How to Develop and Implement a More Profitable Pricing Strategy in B2B Industrial Markets

Companies must go through several key steps to develop a more profitable pricing strategy in B2B industrial markets.

1. Identify the problem set you are solving for (product-to-market fit)

Identifying the customer problem set and achieving product-market fit are critical steps for a Product Manager (PM) to ensure a product satisfies a significant demand within the target market. Here are steps to identify the customer problem set and evaluate product-to-market fit:

1. Customer Research and Market Analysis: Understanding the target market and the pain points of customers within that market is crucial. Conduct interviews, surveys, and focus groups with potential customers. Analyse market trends, competitor products, and the potential gaps that can be exploited.

2. Define Customer Personas: Create detailed customer personas to understand the target customers. This includes their demographics, job roles, challenges, motivations, etc.

3. Problem Statement Definition: Clearly articulate the customer problems that need solving. Validate this with the information gathered in the previous steps and ensure the issue is significant enough to warrant a solution.

4. Develop a Minimum Viable Product (MVP): Create a product with the minimum set of features that can solve the identified customer problems. This is essential to test the product without fully committing to it.

5. Feedback and Iteration: Deploy the MVP to a subset of the target market and collect feedback. Evaluate if the product is effectively addressing the customer problem set. Use this feedback to iterate on the product.

6. Scale and Monitor: Once the product has been refined, scale it to the larger market. Continuously monitor its performance and feedback to ensure it meets market needs.

Here are two case studies from B2B industrial markets that illustrate the process of evaluating and implementing product-to-market fit:

Example 1: IoT for Predictive Maintenance in Manufacturing

In this example, a Product Manager may identify that manufacturing companies face significant downtime due to equipment failure. Through customer interviews and market analysis, the PM finds a demand for predictive maintenance to reduce downtime.

The PM then develops an IoT-based solution that allows manufacturing companies to monitor the condition of their machinery in real time. The MVP is deployed to a small set of companies. Feedback indicates that the product effectively reduces downtime and saves costs.

As the product proves its worth, it’s scaled to a larger market. The PM monitors industry trends and competitor products to ensure that their IoT solution continues to address the customer’s problems efficiently.

Example 2: Inventory Management System for Supply Chains

A PM identifies that supply chain managers in various industries need help managing inventory efficiently, which leads to stockouts or overstocking.

After extensive customer research, the PM realises that an AI-powered inventory management system can optimise inventory levels by predicting demand and automating reordering processes. The PM develops an MVP and tests it with a select group of supply chain managers.

The feedback is positive as the managers find that the system significantly optimises inventory levels and reduces costs. The product is then scaled, and the PM continues to monitor the market and update the product as needed to ensure ongoing product-market fit.

2. Identify the target customer personas.

Identifying target customer personas is a critical task for a Product Manager. A customer persona is a semi-fictional representation of your ideal customer based on market research and real data about your existing customers.

Here are two examples from B2B industrial markets to illustrate this process:

Example 1: Heavy Machinery Manufacturer

1. A product manager at a heavy machinery manufacturing company conducts market research to understand the construction industry.

2. The market is segmented into small-scale construction companies and large infrastructure projects.

3. For small-scale construction companies, the key characteristics might include cost sensitivity, a need for versatile equipment, and a preference for local service. For large infrastructure projects, they might prioritise reliability, scalability, and long-term partnerships.

4. Two personas are created – “Budget-Conscious Builder Bob” for the small-scale segment and “Project Manager Mary” for the large infrastructure projects.

5. The personas are validated through interviews with real clients and refined accordingly.

6. The product line is tailored to cater to the specific needs of these two personas.

Example 2: Industrial Automation Solutions Provider

1. A product manager at an industrial automation solutions provider starts by researching automotive, pharmaceutical, and consumer goods industries.

2. The market is segmented based on industry and the size of the manufacturing units.

3. For the automotive industry, the key characteristics might include high-volume production, precision, and integration with existing systems. For the pharmaceutical industry, the focus might be on compliance, safety, and data integrity.

4. Two personas are created – “Efficiency Expert Ethan” for the automotive industry and “Compliance Officer Caroline” for the pharmaceutical industry.

5. These personas are validated through feedback from real customers and industry experts.

6. The PM ensures that the automation solutions address these two personas’ unique challenges and goals.

By understanding and creating detailed customer personas, Product Managers can ensure their products and services effectively meet the needs and preferences of their target markets.

3. Identify how target customer personas behave and will consume the solution you are proposing.

As a Product Manager, you can employ several methods to identify and understand how your target customer personas will behave. Here are some steps you can take, along with two B2B industrial case examples to illustrate the process:

1. Define your target customer personas: Start by clearly defining your target customer personas based on key characteristics such as industry, company size, job role, pain points, and goals. This will help you focus your efforts and tailor your research accordingly.

