In business-to-business settings, I often hear managers making unsubstantiated statements such as:
"We are too expensive"
· " Our
customers are so price sensitive"
"All that
our customers care about is the price”
" We are
pricing ourselves out of the market”
· " Lower-priced competitors are taking business away from us”
These “truths” are often spoken in tones bordering on hysteria and hopelessness. In this article, I will show you that these statements are not only false; rather, these myths take on a life of their own and become part of the organizational narrative, sapping business prosperity.
I was at a shopping mall on the weekend and noticed something interesting. All the high-end stores (read: expensive) had velvet ropes at the entrance, stopping customers from entering. A hostess stood by the door, putting shoppers' names on a waiting list to enter the store. I overheard one of them say to a shopper that the wait was 45 minutes. At each of these high-end stores, the lines of consumers snaked around the corner, with shoppers waiting patiently to get in.
None of the middle-of-the-road brands (read: inexpensive) had such an arrangement. Nor did they have any line of consumers waiting to get in.
The data show that consumers are spending money on high-end brands. I asked myself what these expensive brands do to make consumers not care about price? The truth is that these consumers are price insensitive because they receive benefits in exchange for the price they have paid. These benefits are tangible (quality product) and intangible (prestige and status). The high-end brands have done an excellent job of creating and communicating these benefits to their target customers.
Why can we not do the same thing in business-to-business markets?
First, let me destroy a firmly entrenched misconception. While it is popular to proclaim that all that customers care about is price, the research does not support this claim. The research reveals that in B2B markets, price is never the most critical factor. While price is not unimportant, customers prioritize other factors such as quality, delivery, reliability, after-sales service and support, and trusted partnerships.
Therefore, if a customer is fixated on price, it should tell you that you have done a poor job of creating and communicating the value of your offering. Either your offering does not have the benefits desired by the customer, or you have done a poor job of communicating the value you are providing. Let me add details to both points.
Creating Customer Value
In business-to-business situations, it is easier than in B2C markets to develop benefits for the customer. In B2C purchases, some benefits consumers seek might be pretty nebulous. These might include notions of status, prestige, and one-upmanship – factors that typically are not considered by B2B professionals (I have seen instances where these intangible factors are dominant even in B2B markets, but I will save that for a future article).
Creating customer benefits is more straightforward in B2B markets because, in this space, customers only care about two things: reducing their costs and increasing their revenue. Nothing else matters to them. Every customer need and pain point falls into one or both categories. Please review the table below to get a sense of the point I am making here.
|
|
Impacts Customer’s Cost |
Impacts Customer’s Revenue |
|
Purchase price |
X |
|
|
Availability of
spare parts |
X |
X |
|
Shortage of labor |
|
X |
|
Retaining employees |
X |
X |
|
Operational
efficiency |
X |
|
|
After-sales support |
X |
X |
|
Supply chain issues |
|
X |
|
Building a brand |
|
X |
|
Getting more
customers |
|
X |
I think you get the point I am making here. TBO, not TCO
To create value for the B2B customer, go beyond conducting a Total Cost of Ownership (TCO) analysis. Instead, perform a Total Benefit of Ownership (TBO) analysis. A TCO analysis only considers the customer’s total cost by incorporating the customer’s costs of acquiring, possessing, using, and disposing of your products. A TBO analysis, on the other hand, combines both the costs and benefits the customer accrues from your product. Read the related articles suggested at the end of this article for excellent examples of creating customer value.
Communicating Customer Value
Creating customer
value in itself will not make your customers price insensitive. The final step is to communicate the value
you have created. To do this, you must
focus on quantifying the value you have created and providing tools to your
sales force to communicate the value.
Value Quantification
It is not enough to tell a customer: “Our product is superior.” Instead, say to the customer: “Our product lasts X% longer than the competitor’s; it consumes Y% less energy, and it enables you to do Z% more jobs in the same amount of time.” Of course, these assertions must be based on unbiased data.
Finally, provide your sales force tools to communicate the quantified value propositions quickly and easily. I am surprised how many organizations I interact with fail on this score, much to the frustration of the sales team. I put the responsibility of creating such tools directly on the shoulders of the marketing department.
Bottom line:
Customers do not fixate on price because it is their nature. We make them behave like this by our failure to
shift their focus to the value we are creating for them.
* Dr. Ajay Sirsi is an award-winning marketing professor and Director of the Centre for Customer Centricity at the Schulich School of Business, York University, Toronto. Visit Dr. Sirsi's website to learn more about his work on customer-centricity at: https://ajaysirsi.com
This article was extremely informational and I really appreciate the way you explain how we must create customer value by changing the way we communicate and create value with our customers. You can sell anything with the correct marketing.
