B2B Pricing: What is the Balance Between Performance and Simplicity?

With over ten years of expertise in pricing—client-side at Rexel, consulting at McKinsey, and in SaaS software through the creation of Brennus Analytics—Emilie Gariel is the go-to expert on the subject at Converteo. After sharing the convictions that led her to launch the Pricing Strategy, Operations & Solutions offering, she delves into the balance between performance and simplicity.

Key Takeaways

• In B2B pricing, companies face the challenge of balancing the complexity of optimized individual prices with operational simplicity.
• An optimal pricing strategy involves a customized architecture that maximizes profitability by targeting competitiveness where needed. However, a highly granular pricing structure can complicate price management and requires specific tools and resources.
• Some companies choose a simplified pricing approach using standard rules, which eases the understanding of pricing policy and operational management but limits the ability to capture maximum profit opportunities.
• The ideal approach skillfully combines price customization, streamlined pricing structure, and transparency with clients, all within an iterative process with strong change management support to ensure sustained pricing efficiency.

In B2B, pricing is a crucial lever for companies looking to optimize their margins. However, a dilemma inevitably arises between implementing an optimized pricing model that personalizes prices and the need for simplicity to address operational, human, and technological constraints. How can a company reconcile high-performing pricing with simple and efficient operational processes?

In this article, we will explore the challenges companies face when trying to implement an optimized pricing system. We will also discuss the alternative of adopting a simplified approach. Finally, we will cover some key practices for achieving a pragmatic balance that best contributes to the company’s profitability.

Individualizing pricing to optimize commercial performance

An optimal B2B pricing system often involves a granular approach where each customer is assigned product and service prices based on various factors, such as their profile, growth potential, market dynamics, etc. This price personalization strategy offers an unparalleled level of precision and performance.

It allows the company to target competitiveness where it seeks to increase market share and maximize margin where it benefits from a favorable context. The company aims to come as close as possible to the individual customer’s “willingness to pay,” thereby optimizing its margin.

For example, an automotive parts distribution company offers “premium” parts in its catalog. Client A, specializing in luxury cars, is more aggressive in this product category because it is essential to their business, so they receive a 15% discount on these premium parts.
In contrast, Client B, a generalist auto repair shop, receives a less generous 10% discount on these same parts, as they are less crucial to their operations.

This strategy also encourages customers to adopt “virtuous” behaviors by rewarding purchasing behaviors that align with the company’s interests and maximize its net results (not just its commercial margin).

A customer who demonstrates accuracy in forecasting their orders can be rewarded with an additional discount, as this helps the company better manage its inventory. Similarly, a customer who centralizes their purchases and consolidates orders may receive a complementary discount, as this allows the company to save on logistical and administrative costs.

However, this strategy complicates price management. It requires discounts at various levels of granularity, of different types, with intersections between products and customers. The company must develop detailed pricing policies while remaining flexible to meet the varying needs of each customer.

Implementing such a system typically requires a specific software solution or a sophisticated ERP to manage the complexity of the pricing architecture and to accommodate the different discount allocation rules at the most granular levels.

Additionally, dedicated teams are needed to monitor, maintain, and analyze pricing performance, providing insights to support decision-making within the company.

Finally, customers might be confused by the variability of prices they encounter, unable to understand the logic of pricing that considers criteria irrelevant to them, especially when they are trying to simplify the administrative processing of their purchases. This challenge is compounded when sales teams struggle to explain the pricing rules to their customers.

The Temptation of Simplification

In a context where companies face limitations in human and technological resources, or out of a desire to standardize processes across different activities, some opt for a simplified pricing approach that is more uniform and based on straightforward rules.

For example, a company might determine its price lists by adding a 30% markup to its costs. It then offers a single pre-invoice discount to reward purchase volume (based on the number of full trucks purchased) and provides a rebate to develop customer loyalty (based on revenue milestones). This same pricing structure is applied to all customers across its entire portfolio.

This approach makes the pricing structure easier for sales teams to understand and allows for clearer communication with customers. It simplifies the integration of orders into ERP systems (even with the most basic versions) and makes performance tracking easier.

From an operational perspective, this is the simplest option to save time and money.

However, by setting uniform prices or using standard rules, the company cannot fully capture profit opportunities. It ends up granting larger discounts than necessary, with some customers benefiting from a lower price than they were willing to pay for the product, thereby gaining a larger share of the added value.

The company also risks setting deterrent prices for some customers and missing out on sales. By setting a price too high, especially on channels without salesperson interaction, such as e-commerce, it sends a signal to certain prospects that they are not welcome as customers. They may be discouraged from purchasing, at least on one or more product lines where the prices are prohibitive.

Moreover, even while attempting to simplify pricing, some complexity may emerge as exceptions multiply, driven by salespeople who feel that certain transactions could be within reach with a price reduction. These deviations need to be managed and validated, placing the burden of complex negotiations on the sales team, which consumes resources and time to respond to a pressing client.

Given these challenges, might it be pertinent to opt for a hybrid solution that combines the benefits of both approaches discussed?

Our Key Practices for Achieving an Ideal Balance

The ideal approach skillfully combines the advantages of granularity with operational simplicity.

First, customer segmentation into homogeneous groups is essential. This can be done based on various criteria: type, size, geographical presence, etc. This creates a coherent foundation for customizing pricing according to the needs, purchasing behaviors, and preferences of each customer segment.

Additional optimization can be achieved by offering conditional discounts; for example, granting a discount to a customer once they reach a predefined revenue threshold. These mechanisms ensure that a customer benefiting from these discounts has likely increased their purchases or met specific criteria to qualify.

Finally, rationalizing the pricing structure is necessary. This involves clearly identifying the customer behaviors to be valued and structuring your discount rules in a way that avoids rewarding the same behaviors multiple times.

For example, a company offers a standard discount based on order volume and an additional discount for customers purchasing in full pallets. If a customer places a large order that fills several pallets, they should not be able to combine the standard volume discount with the pallet discount for the same volume of products.

Additionally, certain facilitators enhance the effectiveness of pricing:

• Transparency regarding pricing policies helps customers understand the benefits offered, reduces potential misunderstandings, and strengthens the trust between the company and its customers.
• Automation plays a key role in reducing human errors and allows for transaction-level historical tracking of granted discounts, enabling subsequent pricing performance analyses (Price cascade, Margin bridge, etc.).
• Change management is crucial to ensure a smooth adoption of pricing rules by engaging all stakeholders (sales teams, support services, etc.).
• Finally, constant evaluations and continuous adjustments ensure the sustainability of the pricing structure and its adaptation to market changes.

To continue receiving high-quality pricing content, subscribe to our newsletter dedicated to pricing news and major issues.