B2B MARKETING

1. INTRODUCTION

B2B-Marketing: Der Ausgangspunkt

• Marketing = is the art, science and practice of managing voluntary exchange
processes in markets
• Most market transactions take place between companies and other
organizations à Business-to-Business (B2B) marketing!
• This takes a value-oriented perspective: At its core, B2B marketing is about
understanding, communicating and co-creating value with target
customers
• How valuable is a product?
• What value will I get after the exchange process?
• Choose the highest net value if there are competitive suppliers
2. VALUE AS THE CORNERSTONE OF B2B
MARKETING
What is Marketing?
American Marketing Association (approved July 2017):
“Marketing is the activity, set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers,
clients, partners, and society at large.”

Peter Drucker (1980, p. 24):

“The true meaning of marketing [is] knowing what is value for the customer.”

Defining Customer Value

• Value is the trade-off between “what you get” and “what you give” in a market
exchange
• “Customer value in business markets is the worth in monetary terms of the
economic, technical, service, and social benefits a customer firm receives in
exchange for the price it pays for a market offering.”
• Fundamental value equation:
(Value f – Price f) > (Value a – Price a) à delivering superior value
f = eigenes Unternehmen
a = Wettbewerber

Important Implications
à Value is very subjective, it is about perceived value
à People attribute different values to different things
à it is important to know the different needs
à Value is not an absolute number
• Value is multi-dimensional:
o Need to identify multiple benefits
o Need to assess cost factors
• Value refers to a specific context:
o Perceptions of members across buying center
o Basis for segmentation
• Value relates to a competitive alternative:
o Next-best alternative market offering
o Make-versus-buy decision
• Value can be expressed in monetary terms:
o Express value in €/unit
o Estimate net benefits
Example: Understanding, Creating & Delivering Value @ Fenwick

In addition to manufacturing and selling forklift trucks, they offer:

• Selling profitability & efficiency through data collection
• Advice on how to work more efficiently
• Forklift driving lessons

It’s Marketing’s Job to Understand the Linkages!

à 3 levels of communication:

Top-Down vs. Bottom-Up

Value-Based Selling as a Top-Down Approach

Three Persepctives on Value

1. Seller perspective:
• How can companies create, increase and capture value in order to maximize
the value of their economic activities?
• Value chain: Creating value for the company by managing the company's
internal activities
• Value of customers for the company: The value of all customers to a company
differs depending on the customer segment
• Value for stakeholders: How do U create value for their stakeholders?
2. Customer perspective:
• The value that customers receive in exchange with the market
• Product-related value: the value that consumers receive through the product
features and their consumption
• Customer-perceived value: The value of a company's offering should be
defined from the customer's perspective.

3. Mutual perspective:
• The integration of both perspectives
• Creating superior customer value: depends on the extent to which the
company delivers to its customers what is of value to them
• Distribution of value: how is value shared between companies and their
customers?
• Relationship value: the role of business relationships in value creation
• Co-creation: value through utilization

à Both the seller and the customer play an active role in value creation, which
entails a mutual orientation, and the seller's role shifts to making superior value
propositions that create opportunities for co-creating value with the customer, and
acting as a value broker that creates the foundation for the customer's value creation
processes and co-creating value during the direct engagement in the interaction with
the customer.

Customer Lifetime Value (CLV) = is the total revenue a customer generates

throughout their relationship with your company.

Sales Approaches and Their Underlying Value Perspective

Reading 1:
“Its almost like taking the sales out of selling” – Towards a
conceptualization of value-based selling in business markets – Terho et
al., 2012

Introduction:
• Creation of superior customer value is key to a firm’s long-term survival and
growth
• Value is not created by the seller alone but co-created by the seller and the
customer realizing in customer’s value-generating processes

Customer Value in sales research: Three perspectives on value:

1. Seller perspective:
• How can firms create, increase, and capture value to maximize the
value of their economic activities?
• Value Chain: creating value for the firm by managing the firm’s internal
activities
• Customers value to the firm: all customers’ value to a firm differs across
customer segments
• Stakeholder value: how firms create value for their stakeholders
2. Customer perspective:
• The value customers receive in market exchanges
• Product related value: the value consumers acquire from product
characteristics and their consumption
• Customer perceived value: the value of a firms offering should be
defined from the customers point of view
3. Mutual perspective:
• Integrating both perspectives
• Creating superior customer value: depends on the extent to which the
firm delivers to its customers what is of value to them
• Value distribution: how value is shared between firms and their
customers
• Relationship value: the role of business-relationships in value creation
• Value co-creation: value through usage
à Both seller and customer play an active role in creating value, entailing a mutual
orientation, and the role of the seller shifts towards making superior value
propositions that create opportunities for co-creating value with the customer, acting
as a value facilitator who provides the foundation for a customer's value creation
processes and co-creation during direct engagement in interactions with the
customer

