Dr Peter Colman, director, Simon-Kucher & Partners
It’s no secret that few B2B marketing and sales teams see eye-to-eye when it comes to pricing. The question both are trying to answer is, “What’s the right price for my products/services?”, and the reality is that there may not be a single “right” price, but more likely a spread of prices.
A typical top-down approach to price guidance would have marketing/product management teams setting target (or list) prices, based on the value a product delivers across the customer base. However not all customers value products in the same manner. A product sold into a pharmaceutical company may command a significantly higher price compared to the same product sold into a similar sized packaging company, solely on the basis that the packaging company (typically a lower margin industry) has tighter cost controls in place.
In a negotiated environment, the sales person needs to factor in the complexities of product mix, customer segmentation, region, and channel etc. to try to extract the best price from an individual deal. Without systematic price differentiation, the common complaint coming back from sales is that the targets aren’t realistic for their particular market situation, i.e., there’s “a story behind every price”.
As an alternative to the more prevalent top-down price guidance, a bottom-up approach, known as “peer-pricing” is a worthwhile option. This approach provides the sales person with realistic price targets based on prices achieved by their peers in comparable market situations. The critical word here is comparable, as this overcomes the “a story behind every price” type of argument.
For a specific situation, rather than just give one individual price target number, “peer-pricing” shows the sales person how “good” their particular price is in percentage terms compared to their colleagues. As an approach, it more readily accepted within a sales team and furthermore, it draws on their natural competitive instincts to encourage them to push for higher prices.
Consequently it not only improves under-performers, but also provides stretch targets for the middle and top performing portions of the sales force to achieve higher prices. Further positive reinforcement can be achieved by incorporating this approach into the variable component of sales force remuneration.
So, if your marketing team is getting a lot of push back on price targets, perhaps it’s worth investigating an alternative approach such as “peer pricing”.