2. Conduct market research: Utilise various research methods to gather insights about your target customer personas. This can include surveys, interviews, focus groups, and observation. The goal is understanding their needs, preferences, challenges, and decision-making criteria.

3. Analyse existing customer data: Examine data from your existing customer base to identify patterns and trends. Look for common behaviours, pain points, and success stories. This data can provide valuable insights into how your target customer personas will likely behave.

4. Engage with your target customers: Actively engage with your target customers through online communities, industry events, conferences, and social media channels. This will allow you to have direct conversations, gather feedback, and observe their interactions with your product or similar solutions.

5. Monitor industry trends: Stay current with industry news, market reports, and relevant publications. Understand the broader trends impacting your target customers and how their behaviours might evolve in response to them.

6. Create user scenarios: Based on your research and understanding, create user scenarios that illustrate how your target customer personas might interact with your product. These scenarios should be specific and contextual, helping you visualise their behaviours, challenges, and desired outcomes.

Now, let’s explore two B2B industrial case examples to illustrate the process:

Case Example 1: Manufacturing Equipment

Target Customer Personas:

1. Maintenance Managers: Responsible for managing equipment maintenance in manufacturing plants.
2. Operations Directors: Oversee overall plant operations, including equipment utilisation and efficiency.

Research and Behaviour Analysis:

1. Conduct interviews and surveys with maintenance managers to understand their pain points, such as unplanned downtime and maintenance costs.

2. Analyse data from existing customers to identify equipment usage and maintenance schedule patterns.

3. Engage with target customers at industry conferences to observe their interactions with different equipment and gather feedback.

4. Monitor industry trends related to predictive maintenance and automation to understand how target customers’ behaviours might change.

User Scenario:

A maintenance manager persona is struggling with frequent breakdowns of a critical machine, leading to production delays. They are interested in implementing a predictive maintenance solution to identify potential failures in advance and schedule maintenance proactively. They are likely to research different vendors, evaluate the accuracy of predictive algorithms, and consider the integration capabilities with their existing systems.

Case Example 2: Supply Chain Software

Target Customer Personas:

1. Logistics Managers: Responsible for managing the movement of goods across the supply chain.

2. Procurement Officers: Involved in the purchasing process and supplier management.

Research and Behaviour Analysis:

1. Conduct interviews and surveys with logistics managers to understand pain points like delays, inefficiencies, and inventory management challenges.

2. Analyse data from existing customers to identify common supply chain bottlenecks and areas for improvement.

3. Engage with target customers through online logistics forums and industry events to gather insights on their current software usage and challenges.

4. Monitor industry trends related to blockchain technology and real-time analytics to understand how target customers’ behaviours might evolve.

User Scenario:

A logistics manager persona is looking for a supply chain software solution to optimise their transportation operations. They want a system that can integrate with their existing enterprise resource planning (ERP) software, provide real-time visibility into shipments, and offer predictive analytics to anticipate disruptions. They will likely evaluate different software vendors, request demos, and seek testimonials from other logistics professionals.

By following these steps and conducting thorough research, you can better understand your target customer personas’ behaviours and needs. This knowledge will empower you to make informed decisions as a Product Manager and develop solutions that effectively meet their requirements.

4. Determine a revenue model that aligns with customer behaviours and expectations of value.

Selecting a revenue model that aligns with customer behaviours and expectations of value requires a deep understanding of the customer’s needs, preferences, and willingness to pay. This involves thorough market research, customer feedback, and an understanding of industry trends. Here are some additional steps a Product Manager can take:

1. Competitor Analysis: Look at how competitors price their products, their revenue models, and how customers respond.

2. Scalability and Flexibility: Select a revenue model that can scale with the company’s growth and has the flexibility to adapt to changes in customer preferences.

3. Pricing Experiments: Experiment with different pricing structures and models to determine what resonates best with your customers.

Now, let’s look at two B2B industrial case studies:

Case Study 1: Caterpillar’s Equipment as a Service (EaaS):

Background: Caterpillar is a leading manufacturer of construction and mining equipment.

Problem: As the industrial market evolved, customers began to prefer the use of equipment without the need for ownership.

Solution: Caterpillar shifted towards an Equipment as a Service (EaaS) model, where they lease equipment to businesses and provide maintenance and support. They also included data analytics to help customers optimise equipment usage.

Result: This approach allowed Caterpillar to better align with customer preferences, create a new revenue stream, and build long-term customer relationships.

Case Study 2: General Electric’s Predix Platform:

Background: General Electric (GE) is a multinational conglomerate involved in various industries, including aviation, power, and healthcare.

Problem: Industrial customers needed solutions to improve the efficiency and lifespan of their machinery.

