Consumer Brands and Retailers are working hard to meet consumer expectations who expect to collaborate seamlessly with them whether on-line or off-line and expect to receive the same price offers whenever and wherever they want to buy. Every Business-to-Business(B2B) buyer is also a consumer, and increasingly B2B buyers will prefer the convenience consumerization offers when he or she interacts with consumer brands. Furthermore, offering B2B personalization will allow B2B suppliers to achieve consistent situational pricing on-line and off-line and strengthen strategic control over the end-to-end customer sales and pricing process.
The consumerization concept is emerging as a key driver for consumer brands and retailers. Consumerization implies that:
Salespeople provide guidance on product details and free price comparison information
They collaborate with the customer on purchase decisions try to improve the quality of the overall customer experience
Personalization is enabled by unifying on-line and off-line touch points digitally into a single end-to-end customer process
Customers feel confident that information provided in the past will be used in the future by the supplier to provide greater customer value
Individual customers can buy whenever and however they want and receive consistent situational pricing aligned with the value they perceive at that moment
While it will happen quickly and will be almost unnoticeable, today we are still a long way from pervasive situational pricing. However, most people have already experienced it themselves or have observed others who have.
As described here, [Name Redacted] practice of surge pricing is a highly visible example of situational pricing. While no one likes to pay two or three times normal taxi fares, is the practice fundamentally wrong? Basic economics tells us that goods and services that are offered at a price that is significantly lower than their value tend to be in short supply. In the past, Communist countries maintained low prices for most household necessities had to ration the available supply using “non-market mechanisms” ranging from fair-minded public priority rules (e.g., longest “queue” time) to corrupt practices where consumer goods and apartments are offered as rewards for loyalty to the state. Ask yourself, is situational pricing more or less efficient and fair than rationing?
Another example is the price for nose-bleed seats at the 2015 Super Bowl: almost $13,000 for some seats!
Many B2B suppliers are struggling with their price-setting strategies, practices and processes. Most executives have realized that just increasing prices is not the only way and probably not the best way to optimize revenue and profitability. OPS Rules uses proprietary price-setting IP to optimize pricing, profitability and market share for our price optimization clients. Very often, we find that a combination of reducing and raising prices based upon actual demand (i.e., buyer value perceptions) and other business drivers is how to achieve the best results. We describe the process in three steps toward price optimization success.
B2B price setting is complicated for a variety of reasons, including:
Not all potential orders are the same; different levels of service, support and performance guarantees can be required by the customer
Customers usually buy a basket of products
Some customers offer more long-term potential to the B2B company than others do
Actual or potential actions by competitors have an impact on the prices that are offered
Field sales often negotiates prices with customers without a complete understanding of the customer or competitive situations
There is a range of negotiating and sales capabilities among the field sales team
Sales incentives can bias the thinking of the sales team
All these reasons can cause B2B price offers to vary widely
At the very heart of consumerization is the concept of an end-to-end customer process. Industry analysts recommend that Consumer Brands and Retailers view transforming their customer process as the primary strategic objective for business improvement initiatives. For example, the goal of a financial process reengineering improvement project should be to improve the customer’s experience with the financial process and to optimize the quality, volume and profitability of customer sales transactions. Likewise, all other functional and cross-functional improvement initiatives should align their goals with the strategy and objectives of the end-to-end customer process. The consumer brands and retailers who optimize this process will gain share-of-mind and share-of-wallet at the expense of their competitors. They will offer their customers a seamless collaboration experience where it is easy to find necessary information about a product including pricing and easy to complete a sales transaction.
So, why should a B2B supplier want to imitate the customer strategies of consumer brands and retailers? We see five important advantages that are available to the B2B supplier that include:
Price optimization increases revenue, profitability and market share on an aggregate basis:
The typical B2B strategy is to give sales people significant pricing authority. Unfortunately, delegated pricing authority leads to a situation where it is hard to evaluate the quality of the pricing process. And there is plenty of evidence that delegated pricing leads to sub-optimal results. In our price optimization projects, we often find we can use analytics to significantly increase revenue and profitability (typically 10-15 percent over time) by using sophisticated analytics to offer prices that adhere more closely to market pricing. This means that the best results are achieved when some prices are reduced while others are increased depending on the specific characteristics and market for a given product.
Improved customer experiences:
Increasingly, buyers of all kinds prefer to collect information about the things they buy from on-line sources. It is more convenient, and it saves time. Like retail sales associates, B2B sales people need to assist in the process by facilitating the research that buyers need to carry out and advise them on how to make decisions most effectively. B2B buyers will spend more time and more money with brands they can trust.
Avoidance of commoditization with personalized situational pricing:
The main reason that B2B companies resist providing on-line pricing is the fear of commoditization. “Personalization” of B2B customers means that all the factors that should drive pricing decisions are kept on-line within the customer process. This information is made available to the sales force and to the price optimization engine. This analytic engine is designed to provide “consistent situational pricing”, meaning that the same price is offered under the same circumstances of demand and supply and customer information every time. From the customer’s perspective, the price they receive is the same whether they order offline or online.
More strategic control of pricing:
Using analytics to estimate market pricing provides optimized pricing based on what can be a variable set of criteria. If the enterprise wants to emphasize revenue over profit, for example, the engine’s optimization goals can be adjusted. Likewise, if a different key account strategy has been decided, appropriate adjustments to the pricing engine can be made. The pricing provided by the pricing engine can be swiftly and directly controlled centrally. That is not true with pricing provided by a field sales force.
Increased lifetime customer value:
A great customer experience allows buyers to save time and money. Trust can be achieved by providing accurate information about the product or service and facilitating the comparison shopping that the buyer must do to the extent possible. Trusted suppliers offering a superior customer experience will gain share-of-mind and share-of-wallet just like the customer brands do.
Recommendations for B2B Companies: Carry out a diagnostic analysis of your current End-to-End Customer Process, even if it is far from being a process today. The diagnostic assessment provides the current state analysis needed to plan and prioritize necessary improvements, including to:
A well-executed diagnostic assessment should identify both the ideal future state customer process and the sequence of steps necessary to make it a reality. That future state should:
Define the end-to-end customer process that delivers the customer experience that will be offered by the B2B supplier.
Enable situational pricing through price optimization so that B2B buyers are free to buy online or offline.
Fully integrate dynamic demand prediction and price optimization with supply chain planning and execution in order to increase revenue and profitability.
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