ReplyDeleteIt came as a shock to me to learn that consumers & businesses often look at value over price. This concept made sense once I finished reading this discussion. It reminds me of buying a smartphone. When shopping for a new smartphone consumers care more about the brand & its perceived value rather than the price itself compared to the competition.
ReplyDeleteIt came as a shock to me to learn that consumers & businesses often look at value over price. This concept made sense once I finished reading this discussion. It reminds me of buying a smartphone. When shopping for a new smartphone consumers care more about the brand & its perceived value rather than the price itself compared to the competition.
ReplyDeleteThis blog post is really useful to me as I am learning about ways to shift customer's main thoughts from price to value. The contents of the blog are concise but complete and discuss all of the reasons and causes that lower end stores suffer when compared to luxury stores and also explains what they should be doing in order to be as profitable as a luxury store. I also really enjoyed the table as I am a bit more of a visual learner.
ReplyDeleteThis article shows a perfect example of how marketing and better understanding your customers can get you the right business. It also shows how Customer Value is one of the most important parts as it gives you relationship between the business and customer offering a wider relationship between the two can give the customer more information. Having the customer realize the benefits they gain the price of the product will not together.
ReplyDeleteIt is very interesting to understand how creating more value for customers or businesses can ultimately shift the focus on price, over to more focus on benefits and value. For example, in a B2B setting in the restaurant business, as much as we value price and our profit margins, value and benefit trumps price when it comes to distributors because without timely deliveries and quality products, there is no profits! Shifting the attention to value is what is most important.
ReplyDeleteIt came as a shock to me that customers look at the price over value. Someone will buy a product multiple times due to the fact the quality isn't the best. At the end of the day they've spent the same amount on the lesser product that could've been used towards the best quality product. This blog is very concise and discusses points that I've never thought of before.
ReplyDeleteYour point of how customers look at price was very interesting and it made me think and have a brand new perspective on the topic. We have been conditioned to think that price was the most important factor and that all we should care about is how much something costs. Your blog was helpful to understand that this was not the case, especially when we look at the luxury brands. Price is not the main factor in their customers' minds. So at the end of the day, it's up to the company decides to how they determine their own value.
ReplyDeleteThis article does a great job showing and explaining that, although the price of your product is still important, its not the end all be all for your consumers. Many other factors go into a consumers decision to buy your product than just its price, such as the value your product can offer compared to the other brands. Instead of focusing on attracting consumers through our prices, we should instead focus on attracting them through the value our product can bring them.
ReplyDeleteI find it interesting how price can be overlooked if a company properly displays its value. I always wondered how luxury brands remained so captivating even with their high prices but this article does a great job explaining value rather than the price itself. The article was a good read because of its table and delivery on the topic.
ReplyDeleteThis article stood out to me because I tend to have this thought process when shopping too. Many people assume just because a product is not name brand it is cheap and will not last long. On the other hand, some people think that because a product is name brand, they have to be extra careful and rarely use the item. This article shows how you can get the customers to stop thinking that way, and focus more on the quality of the product regardless of the price.
ReplyDeleteThis article stood out to me because I tend to have this thought process when shopping too. Many people assume just because a product is not name brand it is cheap and will not last long. On the other hand, some people think that because a product is name brand, they have to be extra careful and rarely use the item. This article shows how you can get the customers to stop thinking that way, and focus more on the quality of the product regardless of the price.
ReplyDeleteI think that this article is very interesting because it explains a common way of thinking and then shows why that is not actually the case. It makes sense that high end companies are able to charge high prices and they still attract a lot of customers. There is a very big difference between the cost of an item and the value of a company and I like how the article made it very clear.
ReplyDeleteThis was a very interesting article to read because it explained a common thought process that people have and why it is not always correct. High end companies are able to price their items so high and still attract customers because they are more focused on showing the value that is created by them such as quality, service, reliability, and trust.
ReplyDeleteIt is amazing how those high-end retail stores are able to garner so much interest in their product despite the high price of the products. Those companies do such a great job marketing their product and in a way making it feel like they do not need the consumer, rather the consumer needs their product. This strategy creates more demand for a limited amount of high end product that most consumers are willing to forget about the price tag in search of gaining social status from the purchase.
ReplyDeleteThis article was had very good points when it comes the outlook of consumers fixation on prices but I also feel as though most customers including myself fixate on price due to our various upbringings or our financial situation at the moment while shopping. With social media today most costumers have a fixation with higher end products. The more exclusive these higher end stores make their products the more people want them, which allows for them to have even have a waitlist to get into stores as opposed to lower end stores. Social media has pushed for most consumers to want exclusive items and higher end brands provide these benefits like you pointed out. Overall I agree with this article just sharing a few of my insights as well. Great article!
