Business Development: Attitudes to Different Pricing Models
Our client serves the industrial marketplace for engineering and manufacturing goods, having one central catalogue that defines the basic product range. Though this range runs to many tens of thousands of products, customers’ needs are fulfilled through a combination of mail order, local stocking branches and a direct sales force who visit larger accounts. Through this variety of channels, our client aligns with many different competitors who use diverse pricing platforms for their markets. As part of our client’s strategic business development, they wished to move towards volume based pricing as the standard for their business. However, to do so would be at odds with the catalogue offering. There is therefore an unqualified risk that customers might be lost in changing the price platform, and we were asked to aid the client’s business development through researching a way forward.
Market research needs:
To determine the elements of value that are perceived as important to different customer segments.
To understand the extent to which existing pricing structures are culturally embedded in customers’ mindsets.
To model the likely reaction from customers if our client were to move to volume discount based pricing.
This research was about understanding the issues that drive customers to form price perceptions of different suppliers. It was not about establishing price positions on a comparative basis across a variety of commodities. The nature of the research was therefore qualitative. Since the focus of this research was centred on customer perceptions of pricing, we chose to focus groups as the most appropriate means of understanding customers’ attitudes.
Price was not the first issue to be mentioned when talking about value. More important to customers were the honesty of their supplier and how much they trusted that supplier. This meant that our client could promote value without having to cut margins to a perilously low level – i.e. there was profit to be made through increasing value. However, trust is a vital part of any pricing model and evidence suggested that price comparisons were made infrequently. Our client would therefore have to proactively lead price movements with customers. Discounts were found to be poorly implemented by many suppliers, with a variety of different points of application, sometimes causing confusion. This meant that in changing price position, our client must be transparent and keep the basis simple.
Business development for our client was achieved by subtle changes to their pricing models and, through careful management, loyal customers were retained.
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