Pricing of industrial products is the most crucial component of industrial marketing strategy. Therefore, industrial B2B marketers should be familiar with all types of pricing models.
Industrial pricing strategy is connected to various other approaches, including market segmentation, product strategy, and promotion strategy. Therefore, the industrial marketer must integrate many techniques to accomplish a dual purpose of meeting the company’s objectives while also meeting market needs.
Importance of product pricing
Pricing of industrial products is a significant part of B2B marketing mix because it establishes the value of your product for both you and your customers. It is the quantifiable point that informs clients whether their effort and commitment are worthwhile.
Product pricing strategy impact extends far beyond profits: it impacts future sales, customer satisfaction, and product success. Maybe most importantly, it is really a competitive tool.
The price makes the first impression in B2B sales
In B2B sales, the first thing a client perceives about a product is the price. While B2B purchasers may make their ultimate purchasing choice based on the product’s overall benefits, they are likely to evaluate it by comparing the cost to its perceived value. After learning about the pricing, B2B customers want to get additional information about the product’s characteristics.
When a product is overpriced, the customer may lose interest in learning more about the product’s features. This means a failure in B2B customer acquisition. However, if customers believe a product is affordable, they will seek additional information about it. As a result, pricing is a crucial aspect of a buyer’s decision.
Product attributes that determine the price
There are two product-specific attributes: those associated with the corporation and those associated with the sales team. As a result, the overall product encompasses far more than its physical characteristics.
Likewise, the cost of industrial products encompasses a great deal more than the seller’s price. As a result, the pricing decisions of industrial products are inextricably linked. Consequently, they must be balanced within the context of the company’s B2B market segmentation strategy.
Selling to other companies (business-to-business sales) is a whole different type of game than selling to consumers. B2B sales involves entirely different techniques across the spectrum of decisions you'll be making. One of those distinctions is in the pricing tactics you use.
Factors that affect the pricing of industrial products
The following section discusses the factors that influence an industrial seller’s pricing decisions.
1. Survival of the company
Many industrial enterprises view survival as a short-term priority. Due to heavy market competition and other factors, the company’s products (goods or services) may be difficult to sell. To ensure the company’s survival, it lowers prices in order to convert inventories and capabilities into sales.
Survival is much more significant than the pricing of industrial products in this short term strategy. Prices are set so that they cover variable costs and a portion of fixed costs, allowing the business to continue operating. Survival is a short-term pricing objective. The industrial seller company should increase the prices to cover all costs and earn a profit in the long run.
2. Maximum revenue in the short term
For some industrial organizations, the focus of the company pricing strategy is to maximize sales income in the short term. The assumption is that businesses will grow in terms of market share and revenue by boosting sales income in a short time.
3. Maximum short term profits
Pricing of industrial products with the goal of short-term profit maximization may be the pricing strategy of some industrial seller companies. These companies forecast market demand and costs at several pricing and then choose the one that maximizes current profitability.
Demand and cost estimation is quite challenging in industrial markets. This purpose gives priority to short-term profit maximization rather than long-term performance and connections with customers.
For me, this is the wrong pricing strategy. Please do not use it. Companies pursuing this ambition take no account of competitors’ reactions or legal ramifications.
4. Penetration to the market
This strategy is based on the fact that the market is price sensitive and that low prices enhance sales. So, some corporations set product prices as low as possible to increase sales volume and market share for their products.
Another fundamental assumption is that low pricing of industrial products will deter potential competitors from entering. Further, that increased volume will cut production and distribution costs, resulting in larger profits in the long term.
5. Maximum skimming of the market
Certain industrial corporations set high pricing during the early stages of a product’s life cycle when they release new and innovative products. The new industrial development is originally targeted at market segments with the least price sensitivity.
By implementing the right strategy for the pricing of industrial products, the seller (vendor/manufacturer) company maximizes revenue and profits.
6. Leadership in product quality
By manufacturing high-quality items and charging somewhat more than competitors, an industrial seller company can aim to be the market leader in terms of product quality. Profitability is increased as a result of this pricing objective. However, this strategy may result in revenue loss.
Types of pricing strategies for industrial products
Pricing of industrial products is a critical process in which the company’s sales strategy dictates both its collection of features and the value customers place on them. Types of pricing strategies of industrial products are good.
Whatever you’re offering, the price you charge for your product or service has the potential to make or break your business’s financial objectives. Of course, the optimal pricing methods cannot be magically determined. Nevertheless, well-thought-out industrial product pricing strategies are critical in encouraging B2B customers to buy while maintaining a healthy profit margin.
Evaluate the pricing of industrial products accurately
There is no universally accepted formula for determining how much your sales price and profit margin ought to be. Some enterprises earn millions by charging pennies, while others may succeed by charging excessively high prices. Customers will only purchase products or services whose pricing corresponds to their perceived value.
So how do you evaluate the true value of what you’re selling, apart from the cost of production? With the appropriate pricing of industrial products, you can consider all the variables that influence a B2B buyer’s inclination to purchase. So now, let’s talk about how to price products.
Basic pricing of industrial products – List price
A list price is the starting point or basic pricing of industrial products that come in various sizes or features. It is a published statement of introductory rates that is occasionally stated to customers.
The list price statement specifies the date when it becomes effective and includes additional charges for optional product features, excise duty, freight, sales tax, and transit insurance.
Net pricing of industrial products
The net price is calculated by subtracting the list price from any discounts or other concessions. The net price is critical for industrial B2B purchases since it is the price that applies to the industrial buyer after deductions and benefits are deducted.
Discounts for intermediaries
Intermediaries such as dealers, agents and distributors receive trade discounts. The amount of the trade discount varies according to industry standards and the activities provided by intermediaries.
Discounts for order quantity
Industrial B2B customers who purchase in bulk receive a quantity discount. This type of discount is very popular in the pricing of industrial products because the amount and volumes are remarkable in industrial sales. In addition, quantity discounts are reasonable because they lower the cost of selling (since a mass transaction requires less selling expense), inventory management, and shipping.
Quantity discounts may be applied to single orders or a series of orders placed over a longer period. The fundamental purpose of a quantity discount is to entice clients to purchase larger quantities and retain their loyalty. The amount of the quantity discount is determined by demand, costs, and competitive analysis.
Cash payment discount
To ensure early payment, industrial seller companies offer cash discounts to their customers. It is a discount applied to the gross amount of the invoice, providing the consumer pays within the specified time from the invoice date.
Distance-based pricing of industrial products
There are normally two price bases in geographical pricing, which are indicated in the offers or quotations presented by a seller to a buyer.
There are two types of destinations:
The term “ex-works” refers to the prices in effect at the factory gate. When a seller gives a buyer an “ex-works price,” it signifies that the buyer is responsible for freight and transit insurance. In other words, the vendor will charge the buyer for the cost of freight and insurance. Therefore, the landed expenses of more distant consumers are higher due to freight charges.
When a vendor quotes a buyer “FOB destination” (free on board), it signifies the seller has absorbed or included the freight charges in the offered price. With this pricing strategy, all buyers receive the product at the same cost regardless of their distance from the seller’s factory property.
If the quotation or price list is FOB destination, the industrial marketer typically estimates the average freight and insurance costs and incorporates these into the basic product prices. Industrial sellers rarely absorb these costs. They do so only in a highly competitive situation to win business from a particular customer.
Conclusion on the pricing of industrial products
Historically, sensible product pricing has been the primary factor of buyer preference. However, industrial B2B buyer behaviour has shifted recently. Although non-price elements are now playing a role in the customer decision process, the pricing of industrial products remains the primary factor influencing the customer’s purchase decision.