What is one of the most powerful tools for B2B information-service providers to grow organically, increase their “stickiness” with clients, and generate higher margins? An effective pricing strategy.
The B2B information-services industry is under pressure from several forces. Weak employment, especially in education and financial services, is straining per-user pricing models. Customers expect mobile access to information services, as well as other innovations that take advantage of big data and other digital trends. The growth slowdown in most emerging markets has also put a clamp on international growth plans.
In this context, pricing is a powerful tool that too few companies deploy to their advantage. B2B information-service providers can generate revenue gains of between 2-8% within 18 months by deploying a more effective pricing strategy. The most successful B2B information-services companies generate margins of up to 55% while retaining up to 95% of their customers year to year. That’s enough to change the dynamics of the market and set a company on a new growth trajectory.
Consider these tips for optimizing the pricing of information-services:
Discounting requires discipline. Discounting should not be random or discretionary. By carefully managing discounting through guidelines, KPIs, and sales force compensation, companies can improve their revenue realization by 2-4% without the loss of key accounts.
Promotions trump discounts. That’s because promotions can be framed as one-time events while discounts last forever. However, promotions are not foolproof. They need to be targeted, carefully tracked, and supported by billing systems. And they must be temporary; otherwise, they become a discount.
Bundling is a science. Bundling and cross-selling services can help win and retain clients—if you remember that not all bundles are created equal. They only make sense when two services are complementary and at least one of the services has low penetration but high potential.
Power shifts as the market grows.
During the initial sale of an information service, the customer holds the power. But as data becomes integrated into systems and workflow, usage will grow, end-user satisfaction will increase, and the seller has the advantage. By relying on quantitative analysis of user engagement and customer satisfaction, companies can identify at-risk and satisfied customers. Such information can improve their bargaining position during renewal negotiations.
Pricing is cultural. Price touches everything. As such, a change in pricing requires a change in organizational culture. Companies need to provide the right tools and training and reward the right behaviour.
For example, compensation should be tied to price realization and retention, not just volume. And since a strong pricing system accounts for differences across markets and customers, pricing policies and governance should generally be centralized, ensuring that local markets have a narrow ability to vary pricing.
Credit: Boston Consulting Group