Customer Value in sales research: Value-related salesperson behavior:

• Adaptive selling: the adjustment of sales behaviors in customer interactions,
based on perceived information about the selling situation, related to influence
tactics
• Customer-oriented selling: degree to which salespeople practice the
marketing concept by trying to help their customers make purchase decisions
that will satisfy customer needs
 • Agility selling: focuses on maintaining relationships on a daily basis by being
in a position to proactively determine current and future customer needs
• Consultative selling: process of professionally providing information for
helping customers take intelligent actions to achieve their business objectives
• Partnering oriented behaviors: work with their customers and their
companies to develop solutions that enhance the profit of both firms by
devoting their attention to increasing the pie rather than dividing the pie
• Relationship selling: focuses on the building of mutual trust within the buyer
seller dyad with a delivery of anticipated, long term, value added benefits to
the buyer

Conceptualizing value-based selling:

• Value-based selling is a broader approach than selling product functionalities
or customer benefits, focusing on the value-in-use potential of the offering for
the customer's business
• The central aspects of value-based selling behaviors are efforts to understand
the customer's business and the related value creation opportunities, proactive
crafting of value propositions
• Three dimensions of value-based selling = 1) understanding the
customer’s business model, 2) crafting the value proposition, 3)
communicating customer value
• Value-based selling behavior = the degree to which a salesperson works
with the customer to craft a market offering in such a way that benefits
are translated into monetary terms based on an in-depth understanding
of the customer's business model
• From the co-creation perspective, this proactive orientation reflects a
salesperson's value facilitator role that necessitates customer participation
• Understanding the customer's business model enables the salesperson to
identify the most important value drivers for adding substantial value to
customer's business
• Communicating the value: the credible demonstration of the offerings
contribution to the customer's business profits, not claiming to save money or
enhance revenues but provide persuasive evidence for value claims

Discussion:
• Working with the customer towards crafting a market offering in such way that
translates the benefits into monetary terms based on an in-depth
understanding of the customers business model
• Understanding and demonstrating how a co-created offering affects the
customers business both lie at the heart of value-based selling
3. BUILDING CUSTOMER VALUE MODELS
Value-Based Approach to Marketing
Goals:
• Deliver superior value to targeted market segments and customer firms
• Get an equitable return on the value delivered

To gain an equitable return on value, suppliers must be able to persuasively

demonstrate and document superior value relative to the next-best alternative.

Value Assessment Methods

Value Assessment
• Process of estimating the monetary worth of a present or proposed market
offering
• Methods vary in reliance on customer perceptions of worth versus supplier's
assessment of functionality/performance

Internal Engineering Assessment

• The supplier's scientists or engineers conduct laboratory tests on a product to
estimate its value
• Requires a detailed understanding of the customer's usage system
• Value estimate based on assumptions about the applicability of lab results to
actual customer use

Value-in-Use Assessment !!! (our focus)

• Involves supplier personnel or consultants gathering data directly at customer
firms
• Conduct interviews and collect detailed information on benefits and costs of
using the supplier's offering compared to alternatives
• Assign monetary values to these elements to estimate overall value
• Requires significant cooperation from the customer to capture all relevant
benefit and cost elements

Indirect Survey Questions

• Participants act as informants for their firms, answering how changes in a
market offering would affect their operations
• Supplier analysts use these answers and other information to estimate the
monetary worth of each change
 • Helps suppliers fill knowledge gaps about the customer's usage system.
• Assumes customers accurately perceive the effects of changes on their usage
system

Focus Group Value Assessment

• Participants in a focus group are shown product offerings or concepts and
asked to value them for their firms
• Qualitative method to understand perceptions and reactions, generating value
estimates
• Typically involves knowledgeable individuals from target customer firms,
industry consultants, or pundits

Direct Survey Questions

• Participants are given a description of a potential market offering and asked its
value to their firms
• Questions may include "What would your firm be willing to pay for this
offering?"
• Participants might be unwilling or unable to answer accurately, affecting
validity

