Business-to-Business Marketing: Pricing Strategies and Sales Force Management
Pricing Process in Business Markets
Steps
- Set Strategic Pricing Objectives
- Estimate Demand and Price Elasticity of Demand
- Determine Costs and Volume Relationships
- Examine Competitors’ Prices and Strategies
- Set the Price Level
Pricing Strategies
- Value-Based: Focuses on creating value for customers.
- Profit-Driven: Prioritizes bottom-line performance.
- Proactive: Anticipates and adapts to disruptive events.
Differentiating Through Value-Creation
Companies build long-term relationships by providing exceptional value that justifies higher prices.
Core Differentiators
- Service Support
- Personal Interactions
- Supplier Know-How
- Improved Customer Time-to-Market
Moderate Differentiators
- Product Quality
- Delivery
- Acquisition & Operation Costs
Demand Determinants
Factors influencing demand include product/service usage and importance across market segments. Example: Ventilators exhibit low price sensitivity and high potential demand.
Capturing Value
Pricing strategies are determined by how buyers evaluate the economic value of offerings.
- Economic Value
- Commodity Value
- Differentiation Value
Identifying Value Drivers
Analyze cost and revenue drivers to understand value creation.
Price Elasticity
Measures customer sensitivity to price changes. Example: Gasoline is inelastic, with consistent demand despite price fluctuations.
Price Elasticity of Demand Formula
Percentage change in quantity demanded / Percentage change in price
Factors Influencing Price Elasticity of Demand
- Flexibility in Comparing Suppliers
- Switching Costs
- Customer Perception of Product Value
- Product Importance in Customer’s Cost Structure
- End Market Focus
Value-Based Segmentation
Customer-assigned value varies across market segments, necessitating tailored pricing strategies.
Target Pricing and Costing (Cost Determinants)
- Analyze and segment market conditions.
- Determine desired product attributes for each segment at a target price and volume.
- Understand customer value perception relative to target selling price.
- Break down target costs for each component or function.
Goals of Cost-Classification System
Accurately categorize costs into fixed and variable components.
Cost Concept Analysis
- Direct Traceable Costs
- Indirect Traceable Costs
- General Costs
Pricing Strategies (Continued)
Skimming vs. Prestige or Premium Pricing
- Skimming: Setting a high initial price for new products with no competition.
- Prestige/Premium: Pricing above competitors to convey status or higher quality.
Product-Line Considerations
Balancing prices within a diverse product line is crucial. Example: Pricing variations of Spam products based on volume.
Competitive Bidding
Developing bids to meet specific customer requirements, often used in government contracts.
Sales Force Management
Role of the Sales Force
Sales teams manage customer relationships, a vital asset in B2B strategy, and serve as a link between the market and customers.
Personal Selling
Salespeople gather insights on customers and competitors, facilitating targeted interactions.
Components of Sales Force Management
- Leveraging Social Media for Prospecting
- Identifying Characteristics of High-Performing Account Managers
- Key Account Management
- Sales Force Organization Methods
Sales Cycle
- Qualifying Leads
- Managing Relationships
Qualifying Leads
Salespeople ensure potential customers have the budget, authority, need, and timeline for purchase.
Managing Relationships
Social tools help maintain customer relationships and post-sales engagement. Salespeople develop in-depth customer knowledge and provide valuable information.
Organizing Personal Selling Efforts
Geographic Organization
Salespeople cover all products and customers within a specific territory. Disadvantages include product knowledge limitations and potential customer overlap.
Product Organization
Salespeople specialize in specific product lines, offering deeper product expertise but potentially causing customer confusion due to multiple company representatives.
Market-Centered Organization
Salespeople focus on particular industries, such as government sales, which may require extensive travel.
Customer Unique Value Proposition
Prioritizing customers based on their value contribution (e.g., 80/20 rule) ensures efficient resource allocation. High-performing salespeople handle key accounts.
Key Account Management
Key accounts generate significant volume and require specialized, long-term relationships with extensive information sharing.
Key Account Success Factors
- Senior Management Support
- Well-Defined Objectives
- Experienced Staff
- Custom Solutions
Account Management Best Practices
Effective coordination of internal and external activities is essential for key account success.
Sales Administration
- Recruiting and Selecting Salespersons
- Training
- Supervising & Motivating
- Evaluating & Controlling
Recruitment, Selection, and Training
First-line supervisors handle recruitment and selection, while ongoing training ensures skill development.
Determinants of Salesperson’s Job Performance
Aptitude and motivation are crucial for sales success, as salespeople must navigate ambiguity and achieve targets.
Supervision & Motivation
Internal and external rewards, tailored to individual preferences, drive motivation and job satisfaction.
Job Satisfaction
Salespeople experience higher job satisfaction when they receive close supervision, management support, and involvement in company policies.
Turnover
Job satisfaction directly impacts turnover rates. Effective training and management practices help retain talent.
Evaluation & Control
Management monitors sales performance, identifies problems, recommends corrective actions, and keeps salespeople informed about changes.
Performance Measures
Standardized metrics evaluate salespeople consistently, considering both behavior and outcomes.
Behavior-Based Measures
Assess teamwork, timeliness, and product knowledge.
Outcome-Based Measures
Focus on sales results, such as commission earned and quota attainment.
Deploying the Sales Force
Strategic territory alignment maximizes profitability and defines customer coverage and reporting structures.
Sales Territory Traits
- Potential: Total business opportunity within a market.
- Concentration: Degree to which potential is concentrated in a few large accounts.
- Dispersion: Potential sales loss due to travel time.
Sales Resource Opportunity Grid (Figure 14.3)
Aligns sales resources with opportunity levels to optimize resource allocation and maximize returns.