ReplyDeleteThis opened my eyes to a lot of nuances in marketing. Very informative. I believe this imformation is useful, but at the same time, as a start-up business, it is still hard to get consumers to trust your product and marketing when you dont have much renown or any method to back-up the claims you may state. This may be leading to the over-emphasis on price - a tangible, and concrete number that is able to be easily compared to other brands(luxury or not).
ReplyDeleteI was surprised to learn that customers and organizations frequently prioritize value over money. Once I had done reading this discussion, this idea made sense. It makes me think of getting a smartphone. When looking for a new smartphone, buyers are more concerned with a brand's reputation and implied values than with the actual pricing in relation to the competition.
ReplyDeleteThis article has opened my eyes to the fact they are more focused on demonstrating the value that they create, such as workmanship, customer service, dependability, and credibility, so high end businesses are able to charge such high prices for their goods and still draw in customers.
ReplyDeleteI liked the perspective the author gave in this article. Instead of following the myths associated with cost, the author educated us by providing ways to justify why the product or service is worth the price. A lot of times companies reduce their price to stay afloat with the competition rather than adding an extra perk or two to entice the customer. Many other factors go into a consumers decision to purchase a product than just its price, why not shine light on your product’s quality. In the end it’s a win for the consumer and your company.
ReplyDeleteAll of us are customers and consumers, and we evaluate whether we should purchase a product or service all the time. We compare prices and other benefits of the product. Comparing to B2B shows how similar the experiences are. Dr. Sirsi clearly explains the reasonings and explanations behind it, and they can be seen in the USA. Even though semiconductor chips for electronics are cheaper overseas, the government and many companies are pushing for in-state manufacturing. This is because there is a higher sense of security from the in-state version of supply.
ReplyDeleteConsumers are consistently drawn to high-end luxury products, not only because of the status associated with the brand but also for the quality and benefits these products offer. It's common to witness consumers saving up to purchase a product they genuinely need, recognizing that the higher price tag often corresponds to a level of quality that ensures longevity and durability. The fact is that consumers are not price-sensitive rather, they prioritize the quality and longevity of items that eliminate the need for frequent replacements, which ultimately causes a more significant cost than initially investing in a luxury item. Consequently, businesses that perceive their products as being overlooked due to their price point should focus on effectively conveying the quality and reliability of their product.
ReplyDeleteI feel like business' are able to charge more when people think that there is some sort of prestige associated with the product. If a product is considered trendy then people are more likely to buy it especially if they see others in popular media with the product. Things like the queue to get into the store cause people to automatically think that the items in the store will be worth a lot/ have a really high value -which adds to the trendiness off the product.
ReplyDeleteI think this is so a different from many thing is the most effective marketing and advertising plan of advertising everything as cheaper. It is interesting to see that customers don't focus on price first but on the quality of products then it lead me to think about what I look for first in products before purchasing and it mostly likely isn't price but quality and longevity.
ReplyDeleteI think this really puts into perspective how to make consumers want a product. It's not enough just to mention that one's product has some better quality and that is all. It's important for companies to show those benefits, either through quantifiable data or in a way that shows superiority through actual facts. This is why we tend to buy more expensive items, not because they cost more but because we see the benefits that companies offer with the product, whether it's prestige or a better product.
ReplyDeleteI enjoyed the discussion on how communication creates customer value. Sales is such an important part of business because these are the people that entice customers and show the true value of a company's products. Like it was mentioned in the article, simply creating the customer value itself is not enough to make your prices insensitive. There has a to be a channel that allows the customer to understand why your products are worth it at the price you decide.
ReplyDeleteI like how to article discussed how business are required to communication customer value. Creating customer value is not enough to create price insensitivity. Sales , advertising, and marketing are all becoming increasingly important it today's business models. These departments specialize in understanding how to best reach the customer and tell them the benefits in an unbiased, yet convincing way.
ReplyDeleteThis article makes me think of businesses and their value from a different perspective. Business are definitely able to price their products and services at a significantly higher price point when some sort of luxury or high status is assposiatcted either with the individual product or the brand as whole. It is interesting to see this side of pricing from this perspective. It emphases the crucial need for creating true value and ensuing customers can see it.
ReplyDeleteYou're right, clients' fixation on prices is a reflection of a business' lack of creating and communicating value. This article re-ignited my energy and plan to set set prices for the services I render and to influence clients to focus on other essential aspects to sale to them. What an informative read!