Conjoint Analysis
• Statistically transforms participant judgments into estimates of value for an
offering's attributes
• Participants evaluate potential market offerings, each with varying attributes
and levels

Benchmarks
• Participants assess a benchmark offering, typically the industry standard
• They indicate how much more they would pay for increases or less for
decreases in attributes/features

Compositional Approach
• Participants directly express the value of each attribute and its levels
• Example: Participants provide value in currency per unit for each level of an
attribute, with other attributes held constant
• Values for attribute levels are summed to estimate the total value of the
market offering.
• Potential shortcoming: Sum of component values might exceed the value of
the whole offering

Importance Rating
• Participants rate the importance of a set of attributes and the performance of
supplier firms on these attributes
• Shortcomings: Does not estimate the monetary worth of the offering or its
elements, Does not provide relative value for changes in attribute performance
levels
Building a Value-in-Use-Modell
1. Describe your market offering and select a competitive benchmark
2. Select a market segment and a target customer (no objective value, just
subjective)
3. Identify & evaluate the value elements (multi-dimensional value)
4. Create your value model
5. Develop your value proposition

Step 1: describe your market offering and select a competitive benchmark

Step 2: Select a market segment and a target customer

Step 3.1: Identify Value Elements

Step 3.2: Understanding Sources and Consequences of Value Elements

à How can you link the different value elements to the underlying products?

Step 3.3: Classify Value Elements

Step 3.4: Value Elements Checklist

Step 3.5: Quanitify each Value Element

Step 4: Build your Value Model

Step 5.1: Select a Value Position

à apply position to case under what circumstances

Schritt 5.2: Consider Customer’s perceived Risk

Step 5.3: Formulate the Customer Value Proposition

Customer value propositions explicate - in one or two easy-to-understand sentences

- why targeted customers should purchase and use the focal supplier’s offerings
rather than competitors’ offerings.

Operational Definition of a Customer Value Proposition:

• For (target customer)
• who (need statement),
• the (product/brand name)
• is a (product category)
• that (key benefit statement/compelling reason to buy). • Unlike (competitive
benchmark),
• (product/brand name) has/is
• (primary differentiation statement),
• leading to (value-in-use promise).
4. USING VALUE MODELS FOR SEGMENTING,
TARGETING, AND POSITIONING
Segmentation and the Marketing Concept
• Segmentation is a fundamental building block of strategic marketing and
inextricably linked to the marketing concept
• “The marketing concept holds that the key to achieving organizational goals
consists of the company being more effective than competitors in creating,
delivering, and communicating superior customer value to its chosen
markets.” (Kotler/Keller 2009, p. 19) -> the means to the end to create a profit
(not an end)

Definition of Market Segmentation:

• Partitioning a market into groupings of firms that have similar requirements
and preferences for market offerings within each grouping and relatively
different requirements and preferences between groupings.

“If you are not thinking segments, you’re not thinking.” Theodore Levitt (1983, p. 128)

Market Segmentation

Customer Value as a Basis for Segmentation and Targeting

• The same market offering can deliver different value to different customers
• It is important to detect variations in value perceptions and understand their
root causes
• It is easier to sell to customers that gain high value from a market offering:
o strong incentive to buy
o fast adoption process
• Segments of customers with high value perceptions can be charged premium
prices

à Customer value perceptions are a useful basis for targeting decisions in

addition to segment size and growth!

“I will know when our businesses are doing a good job when they can articulate who
we should not sell to.” Chuck Lillis (former CEO of US WEST Media Group)
Positioning
• Definition: Establishing and (sustaining) an intended meaning for a market
offering in the minds of targeted customers
• Positioning involves defining, modifying and monitoring customers’
perceptions
• Crafting and communicating customer value propositions is key to establish an
intended positioning in customers’ minds that provides the supplier firm with a
positional advantage
• Customer value propositions are the linchpins linking firms’ resources and
capabilities to market and financial performance

The Complete Picture: How Marketing Contributes to Firm

Performance

Possible Exam Questions:

1) Please comment on importance of segmentation
Segmentation is crucial in marketing because it allows companies to tailor
their products or services to meet the specific needs and preferences of
different customer groups. By dividing the market into distinct segments,
businesses can better understand their customers, develop targeted
marketing strategies, and allocate resources effectively. Segmentation
enhances customer satisfaction, improves product/service differentiation, and
ultimately drives profitability.