Solution: GE introduced the Predix Platform, a cloud-based Platform as a Service (PaaS) that enables industrial-scale analytics for asset performance management and operations optimisation. Customers could now monitor, analyse, and improve their machinery using data analytics.

Result: The Predix Platform allowed GE to diversify its revenue stream while helping customers optimise operations, reduce costs, and improve efficiency.

In addition to the EaaS above and PaaS models, several other revenue models that can be used in an industrial B2B environment include:

• Subscription Model: Charging customers a recurring fee for continued access to a product or service.

• Licensing Model: Allowing customers to use intellectual property, such as patents or trademarks, in exchange for a fee.

• Freemium Model: Offering a basic version of a product or service for free while charging for premium features.

• Pay-per-use Model: Charging customers based on their usage of a product or service.

• Product Bundling: Offering a package of products or services for a single price, often at a discount, compared to purchasing them separately.

• Data Monetisation: Selling data or insights collected through products or services.

• Value-based Pricing: Charging customers based on the value they receive from the product or service rather than a fixed price.

5. Publish a pricing strategy document.

Example of key elements in an effective pricing strategy document:

1. Executive Summary: Provide a concise overview of the pricing strategy, its objectives, and the key benefits it aims to achieve.

2. Business Goals and Objectives: Clearly define the business goals and objectives the pricing strategy intends to support, such as revenue growth, market share expansion, profitability improvement, or customer retention.

3. Market Analysis: Conduct a thorough analysis of the target market, including assessing competitors, customer segments, and purchasing behaviour. Identify market trends, pricing dynamics, and any factors impacting pricing decisions.

4. Value Proposition: Define the unique value proposition of your products or services and articulate the key benefits and differentiation factors that justify the pricing strategy. Explain how your pricing aligns with the value customers receive.

5. Pricing Methodology: Outline the pricing methodology you will use, such as cost-plus pricing, value-based pricing, or competitive pricing. Provide clear guidelines on determining pricing levels, considering factors like production costs, customer perception, and market positioning.

6. Pricing Structure and Models: Specify the pricing structure and models used, including tiered pricing, subscription models, volume discounts, or promotional offers. Detail the rationale behind each model and explain how they support the overall pricing strategy.

7. Pricing Execution: Define the process and responsibilities for implementing and managing the pricing strategy. This may include guidelines for pricing reviews, price adjustments, discount approvals, and monitoring competitor pricing.

8. Pricing Communication and Training: Outline how pricing decisions will be communicated internally and externally. Provide guidelines for sales teams on effectively communicating pricing to customers and addressing any questions or objections.

9. Performance Metrics: Identify the key performance indicators (KPIs) that will be used to measure the effectiveness of the pricing strategy. This could include metrics like revenue growth, profitability, customer acquisition and retention rates, and market share.

Key Benefits of Having a Published Pricing Strategy Document:

1. Alignment: A published pricing strategy document ensures that all stakeholders, both internal and external, have a clear understanding of the company’s pricing objectives, methods, and structure. It helps align the organisation around a common pricing approach.

2. Consistency: By documenting the pricing strategy, you establish consistent guidelines for pricing decisions across different products, markets, and customer segments. This consistency helps avoid confusion and ensures that pricing is applied uniformly.

3. Transparency: A published pricing strategy enhances transparency by providing insights into determining prices. It helps customers and partners understand the value they receive and increases trust in the company’s pricing practices.

4. Decision-Making: Having a documented pricing strategy facilitates better decision-making. It enables stakeholders to evaluate pricing options, assess their impact on business goals, and make informed decisions that align with the overall strategy.

5. Training and Onboarding: A pricing strategy document is a valuable resource for training new employees or onboarding sales teams. It provides a reference point for understanding pricing principles, guidelines, and tactics, enabling quicker ramp-up and improved performance.

6. Performance Evaluation: With a published pricing strategy, you can establish measurable metrics and targets to evaluate the effectiveness of pricing initiatives. It enables regular performance tracking, identification of improvement areas, and informed adjustments to pricing strategies.

7. Competitive Advantage: A well-defined pricing strategy can provide a competitive advantage by ensuring that prices are set optimally, maximising profitability while remaining attractive to customers. A published pricing strategy demonstrates a proactive and strategic approach, setting the company apart from competitors.

8. Adaptability: A documented pricing strategy allows for easier adaptation and scalability. It provides a framework for reviewing and adjusting pricing strategies as market conditions change, new products are introduced, or customer preferences evolve.

A published pricing strategy document promotes clarity, consistency, and alignment within the organisation.

6. Implement supporting policies, rules, and guidelines.

Policies, rules, and guidelines are crucial in supporting a pricing strategy in B2B industrial markets with a large salesforce and multiple channels to market, as well as thousands of customers, for several reasons:

1. Consistency: Maintaining consistency in pricing is essential in a complex market with numerous customers and channels. Policies and guidelines ensure that all sales representatives and channels follow the same pricing rules, minimising confusion and potential conflicts. Consistent pricing builds customer trust and creates a level playing field for competitors.