ReplyDeleteThis article offered great insight into how to properly market and position yourself as a company. Sometimes, I as a customer can agree that things seem to expensive. For example, paying $40 for a piece of clothing from TJ-Maxx seems expensive to me whereas a piece of clothing from Lululemon that is $40 seems like a great deal. Regardless of if both products and were leggings made of the same material, the TJ-Maxx leggings do not hold as much customer value in my eyes and for that reason I would not wait in a long line for them whereas if Lululemon offered that deal I would wait. Lululemon claims that they offer the maximum level of innovation, stretch, sweat and odor resistance, and claim to have longevity and therefore hold value in my eyes. If TJ-Maxx did the same and communicated the value of their products, I would not fixate on the cost of those leggings and would probably be more willing to spend that amount of money on them. This is not a perspective I thought in before, and it is very interesting how many mind games marketing tactics can play. Thank you for sharing.
ReplyDeleteI never truly thought about how business can change a customer's interaction with price. I thought that customers have their own ideas about price and that was the end of it. Instead, this article explained ways businesses can interact with a person's price perception. They have to make the customer believe that their product is worth the price, whatever it may be. The quote at the end sealed it for me: "Customers do not fixate on price because it is their nature. We make them behave like this by failing to shift their focus to the value we create for them." This is the ideology top-end brands have and it works. Companies with a negative mindset that their customers are price-insensitive are just lying to themselves. Their customers are only a reflection of the quality the companies put out.
ReplyDeleteI am a non-marketing major and am not very familiar with the marketing world yet so this was incredibly interesting to me. Personally at most of the general stores I shop at price is the first thing I look at. But in a higher end store I may look at the price but I am far more willing to look past it because of the quality of the products. I just think articles like these that make you realize the immediate personal impact are surprising and useful on a larger scale.
ReplyDeleteI am a non-marketing major and am still familiarizing myself with the world of marketing. Because of that, this is something I have never personally thought about before. It was shocking to me that while reading this I was able to relate to this even in my personal life. When the quality and worth of something is conveyed to me effectively I care far less about price. I think also a lot of people in the marketing field are aware of the need to have quality products but I like that this article emphasizes the importance of projecting that quality and value to the customer.
ReplyDeleteIt's impressive how these upscale retail establishments manage to attract such a large customer base for their expensive merchandise. I enjoyed how the article made it highly apparent that there is a large gap between an item's cost and a company's worth. Many individuals believe that a product is inferior and short-lived just because it is not a known brand. Conversely, some individuals believe that just because a product is a name brand, they need to use it less and with additional caution. This article explains how to persuade consumers to change their minds and place more emphasis on the product's quality rather than its price.
ReplyDeleteIt is an interesting point that you unveil about the importance of the multiple aspects necessary to provide rationalization for a cost. I enjoyed how this article highlights the need to quantify value instead of simply communicating customer value. This can be done by providing actual statistics that customers may find important and useful like longevity and efficiency of the product.
ReplyDeleteIn business, it is crucial to understand the importance of consumer perceptions of product value and cost. Businesses can leverage the understanding of product value and cost to develop strategies in marketing such as integrating the network phenomenon, to increase the perceived value of a product, increase brand equity and overall profit margins and reduce price insensitivity or price fixation by the customer. Essentially, by understanding the importance of emphasizing the value of the product as highlighted in the article, businesses can increase purchasing frequency, sales and consumer retention and shift consumer focus away from price. However, although emphasizing and communicating the value of a product and using value quantification can create success in selling products, it would be interesting to know how successful companies are in using this concept in situations in which competitors such as Shark to Dyson create almost the same product with similar or exact technical features and leverage price in addition to emphasizing product value.
ReplyDeleteAs a small business owner, this article really opened my eyes to a sensitive subject that is quite repetitive and stressful in my business; pricing and standing firm on my prices in a very competitive industry. I tend to have moments where I enter into an "imposter syndrome," era as I receive push back from my clients on my created price point. This article, was exactly what I needed to read, when I am trying to stand firm on my marketing and pricing tactics. It was incredibly enlightening to not only understand, but feel validated in the terms that a huge misconception that as a business owner/company may have is that customers place a lot of care and concern on price, when in fact, the research does not support this claim. The research reveals that in B2B markets, price is never the most critical factor.
ReplyDeleteIn my opinion, this is a very disruptive topic because it also explains the misconception about how to handle competition. Nowadays there are a lot of people and businesses still thinking that to be competitive you need to have the lowest price in the market, being completely wrong. For every product or service offered there are a lot of substitutions and all of them cover the basics needs so it all ends to what do you have to offer better than your competition. Price is a factor but the most important is to have a competitive advantage.
ReplyDelete