Rob Docters, Lisa C. Riley and Martijn Gieskes
The aim of this paper is to describe a better decision framework for setting prices of goods and services, with particular focus on B2B goods sold through direct sales channels…
Abstract
Purpose
The aim of this paper is to describe a better decision framework for setting prices of goods and services, with particular focus on B2B goods sold through direct sales channels (although this may be applicable to many B2C markets also.) The focus is to link situations to pricing strategies, and so anchor pricing to factors that actually drive buyer decisions.
Design/methodology/approach
A large number of interviewees (850) in a number of industries (about 20), in a range of senior and buying‐related capacities, were asked how they evaluated potential purchases. In particular, what role pricing played, and how decision‐makers evaluated the prices offered by incumbent and new vendors. Interviews are supplemented through a number of case studies and references.
Findings
A key finding is that buying decisions are based on only three potential points of reference. The point of reference can be inferred by sellers with confidence from cues and understanding of the organizational history of the buying organization. With an understanding of which point of reference applies, sellers can correctly determine the required offer price. An additional finding is that in situations where the reference or competitive product comparison is unfavorable, there are ways in which sellers can point of reference by “changing the level of play” and so potentially change the outcome in their favor.
Research limitations/implications
The findings are based on a limited number of interviews (850) and a limited number of industries (about 20). There may be instances where price level is a greater driver of customer behavior than suggested here.
Practical implications
The paper suggests that in many instances companies are mistaken in their approach to pricing. They neglect to consider buyer frames of reference, and so discount unnecessarily. The framework in this article also provides senior sales and marketing management with a process by which they can manage discounting.
Social implications
This article helps “penetrate the black box” of buyer decision making, and links it to the objectives, experience and situations at the buyer's institution.
Originality/value
This paper is the first systematic view of buyer points of reference for pricing. Builds upon original interviews to show that the pricing reference point shifts to a limited number of comparison points, and even with limited information, sellers can make good judgments of what is the benchmark used by buyers – they do not need to guess.
Rob Docters, Lisa Tilstone, Susan Bednarczyk and Martijn Gieskes
Businesses understand that digital technologies and applications can create value, but how to capture that value has been elusive. Particularly for established businesses, the…
Abstract
Purpose
Businesses understand that digital technologies and applications can create value, but how to capture that value has been elusive. Particularly for established businesses, the practice of applying traditional price structures to new digital platforms has resulted in revenue, market and share deterioration. This article describes how to adapt price structure to digital migration and hybrid digital/pre‐digital product sets.
Design/methodology/approach
Based on case studies from entertainment, publishing, education, avionics, gaming and software industries, the article observes how price structure directly transported from pre‐digital products have not been effective in maintaining revenues and margins. Successful digital product introduction requires careful examination of the new capabilities and price drivers of a digital context.
Findings
This article shows that frequently the price drivers of digital products require a new price structure. In particular, the unit of measure (e.g. users, downloads, enterprise size, etc.) is critical to success. Typically when product developers choose a measure that most resembles the pre‐digital unit of pricing, results are sub‐optimal. Further, the overall structure must reflect the risks which are often implicit in digital migration – the benefits of sharing and increases in efficacy can often accrue to the buyer, and elude the seller.
Originality/value
Product developers and pricers tend to focus on the similarity between pre‐digital and digital generations of product. Often, they wrongly assume that digital is better for all. However, the context of the product (workflow, applications, scaling, competitors, etc.) can be much more important than the product itself, and pricing must reflect that. As a result of poorly managed digital transitions, industries have seen billions of dollars of revenues wiped out – quite needlessly. This article identifies specific frameworks for minimizing the risk of revenue loss.
Details
Keywords
Rob Docters, Bert Schefers, Christine Durman and Martijn Gieskes
More than ever, businesses need to assemble and offer multiple products combined into a single offer, a practice known as bundling. The purpose of this paper is to describe how to…
Abstract
Purpose
More than ever, businesses need to assemble and offer multiple products combined into a single offer, a practice known as bundling. The purpose of this paper is to describe how to bundle effectively through analyzing the value of bundle components and the specialized market purpose of a bundle.
Design/methodology/approach
In working with many different clients, statistical techniques have helped us draw an interesting conclusion: most bundles—though not all—share a similar structure or taxonomy. At the heart lies the core or anchor element; this is the product or service driving the inquiry. Wrapped around that are those elements which strongly complement the core. The next layer up consists of products or services seen as convenient for the core, but may not always be cost‐effective to include. The final layer of a bundle often turns out to be additions with negative value. These are either substitutes for other bundle components (buyers generally hate being forced to buy two redundant products), or components which have such low relevance to the core that they clutter the value message.
Findings
This article examines two dangers to effective bundling: mismatching the various elements of a bundle, and mispricing the offer. We find there are four marketing mistakes which typically stem from mismatches and mispricing: failing to create bundles for special purposes; making bundles too big; using tiering instead of bundles; and failing to innovate on bundle definition.
Originality/value
There is a science to bundles, but it is not widely known or practiced. This science grows in importance as bundling becomes more important, and bundle components become more diverse. Today most bundling is done through judgement and ad hoc initiatives. Frequently such an approach fails to develop an effective bundle, or effectively communicate the value of the bundle. Understanding the taxonomy of a bundle, and the value elements, will allow more diverse and effective product and service combinations.