When marketing a new B2B product, the price point you set is one of the first aspects buyers look to to better understand the value your product offers. Because B2B buyers focus more on ROI than pricing, you will need to primarily market your product by proving its ROI.
But to maximize profits from a new B2B product, your pricing strategy must consider manufacturing and development costs, while also taking into consideration costs of adoption, such as training of staff and new equipment, while also competitively positioning your new product in the market.
So how do you set the right price point for your B2B product? Answering this question is the focus of today’s lesson.
Two Common Problems When Pricing New B2B Products
Most B2B companies struggle with pricing new products. A 2018 Bain & Company study of 1,700 B2B executives concluded that 85% believe their pricing decisions could be better. So how do you avoid becoming a statistic and pricing your new product poorly? The short answer is: you let the market decide.
The reason most organizations fail to price new products correctly is because of deep discounts for new users, and a lack of understanding of which pricing model will work best for the target buyer.
1. Deep Discounts for New Products
To test your product-market fit, you will need to get your product into as many hands as possible.
The mistake most organizations make is they deeply discount new products in order to secure new contracts. To truly test the value your product offers to a buyer, hence the product-market fit, sell the product as close to your desired price point as possible.
Deeply discounting a new B2B product often times goes against business and marketing goals of creating a profitable product. Worse yet, deeply discounting a new product leaves no incentive for sales reps to sell at target price points and stress test price-market fit.
When first testing your product, your sales team needs to be selling and learning from each rejection. Closing a sales deal at any cost, though helpful, is a short-term strategy. Sell at your desired price point, and adjust accordingly.
2. Using the Wrong Pricing Model
Selling a new B2B product can often disrupt your target buyer’s existing business processes and work flows. Your pricing model must take into account the total cost of adoption and deployment, training of staff, and purchase or removal of old hardware.
Using a “one size fits all” pricing model, regardless of the costs associated with deployment, is a common reason why new B2B products struggle to gain market share. So what pricing models are appropriate to use when launching a new B2B product?
Popular Pricing Models for New B2B Products
Product Pricing Model
If you are selling a physical product to a B2B buyer, using the product cost as a way to determine pricing will allow you to maximize profit per physical unit sold. Because the cost of new customers for SaaS products is typically low, the product pricing model should be used for physical products.
Value Pricing Model
If your product can be differentiated from existing competitors and is unique or patented, your pricing model can be based on the unique value your product brings to a target buyer rather than development or production costs.
Subscription Pricing Model
Subscription pricing can be used for both B2B products and services. When being applied to B2B SaaS products, subscription pricing models must consider the costs of adoption. Your price point is divided into monthly, quarterly, or annual pricing plans.
Competitive pricing model
If your product is going to compete in an established market with many existing providers, competitive pricing will position your product against competitors. Your price point is determined by competitors’ pricing tiers.
Portfolio Pricing Model
If you are offering a suite of products and services, your pricing strategy will need to consider the value of each product and service. For example, Adobe’s Creative Cloud products each offer unique value. Yet Adobe Photoshop and Adobe Dreamweaver both sit at the same price point. Since they are sold as part of Adobe’s portfolio of services, each portfolio product is marked up or down to fit into the portfolio price point.
Examples of Successful B2B Pricing Strategies
To illustrate how your B2B product can leverage its pricing strategy to use as a selling point, consider the following examples of MailChimp’s, Slack’s, and Adobe’s pricing strategies.
MailChimp’s “Freemium” Pricing Model
MailChimp, the popular email marketing service provider, adopted a freemium pricing model after already being in business for over eight years. It came as a surprise to many that a profitable SaaS company would shift to a new, at the time still unproven pricing model.
MailChimp created a “free user” pricing tier and offered basic email marketing services at no cost. Tailored to small and medium businesses just getting started with email marketing, the pricing model quickly became MailChimp’s best marketing tool. Business could send up to 12,000 emails per month for free. Users would only pay once they needed advanced targeting features such as predictive demographics, send time optimization, and advanced user segmentation.
Within a year of introducing its freemium pricing model, MailChimp’s user base increased from 90,000 to 450,000 users, and profits soared by 650 percent.
Slack’s Pay-Per-Active-User Model
When Slack first launched its team collaboration platform, it used the pay-per-user pricing model to quickly attract new users to download its desktop and mobile app.
Unlike existing team collaboration tools, Slack only asked its B2B clients to pay for active users. At the time, competitors charged their clients based on the total number of employees. To differentiate its product using its pricing, Slack offered account credits for “ghost users” when clients had fewer users using Slack’s platform than anticipated at the time of sale. If a business signed up for 10 users but only 4 were active, Slack would credit the account for the remaining 6 users.
Slack’s pricing model quickly became its best marketing tool, and coupled with its exceptional product, helped the company attract a cult-like following. Today, Slack is valued at over $5 billion.
Adobe’s Monthly Subscription Model
When Adobe Creative Cloud released its subscription pricing model in 2012, it introduced two pricing tiers for its B2B buyers. Small and medium sized businesses had the option of paying $29.99 per user, while enterprise solutions were offered a $49.99 per user. Each could access access one Adobe product, or pay more for complete access to Adobe’s Creative Cloud.
We are including Adobe’s pricing model strategy because you can most likely recall the uproar Adobe received from its users. Although SaaS products are standard today, it was unusual for an established software company like Adobe to start selling monthly subscriptions.
And yet, in just nine months, half a million people signed up to use Adobe Creative Cloud. Adobe accurately predicted businesses of all sizes would eventually transition to cloud computing.
Today, Adobe charges its SMB users $33.99/user/month and its enterprise users $43.99/user/month to use a single Adobe product. They offer hassle-free deployment, expert training, and advanced technical support to address any concerns their prospects may have with purchasing Adobe’s B2B product offering.