2. Transparency: Clear policies and guidelines provide transparency in pricing decisions. When customers understand the pricing structure and rules, they can make informed decisions and evaluate the value they receive. Transparent pricing builds credibility and fosters long-term relationships with customers.

3. Profitability: Pricing policies and rules help ensure that prices are set at levels that support profitability. Companies can prevent excessive discounting and price erosion by defining pricing floors, ceilings, and discount structures. Effective pricing strategies consider production costs, market demand, competitive landscape, and profit margins to optimise pricing decisions.

4. Salesforce alignment: With a large salesforce, aligning them with the overall pricing strategy is important. Policies and guidelines give sales representatives a framework to understand the pricing structure, discounts, and promotions they can offer. This alignment ensures that the salesforce acts as an extension of the pricing strategy, working towards common objectives.

5. Channel management: Multiple channels to market add complexity to pricing decisions. Policies and guidelines help manage channel relationships by defining pricing tiers, channel-specific discounts, and other incentives. This allows companies to balance channel competition, prevent channel conflicts, and ensure that each channel receives fair treatment.

6. Control and compliance: Policies and rules establish a framework for controlling pricing practices and ensuring compliance. They help prevent unethical or discriminatory pricing behaviour, such as price discrimination or price-fixing, which can lead to legal and reputational risks. Well-defined guidelines promote fair and lawful pricing practices across the organisation.

7. Adaptability: Market dynamics change, and pricing strategies must adapt. Policies and guidelines provide a foundation for reviewing and updating pricing practices as market conditions evolve. They allow companies to respond to competitive pressures, industry trends, and customer demands while maintaining consistency and profitability.

Policies, rules, and guidelines support a pricing strategy in B2B industrial markets with a large sales force and multiple channels. They promote consistency, transparency, profitability, salesforce alignment, channel management, control, compliance, and adaptability, enabling companies to navigate the complexities of the market while maximising value for the organisation and its customers.

5 Pricing Strategy Case Study Examples:

Case Study 1: Rolls-Royce – Power by the Hour (Value-Based Pricing)

Rolls-Royce, a major player in the aerospace industry, identified a need among airlines to reduce the high upfront costs and maintenance risks associated with aircraft engines.

• Target customers were airlines.
• Customers needed reliability and cost predictability.
• Alternatives included traditional purchasing of engines and services from competitors.

Rolls-Royce employed value-based pricing called “Power by the Hour”, where they charged based on the number of hours the engines were in flight, incorporating maintenance and support. This pricing strategy allowed Rolls-Royce to align its service value directly with customer needs.

Case Study 2: General Electric (GE) – Predix Platform (SaaS Revenue Model)

GE recognised the increasing need for industrial analytics and developed its Predix platform.

• Target customers included various industrial companies.
• Customers needed actionable insights for equipment maintenance and operations.
• Alternatives were traditional equipment monitoring services.

GE adopted a SaaS revenue model for Predix, charging a subscription fee for using the platform. This allowed customers to access a robust analytics platform without a significant upfront investment.

Case Study 3: Uber Freight – Dynamic Pricing for Freight Services

Uber Freight identified inefficiencies in freight logistics and aimed to streamline freight transportation.

• Target customers were shippers and carriers.
• Customers needed a fast and efficient way to match freight shipments with carriers.
• Alternatives included traditional freight brokers.

Uber Freight used dynamic pricing, adjusting prices in real-time based on demand, capacity, and market conditions. This model allowed for flexibility and efficiency, attracting more users to the platform.

Case Study 4: Atlas Copco – Performance-Based Pricing for Air Compressors

Atlas Copco, a provider of industrial equipment, identified a need for reliable and efficient air compressors.

• Target customers were manufacturing plants and industrial facilities.
• Customers needed high-performance air compressors without the high upfront costs.
• Alternatives included buying compressors outright from other providers.

Atlas Copco employed performance-based pricing, where customers were charged based on the performance and efficiency of the compressors. This model allowed customers to only pay for the value they received.

Case Study 5: Microsoft Azure – Consumption-Based Pricing for Cloud Services

Microsoft Azure identified the growing need for cloud computing in businesses.

• Target customers ranged from small businesses to large enterprises.
• Customers require scalable, reliable, and secure cloud services.
• Alternatives included Amazon Web Services, Google Cloud, and traditional on-premises data centres.

Microsoft Azure employs a consumption-based pricing model, where customers pay only for the resources they use. This pricing strategy allowed Azure to align costs with usage, making it attractive for businesses of all sizes.

By considering the steps outlined above and exemplified by these case studies, companies can develop a profitable pricing strategy tailored to the needs of their customers in B2B industrial markets.