As a marketer, how much influence do you have over what your organisation charges for its products? The answer from many CMOs may well be “not much”.
Pricing decisions now often lie in the hands of number crunchers and bean counters as the products and services offered by B2B organisations become more complex and niche.
That CMOs are left looking on from the sidelines should be a concern, given price is one of marketing’s four ‘P’s – the fundamental components of a marketing strategy and one of the key tools in a marketer’s armoury. However, it does raise a more existential question – is price dead as a lever in B2B?
A refresher on the four Ps of marketing
The four Ps of marketing first appeared in 1960, drawn up by the academic E Jerome McCarthy and quickly popularised throughout the profession. For anyone whose marketing education was longer ago than they care to remember and needs a quick refresher, marketing’s four Ps are:
- Product: What the business sells that meets the needs and desires of the customer
- Price: How much the customer is willing to pay for the product
- Place: How does the customer gain access to the product, and how easy is it?
- Promotion: The method by which the customer will find out about the product.
Around 20 years later, three further Ps appeared – on the basis that the original four didn’t fully account for the differences when selling services compare with physical goods. These were:
- People: Humans that participate in service delivery and interact with customers
- Process: How the service is delivered to customers
- Physical evidence: The environment in which the service is carried out and where customers and staff interact.
Subsequently these seven (or four, if you’re a purist) have been subject to a whole host of revision, reinvention and bastardisation to fit whichever trend or fad is flavour of the month among marketing professionals.
Why price has lost its relevance in B2B
We recently hosted a roundtable discussion for senior marketing leaders on the relevance of the four Ps to modern B2B marketing.
As Rambus CMO Jerome Nadel suggested in this interview with me last year, a lot of B2B marketers are simply engaged in the process of promotion, with some incorporating a modern B2B version of place through UX and web design, replacing the traditional shop front or factory floor. It looks as though the inability to influence price is another cause of this.
Even if you’re not involved in product design (although Nadel argues forcefully you must be to be considered a real CMO), product will always be foremost. As one CMO memorably and frankly told me: “If your product’s shit, you’re on a hiding to nothing.”
I’m less convinced, however, of the permanence of price as one of these key levers in B2B. Here’s a few reasons why it’s not as important as it once was.
1. Business are no longer selling products, they’re selling ‘solutions’
That’s what they claim, at least. The holy grail for many B2B marketers is to keep price out of the conversation until the latest possible moment, by which time you’ve already got the required commitment from the customer. The way to do this is determine what the customer’s challenges are, and build your solution around that.
“We’re trying to be outcome driven, and we don’t talk about any products,” says one marketing leader. “We get customers to admit their challenges and the problems, as once they’ve admitted that you’ve got their trust. It’s all about trust in the relationship, and then the price will come later. If you’ve got that relationship right, you can build an RFP for them around your product, so price shouldn’t come into it.”
In practice though, this leaves little to be desired. While solution selling might be the intention at the top of the business, marketers report sales are still wedded to product catalogues and brochures. They are incentivised to sell products, not to have conversations to determine client problems – and until this changes, moving to this approach will stall.
2. ‘Products’ are increasingly tailored for customers, so don’t fit a standard pricing model
This boom in solution selling also means there is no such thing as a ‘standard’ price for a product anymore. Subsequently, off-the-shelf pricing has been replaced with a made-to-measure approach depending on the customer’s needs and personalisation.
“Because we are solutions-led, the price will differ depending on the solution and how the customer wants to use it,” according to one roundtable attendee.
As a consequence, many marketers are keen to avoid mention of a ‘price’ anywhere in the early stages of the customer journey. “We don’t put anything about pricing on the website,” she continues. “Because each customer has such bespoke needs, the pricing for our core solution would partly be based on number of users and/or service needs. Marketing doesn’t get involved in pricing because that gets deep into the technical solution.”
This does have an impact on inbound inquires, however. “If we get queries through the website, the first question anyone asks is the cost.”
3. The shift to subscription pricing models
With everything from t-shirts to pet toys now available on subscription, companies have taken the idea that customers want to buy a hole – rather than the drill that makes it, to the extreme.
It began in the tech industry, where – thanks to the development of the internet – a genius realised they could guarantee a future revenue stream for their business by charging a subscription for continued access to their product, rather than rely on the customer choosing to pay for an upgrade once every few years.
This model has its benefits for the customer too. No more waiting for the CFO to agree to release a huge chunk of the budget upfront, when that cost can be spread out for a nominal fee each month. Not only that, thanks to the cloud, they can be up and running quickly with (in most cases) limited input from the IT department required.
In many organisations this means they’re implementing dynamic pricing that’s being looked at all the time. It’s not a price that can be discounted, and it can change depending on what’s selected, leaving marketing little room for leverage.
There are also long-term implications for customers. As Redstor CMO Gareth Case pointed out at B2B Get Stacked in March, a $10 per month seems good value – until you realise you’ve amassed 50 different platforms, all costing you $10 a month. And what happens if you rely on these pieces of tech, and the vendor suddenly decides to increase the cost of a subscription by 50% or more?
4. Vendors don’t want to compete on price
No vendor wants to be perceived as a commodity – this is another reason for the rise of the solution-sale (see point one), and subscription pricing (see point three). If you publicise your price, you give prospects and customers the opportunity to make an instant – and probably unwanted – comparison between you and your rivals. It’s another reason marketers want to take price out of the equation.
“We try to move it away from the cost decision, and compete on service,” one marketing leader reveals. “We offer a superior service to our rivals, and we compete on that service as well as the product.”
"We get customers to admit their challenges and the problems, as once they’ve admitted that you’ve got their trust. It’s all about trust in the relationship, and then the price will come later"
How marketers can take more control of pricing decisions in the business
I concede the death of price as a key component of the decision-making process may be an over-exaggeration. Price will remain a factor in B2B decision-making, although it certainly seems a less important consideration than it once was.
It also highlights the lack of influence and input marketers have on the pricing process, and subsequently aren’t able to use that as a lever in their go-to-market strategy. “When the product is amorphous it makes it harder for marketers to be involved in the pricing decision,” as one of our leaders put it.
Ultimately, price has become less relevant because customers are really looking for value. Marketers need to prove to customers they can deliver value. Here’s three suggestions from senior marketers on how to do that, and have a bigger say in the pricing process.
1. Get involved early on:
As with any business decision, if you’re not involved at the start, it’s much harder to make your voice heard once the wheels are in motion.
There is a danger in this world if the solution sale pricing starts to become a little arbitrary, based upon how much the customer has and is willing to spend, rather than the cost of the product.
Marketing has a role to play during the product development process in bringing insight into what the market and customers are prepared to pay.
2. Be transparent about pricing
For the reasons outlined in point three, customers like the subscription pricing model because of its easy access, its flexibility and lower costs. But how many customers understand what those monthly fees are actually paying for in reality?
There is an opportunity for businesses to be more transparent, and to break down their pricing structure for customers. Building this trust up front will make it easier to raise prices without alarm in future.
3. Give the sales team the tools they need
The solution sale is not going away, but many sales teams seem to be struggling to make the switch – either because they’re not incentivised correctly, or they’re just wedded to a traditional way of working.
Marketing can make this change process easier. Sales often ask for brochures or catalogues because that’s the way they understand the company’s offering, and translate these to customers. Marketing could help this by improving internal comms and doing a better job of explaining go-to-market strategy and messaging, along with providing up-to-date sales enablement tools that go beyond the product catalogue.
