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Creating Competitive Advantage by Rethinking B2B Software Pricing

Written by C. Adelstrand, E. Brostedt

Paper category

Master Thesis


Business Administration>Management




Thesis: General pricing This section describes pricing. It also discusses the different paths to excellent pricing and the importance of continuously evaluating pricing strategies. 2.1.1 Introduction to General Pricing Pricing is one of P in the four P marketing mix invented by McCarthy (1960). However, it was Kotler who made these four P concepts a globally well-known concept a few years later. The four Ps are: product, price, promotion, and location, which represent the marketing factors that a company needs to consider to become a successful participant in the market (Kotler 2015). The price can be determined by considering the three Cs of pricing, which are: cost, customer, and competition (Mohr et al., 2010). These are the three most basic factors on which prices depend. The pricing of these three Cs can form cost pricing, competitive pricing and value pricing. Value-based pricing sets prices based on the perceived value of products to customers (Mohr et al., 2010). It is important to align the buyer’s value realization with the supplier’s business goals. Therefore, the pricing process must consider both parties to the market transaction, which indicates that the customer relationship is more collaborative (Bontis & Chung 2000). Generally speaking, suppliers who do not view customers as value-creating partners are more likely to see competitors steal market share and profits (Bertini & Gourville 2012). Therefore, flexible and value-based pricing is important because it enables suppliers to respond to customer needs and share value with them. Bontis & Chung (2000) believes that with the continuous development of the Internet and network-based software, new pricing models will and have emerged, and these new pricing models must also align the value realization of suppliers and buyers. Become a sustainable model. However, one must go beyond market conditions and also consider product design (Choi et al. 1997). 2.1.2 The road to excellent pricing Hinterhuber & Liozu (2012) developed a two-dimensional pricing power grid. The first dimension is pricing. Enterprises can decide and set prices from three starting points: cost pricing, competitive pricing, and value pricing. (2010). The second dimension focuses on the company's ability to realize its price, called price acquisition. In terms of price acquisition, Hinterhuber & Liozu (2012) explained that a company can be positioned in one of three relative positions: weak, medium or strong. Combining these two dimensions results in a grid of nine pricing zones, where most companies end up in five of them. This can be seen in Figure 2. 2.1.3 Evaluation and reconsideration of pricing strategies Hinterhuber & Liozu (2014) estimated that only 5% of leading companies in the United States, Europe and Asia have accepted the opportunity to evaluate or reconsider their pricing. Therefore, many companies missed the strong competitive advantage. Source. This is because most companies view pricing as a zero-sum game or a win-win relationship, where one party gains what the other party loses (Hinterhuber & Liozu 2014). Evaluating pricing strategies can provide a company with huge opportunities to distance itself from competitors. When reconsidering pricing strategies, two aspects are particularly important (Hinterhuber & Liozu 2012). The first thing to consider is the basic way of changing pricing. The second area involves price acquisition, even if the price is profitable. This may require the addition of information systems, incentive plans, control tools, and sales teams and KAM organizations that are confident in the new pricing model. According to Hinterhuber & Liozu (2012), after adding or improving any of these areas, quantifiable results will appear soon. When changing the basic method of pricing, it is important to always maintain the pricing strategy and market development. Consistent, or advance in the best case. Therefore, when products become more important to customers than before, the transition from cost-based to value-based may be relevant. Then it is no longer mainly about paying for production-related costs, but about the customer’s perception of value and ensuring that both parties are satisfied (Harmon et al., 2009). Hinterhuber and Liozu (2012) believe that the company did not reconsider pricing, which usually implements cost-based or competition-based pricing, while using discounts heavily. In addition, these types of companies usually do not have a dedicated team responsible for pricing. Therefore, Hinterhuber & Liozu (2014) proposed a roadmap for pricing innovation, exemplifying what companies can take in the areas of pricing strategy, pricing strategy, and pricing organization. The road map is shown in Figure 4. Hunt & Saunders (2013) believes that companies should focus on the four core processes of pricing in order to innovate and improve on the five levels of world-class pricing, as shown in Figure 3 earlier. The first process to be solved is to formulate a reasonable pricing strategy. This must be the first stage of the journey, because all other decisions should be aligned with the strategy. Consider the next process of setting the customer net price. This includes pricing guidelines and rules that implement strategies and ensure fairness. Third, a company that has both a strategy and a customer net price should consider the process of implementing its pricing strategy. Read Less