on the final judgement of perceived value. These elements are: features and resultant benefits, ease of use, quality, supporting proposition (e.g. customer service), relationship and brand strength, ease of doing business and cost of change. If direct or indirect competitors exist, these elements are assessed by comparing your offering against alternatives (this can be a conscious or unconscious comparison, and a superficial or considered one). If no competitors exist, the judgment is made against the status quo, i.e. value relative to doing nothing

3. The greater the perceived value, the higher price a buyer is willing to pay. However, this price point is not completely flexible. It moves within a range which is set by past experience and competitor pricing, and the tendency is for the acceptable price to be pulled towards these norms. There is also an upper limit of price beyond which the return on investment becomes too low to justify purchase (or it may be justified but the budget is simply unavailable). At the other extreme there is a lower limit of price below which the product or service is dismissed as its credibility is questioned

4. Different people have different perceptions of value. So to select the optimum price point you need to understand where the value/price ‘scale’ settles for different groups within the target market. This will allow you to identify the point at which price multiplied by rate of adoption equals greatest income. This is the optimum price to set if your goal is to maximise revenue. However, although the likelihood of sale will decrease above this point, this may be a better option if your goal is maximising profit per sale or creating a premium brand positioning. Below this point the likelihood of sale will increase, but total revenue and profit per sale will decrease. This is a suitable approach if the goal is market share gain/defence, market penetration or loss leadership

5. The price set can create a feedback loop into value perceptions as it sends a signal about quality or performance. As such, judgments about the optimum price point should be made in line with other marketing considerations such as brand positioning

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Premier Farnell

Circle helped Premier Farnell to identify the optimum pricing strategy for its delivery service.  The research drove changes which are estimated to have reduced supply chain costs by 20%, created an annual saving of several million pounds and the approach is now used in Cranfield Management School’s MBA programme as a case study of best practice.

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