Many of your B2B customers are coming out of 2020 with significant revenue concerns. But not all of them.
Your most economically-challenged clients will ask you to provide your offerings at your most competitive price. And you should.
But there is another group of businesses that have a better problem than finding a way to survive. If you are fortunate enough to have these types of companies in your client base, you must prepare now to serve them as well.
They will have diametrically different needs from the revenue-challenged others. You’ll want to prepare a completely different offer and competitive pricing strategy for them. It will be worth the effort.
Pent-Up Demand Is a High-Margin Opportunity for You
Jim Cramer, a former hedge fund manager and now an American television personality is preparing his stock-trader viewers to profit from pent-up demand. Cramer foresees a potential bull market driven by a chain-like reaction to a virus vaccine.
Starting with airlines and cruise lines, leading next to travel destinations and hotels and even oil companies, he makes the credible case that hordes of stir-crazy people will find any reason to go somewhere as soon as it’s safe. But that’s just the start.
Many people will need to replace an aging automobile that was ticketed for the scrap heap in 2020. The masses will look forward to eating out again. Hospitals will nudge people to re-schedule their COVID-delayed elective medical procedures. And if these desires outstrip consumer’s ability to pay for them, credit cards and banks might also see a huge recovery.
Consider this: All of these types of companies will be thinking more about capitalizing on increased demand than driving down the price of the B2B suppliers like you that serve them. And this is where your opportunity lies.
For One Segment: Streamline Value to Lower Your Price
So instead of thinking only about slashing prices, prepare to develop two distinct value propositions for two very different segments. First, identify which specific clients and sectors of your market will be slow to recover.
Do you serve industries that are likely permanently changed by the pandemic? Commercial construction companies, home security providers, and fitness chains are just a few of a substantial number of sectors that may have trouble reclaiming pre-COVID revenue levels.
For this economically-challenged segment, you do need to lower your price. But don’t just take your current offer and start slashing!
Look at all the things that you typically include with your product. Things that you might have considered up until now to be standard. Can some of these things become optional?
This Chemicals Producer Created a Profitable Low-End Offer
At Impact, we worked with an industrial chemicals producer who won a big volume contract that required them to deeply discount their normal pricing. They were able to make it profitable by adjusting the value proposition.
To meet the aggressive price point, they stripped out parts of their offer that they’d never considered optional before.
Here’s how they did it:
- They replaced higher-cost packaging with multi-gallon industrial drums
- They delivered the chemicals at a drop-off point more convenient to them, rather than exactly where the client wanted it
- They scaled back the availability of their client service agents
- They reduced the warranties and guarantees that typically went with the chemicals
- They eliminated the quantity and early-payment discounts that they usually offered.
And they changed the name of the product so as not to dilute the brand image of their other products.
Though their client would have appreciated keeping all of these extracted features, their desire for the resulting rock-bottom pricing was even greater. This will be the case for many of your clients in 2021.
Surprisingly, the design of the scaled-back offer enabled the chemical producer to do much more than meet the aggressive pricing demands. Their creativity allowed them to actually be profitable at this lower price point. Many of you will find the same thing if you pursue this strategy.
But you also should look for higher-end pricing opportunities to balance out your total portfolio. This is where the pent-up demand segment will be key to your 2021 pricing success.
Clients Will Pay More For Help With Surging Demand
Your next challenge is to identify sectors and clients that will be part of the pent-up demand chain. Some will likely recover to pre-pandemic levels and better. Look at the big movers from the late 2020 stock market run and you’ll find likely candidates. Oil and gas suppliers, high-end retailers, and agricultural companies will recover quickly.
There will be companies in pent-up demand industries that get only a temporary spike. For example, will air-travel ever return to consistent pre-pandemic levels with so much less business travel?
No matter — for 2021, consider these “temporary respite” industries as part of the “haves” segment (as opposed to the “have-not’s”). How can you expand your standard value proposition to help them make hay while the sun shines?
We work with B2B companies who are pursuing this strategy by making supply guarantees to their most important customers, extending service hours, and providing expedited delivery.
Make 2021 Great By Balancing Out Your Pricing Portfolio
There are implications to simply lowering your price. If you lower your price by 10% — say from $1,000 to $900 — you have to later raise them over 11% if you want to get back to your original price point. And customers hate nothing more than a price increase.
So temporarily slashing the price to just raise them again later is a tough game. However, lowering price while also lowering your costs can make your low-end value proposition profitable — and permanent.
The implications for raising the price are better. Studies have shown that a 1% B2B price increase tends to deliver an additional 11% to the bottom line, due to the amortization of cost. But you still have to get customers to agree to your price increase without killing demand.
The secret to getting enough price to cover your increased costs is to hit the mark with your value adds. Get some customer input before you finalize your pent-up demand offer.
So make 2021 the year of improving margins rather than slashing prices. Be flexible, creative and customer focused. Leverage the strategies above and change the pricing game in your favor next year!