Willingness to pay is the maximum amount a customer is willing to spend on a product or service. Being aware of your customers willingness-to-pay can be the key to a successful price strategy. We will focus here on using willingness to pay in a B2B context.
Setting prices and standardizing deal management using Willingness-to-pay
In a great deal of literature, surveys are recommended as a tool for determining the willingness-to-pay of customers. They might as well be quite useful in certain B2C markets, but when talking about B2B companies things can be quite different.
In a B2B setting, where product lines and price levels can become highly complicated, the amount of transactional data stored by an organization can be used in a highly efficient way. We already know what each customer was willing to pay for a certain quantity/at a certain time. There’s no need to spend money on surveys trying to predict what they will do in the future. Of course, using transactional data to predict willingness-to-pay can its own shortcomings and statistical noise. But as it uses cheap and up-to-date datasets it might as well be the best option. Using expensive surveys for companies with hundreds of thousands of price segments will never reveal correct willingness-to-pay or provide updates regularly.
One use of historical data is to identify clusters of similar customers which could be treated similarly. This can help in setting guidance price or discount levels for sales reps to use in negotiations. Also, this kind of input can be a starting point for an instant quoting tool – for smaller customers, it could send out prices automatically or for higher tiers to give out prices for sales reps to use.
The conclusions on willingness-to-pay can largely be used to change existing list prices as well. By aggregating data per item, prices set too high or too low can be easily spotted and corrected to real willingness-to-pay.
Overall, aligning prices with willingness-to-pay can become a great way to fight margin erosion or gain a competitive advantage in the B2B environment that becomes tougher every day.