2) Why is segmentation linked to the marketing concept?

Segmentation is intricately linked to the marketing concept because it revolves
around the fundamental principle of delivering superior customer value. The
marketing concept emphasizes the importance of understanding and
satisfying customer needs and wants more effectively than competitors.
Segmentation enables companies to identify and target specific customer
groups with offerings that best meet their unique requirements, thus aligning
with the core tenets of the marketing concept.
 3) Please define segmentation and name a few frequently used criteria for
segmentation à e.g. customers that have similar needs, but not always the
case)
Segmentation involves partitioning a market into groups of firms that share
similar requirements and preferences for market offerings within each group,
while exhibiting differences between groups. Some frequently used criteria for
segmentation include:
• See Conventional/Progressive Bases of Segmentation

4) Why is positioning so important in Marketing? à People need to know who

your competitors are / Link to Value Positioning Map
Positioning is critical in marketing because it shapes customers' perceptions of
a company's offerings relative to competitors. It involves establishing and
maintaining a distinct and favorable position for a product or service in the
minds of targeted customers. Effective positioning helps differentiate a brand
from competitors, communicates its unique value proposition, and creates a
strong emotional connection with consumers. By defining and monitoring
customers' perceptions, positioning enables companies to maintain a
competitive advantage, drive customer loyalty, and achieve sustainable
business growth

Reading 3:
Using Value Models for Segmenting, Targeting, and Positioning –
Anderson/Narus/Naranyandas, 2009

Market Segmentation

Definition:
• Partitioning a market into groups with similar requirements and preferences
within each group, and different requirements and preferences between
groups
• Descriptors capture significant differences in customer needs and responses
to marketing

Importance:
• Essential for understanding diverse, dynamic markets
• Descriptors provide different market views and competitive insights
• Requires empirical support to validate and avoid overlooking critical
distinctions

Segmentation Criteria to judge validity of proposed segmentation scheme:

1. Measurable: Can segment size, growth, and potential be measured?
2. Profitable: Is the segment likely to be profitable?
3. Accessible: Can the segment be identified and reached?
4. Actionable: Can effective marketing and sales programs be developed?

Conventional Bases of Segmentation

• Industry: categorize different industries
 • Customer Size: Firm size correlates with customer demand, measured by
sales, employees and location
• Customer Behavior: Based on purchase history: first-time buyers, repeat
buyers, non-buyers, and previous buyers
• Geography: based on customer location

Progressive Bases of Segmentation

à Conventional Bases of Segmentation are not enough to pinpoint groups of
customers with sufficiently similar requirements
• Application: Business market managers segment by application because
firms using the supplier's core product or service similarly derive similar value
• Customer Capabilties: Useful when customer competencies and the
knowledge/skills they seek from suppliers vary significantly
• Customer Business Priorities: Business priorities influence the capabilities
customers seek for competitive advantage and serve as a segmentation basis
• Usage Situation: Customers may have different requirements/preferences for
a core product/service in various usage situations
• Customer Profitability: Advanced from simple purchase behavior to
sophisticated analyses of profitability from customer relationships
• Geographic: Firms are segmented based on requirements and preferences
across country markets

Determining Market Segments of Interest

à Whatever market-segmentation approach business market managers pursue, as
part of their research they need to assess which markets -and segments within them-
are of greater interest to the firm. This approach enables the firm to pinpoint which
groups of customers it should pursue, and as importantly, what groups it should not.

Market Segment Size and Growth:

• Business managers need to know the number of prospective customers in
each segment and their purchasing behavior
• 2 Concepts that provide these figures:
o Market Potential: identifies maximum units capable of purchase within a
geographic area and time period with a realistic level of marketing
o Total Market Demand: predicts the actual number of units that will be
purchased in a shorter time focus

Sales & Profit Potential:

• Managers need to estimate potential for their firm's offerings in each segment.
• Sales potential: What a firm could sell with maximum marketing effort.
• Sales forecast: Prediction of actual units sold with defined marketing and sales
resources

Monitoring Competitors:
• Essential to monitor competitors for understanding customer value judgments
• Firms need to identify present and potential competitors by examining market
offerings considered alternatives by customers
• Future competitors might be identified by monitoring technological advances
and merger/acquisition activity
5. UNDERSTANDING FIRMS AS CUSTOMERS
IN MULTI-STAGE MARKETS
Where to compete? – strategic decision
How to compete? – technical decision

Value as a Subjectively Perceived Construct

In Marketing, value is
• inherently actor- and context specific
• a perceptual construct and, hence, always subjective

This subjective conceptualization of value is at the core of the Service-Dominant (S-

D) Logic of Marketing:
“Value is always uniquely and phenomenologically determined by the
beneficiary (who is receiving the value/the customer)”

Who is the Beneficiary of Value?

