Comments on: How to fairly price your B2B services: Price setting and discrimination in action

By: Peter Korchnak

Peter Korchnak — Wed, 04 Nov 2009 22:06:25 +0000

@Mark: The issue with value is that measurables are only one element of it. Consider the difference between price and value. You can measure price, but it is the buyer who assigns value to the overall product, with price being only one consideration.

So you’re right, the client should determine value, but the client does so based on her subjective considerations. Otherwise, it would be easier to determine the price in dollars as an hourly rate or contingency.

Quoting Jay Conrad Levinson, “Value-based pricing has been slow to gain acceptance in the consulting business because of difficulties in agreeing on estimates of value and finding methods to measure it.”

By: Mark Richman

Mark Richman — Wed, 04 Nov 2009 21:52:56 +0000

How is value highly subjective? The key to value-based fees is to put the onus on the client for determining objectives, measures of success, and value.

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Wed, 04 Nov 2009 18:43:17 +0000

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By: Peter Korchnak

Peter Korchnak — Wed, 04 Nov 2009 18:28:41 +0000

@Matt: Thanks! To price right and fairly, knowing your target market is a must, indeed, though there’s only so much that you can discover about the price your prospects are willing to pay. The best way to seal the market is to consistently (over)deliver on your promise and produce at least the agreed-upon results.

By: Matt

Matt — Wed, 04 Nov 2009 15:00:20 +0000

Great post. I’m pleased to see the discussion of price discrimination because that is the only way to truly maximize one’s profits. If you can charge each customer exactly what they’ve reserved to pay (and no more), you can extract all the surplus from the market. The only thing I’ll add is that discrimination only works if you can do two more things: Properly segment the market and identify the buyer’s reservation price (by any of your methods in the top half of the post) and then seal the market to prevent reselling. Certainly, this type of pricing is very hard to implement. A more reasonable way to attack it is by charging groups different prices, instead of people, because they’re easier to segment and seal.

A couple of other pricing options to consider for B2B are two-part tariffs (charging an entrance fee plus a use fee) and bundling. Both are useful for extracting profits in B2B or B2C.

Again, nice post as always.