B2B ASSIGNMENT 1-

VARIOUS PRICING APPROACHES IN B2B

MARKETING

Submitted by- Gayathry Suresh

Submitted on- 5th Decemeber, 2022

Admission no- FIT21MBA51

A B2B pricing model is the framework and structure for your pricing strategy. It determines
how you’ll charge other businesses when they make a purchase. For example, while some
businesses charge by usage amount, others charge a flat rate or use tiered pricing.

Here are four of the most popular B2B pricing models.

1. User-Based Pricing

User-based pricing charges businesses based on the number of users who will have access to
or use your product. Prices are higher if there are more users, and lower if there are fewer.

For instance, Slack charges per user.

Pros of User-Based Pricing Cons of User-Based Pricing

Buying companies may share a single

login for multiple users to avoid higher
This is a straightforward, simple model for selling. costs.

Buyers understand what they’re paying for upfront, You may lose valuable revenue that
so there may be less time between discovery and comes from selling by the value you
purchase. provide.

2. Usage-Based Pricing

Usage-based pricing charges businesses based on how much they use your product, so more
usage means higher costs. This allows purchasing businesses to remain in control of how
much they spend, as they know what the costs will be.

Zapier is an example of a business that runs on usage-based pricing. The company charges
customers based on the number of Zaps and tasks they run per month. Here’s how their
pricing looks.
 Pros of Usage-Based Pricing Cons of Usage-Based Pricing

This model appeals to purchasing

businesses because they can anticipate Customers may become frustrated if monthly
costs. usage changes and bills vary.

Customers pay more when they need your Businesses may use your product less during
product or service the most, so you may specific periods, causing revenue disparity and an
experience revenue spikes. inability to do accurate sales forecasts.

3. Tiered Pricing

Tiered pricing sells your product at different price points depending on the features included
at each level. The lowest cost typically comprises the least amount of features, while the
highest includes the most.

HubSpot uses a tiered pricing strategy. Businesses often combine this model with a value-
based pricing strategy. If you have product features that are more valuable than others and
cost more to produce, you can ensure you charge the correct amounts.
Pros of Tiered Pricing Cons of Tiered Pricing

You can adequately price features that

took more time to create or provide more It's challenging to select the features to include in
value by placing them in higher tiers. each tier.

Customers can choose the plan that works Going overboard by creating more than three tiers
best for them, so you can attract qualified can cause cognitive overload, making it difficult
businesses for each tier. for prospects to decide on a suitable tier.

Upselling is attractive to the purchasing

businesses because they may scale and You can’t collect extra revenue if users of your
desire additional features. top-most tier exceed their service usage.
4. Flat Rate Pricing

Flat rate pricing means you offer one product and include all features at one price. Basecamp,
a project management tool, uses the flat rate pricing model.

Pros of Flat Rate Pricing Cons of Flat Rate Pricing

It’s a simple model for your

customers because they know
they have unlimited access to
all product features. You lose customers who can’t afford your flat-rate price.

If your product is beneficial to solopreneurs, SMBs, and

enterprise companies, you’ll miss out on revenue, as the
Costs are predictable for buying value that each use case will get from your product will be
companies. different.

You may miss out on revenue if you don’t price your

product based on the number of users. Basecamp possibly
Sales forecasting is easy with
had this challenge, so they switched from a flat rate of $99
this pricing model.
per month for unlimited users to $11 per user.

Once you’ve selected the model that works best for you, it’s time to pick a pricing strategy
that will allow you to maximize profits.

1. Value-Based Pricing

Value-based pricing is an excellent way to assess the perceived value of your product versus
what customers are willing to pay for your product. Patrick Campbell, Founder and CEO of
ProfitWell puts this another way, “Your price is an exchange rate on the value you’re
providing.”
In 2021, 39% of B2B SaaS companies set their product’s cost using value-based pricing.
 Pros of Value-Based Pricing Cons of Value-Based Pricing

It’s easy to be competitive in your Calculating value can be difficult, as it requires

industry because you charge based on significant time to understand your target audience
your customers. and gather business data.

2. Cost-Plus Pricing

Cost-plus pricing (also called markup pricing) is a pricing strategy where you add a fixed
percentage of production costs to a unit of what you sell. For example, if you break down
your product's costs and discover the cost of development is $15, labor is $30, and
miscellaneous is $10, adding a 25% markup means your cost-plus price is $68.75.
This strategy is easy to implement as it focuses less on consumer demands and competitor
pricing. However, only 10% of B2B companies use this strategy. However, this model may
lead you to over-price a product in a weak market and under-price in a strong market. Assess
the market price for similar products before opting for cost-plus pricing.
Pros of Cost-Plus Pricing Cons of Cost-Plus Pricing

You may overprice your products and lose out on

This model is simple to calculate. sales if prices are too high.
 SaaS businesses may miss out on profits because the
This is a transparent strategy, as buyers value of your product may outweigh its production
understand what goes into your pricing. costs.

3. Competitor-Based Pricing

Competitor-based pricing centers on using the going market rate for similar products and
charging below, at, or above the industry rate. If you run a relatively new B2B company, you
can use this strategy because existing brands have already assessed what customers want to
pay for a product like yours.
To use this strategy, you can generate a list of your competitors from popular review
platforms like G2, GetApp, and SourceForge. Afterward, check out their prices and decide on
a price point for your product.
Pros of Competitor-Based
Pricing Cons of Competitor-Based Pricing

Competitor-based pricing requires

quick research into your If your products become extremely popular, you may
competitors’ pricing strategies. lose revenue by sticking to this pricing strategy.

Basing prices on the going market

rate helps customers understand This method does not consider production costs.
what to expect and your prices Meaning, you may put more effort into creating your
won’t scare them away. product but generate minimal revenue.

This strategy may prove to customers that your product

You can adjust prices based on the isn’t different from what’s in the market. In other words,
market; if your competitors change, without differentiation, customers will question why they
so can you. should buy your product instead of an alternative.
4. Dynamic Pricing

Many B2B companies use the segmented dynamic pricing strategy to sell their products to
different customers. They do this by requesting users to contact their sales team for all or
certain product tiers. Using this strategy allows businesses to create customized solutions for
every user, charge based on the product’s value, and adjust prices as market trends and
conditions change.

However, this strategy is that it turns off potential users. When users land on your pricing
page, they want to see the price of your product, not “contact sales.”

Pros of Dynamic Pricing Cons of Dynamic Pricing

You can apply rules to specific business groups

based on their characteristics and market conditions, Prices that fluctuate because of market
ensuring you have a suitable option for all audience conditions may make consumers upset
segments. if the product becomes unaffordable.

Price fluctuation with the market may

You can easily adjust to competition price changes. make revenue uncertain.