These days segmentation and price guidance is all the rage, and it is being prescribed for everything from setting list prices to providing guidance for sales negotiation without first considering for fit. While segmentation and price guidance is useful, it is only part of the approach we use in our solution tool kit. The key is to first understand client’s business problems and goals so an appropriate solution can be applied. This is where our capabilities and experience as a solution architect makes the difference.
For a vast majority of B2B companies where most transactions take place at prices other than the list, list price is meant to communicate the value of the product or service and to serve as an anchor price to help manage all negotiated prices effectively and profitably. The primary methods we apply to help set list prices for our clients are competitive, cost-plus, and value-based. In most cases, we combine all three methods to ensure list prices are competitive, consistent, and profitable. For example, we may help client X set their list prices relative to competitor Y (i.e. competitive). However, for products where there is a clear differentiation, we may seek a premium for those products over competitor Y based on incremental economic value add (i.e. value-based). Additionally, for products that do not have clear product cross references, we may apply the average gross margin of that product family (i.e. cost-plus).
For negotiated prices, we first segment all transactions into relationship-based business and transaction-based business. Examples of relationship-based business include a manufacturer’s day-to-day orders with distributors or a distributor’s day to day-to-day orders or quotes with contractors. For relationship-based business, we believe business is won or lost for reasons which may or may not include price. We work with our clients to segment their customers and channels and develop programs that are easy to communicate to target customers and easy to implement. Such programs include both up-front discounted prices as well as performance based rebates. Examples of transaction-based business include strategic/global accounts and large projects with a heightened focus on price. For transaction-based business, we utilize segmentation and price guidance to its full potential in order to calculate prices designed to win.