The subjective conceptualization of value in marketing begs the question who is “the
identified beneficiary of value creation” à 3 different levels of value (the goals are
different on each level):
• in B2C marketing, the focal beneficiaries are consumers à individual value
• in B2B marketing, the focal beneficiaries are organizations (= the people who
form an organization that work towards a collective goal) à collective value
• in public marketing (corporate governance), the focal beneficiary is the
society à public value

Whereas
• individual value is related to individual goals such as stress reduction, social
comfort or personal reputation,
• collective value is related to organizational goals such as cutting costs,
increasing market share, and decreasing (financial) risks,
• public value is related to public goals such as social cohesion, environmental
integrity, public health

Theory of Goal-Directed Behavior

• Value and Goals are closely linked to each other
• Purchase decisions: habitual, spontaneous, limited, extensive (limited &
extensive have high cognitive involvement)
• Customers intend to behave in ways that contribute to their goals (when
competitive involvement is high)
• A goal:
o is “a mental image or other end point representation associated with
affect toward which action may be directed”
o answers the question “What is it for which I strive?”
• Hierarchy of superordinate and subordinate goals:
o a superordinate goal represents desirability and explains why the
customer wants to achieve a certain outcome
 o a subordinate goal refers to feasibility and describes how the customer
can achieve the desired outcome

Behavioral Theory of the Firm

• Organizational action is goal-driven and multiple goals can coexist in an
organization (different goals at the same time with different people compared
to individual goals)
• Goals can relate either to the whole firm or to certain organizational subunits
• Depending on their roles, the members of an organization may pursue
different and, sometimes, conflicting goals
• Buying Center = everyone that is included in a purchase decision à all
involved can have different goals, BUT everyone in an organization should be
aware of the overarching organizations goal!
• The extent to which specific outcomes contribute to the achievement of a goal
is a measure of performance for a firm, an organizational unit, a work group,
or an individual
• Value = the extend of goal achieving

Value is a measure of goal achievement that reflects the perceived

contributions of objects, processes, or behaviors to the goals of an individual,
organizational, or some other entity

Value, Goals, and Desires for an Individual Customer

Value for an Individual Member of an Organization

Value for and within an Organization

Embracing Complexity: B2B Markets are Multi-Stage Markets

Who is the Customer in Multi-Stage Markets?

The Automation Industry as Exemplar for Multi-Stage B2B Markets

Reading 4:
Rethinking customer-perceived value in business markets from an
organizational perspective – Kleinaltenkamp/Eggert/Kashyap/Ulaga,
2022

à The authors highlight the evolving nature of markets and business practices,
necessitating a reevaluation of the traditional conceptualizations of value. They
propose an integrated typology of value in IORs that considers the linkages between
value expectations in purchasing activities and value experiences in usage
processes.

Theory of Goal-directed behavior

• Individuals are motivated to behave in ways that contribute to achieving their
goals
• Goals are mental representations associated with affect, directing actions
• Desires, attitudes, anticipated emotions, and subjective norms shape goals
and behaviors
• Understanding this interplay helps researchers comprehend decision-making
and progress evaluation

Behavioral Theory of the Firm:

• Focuses on decision-making processes within organizations
• Decision-making influenced by organizational routines, past experiences, and
decision-makers' preferences
• Emphasizes adaptation, learning, coping with uncertainty, and decision-
making under incomplete information

Nine foundational premises providing a framework for understanding how

business customers perceive value in inter-organizational relationships:
1. Unifying goal-related perspective: This premise suggests that a unified
perspective based on the behavioral theory of the firm and the theory of goal-
directed behavior can help in understanding how organizations perceive value
2. Individual value: This premise focuses on the extent to which individual goals
are achieved through the value perceived in a business transaction or
relationship
3. Collective value: This premise emphasizes the achievement of goals at the
collective or organizational level through the perceived value in interactions
with other businesses
4. Expected goal achievement: It refers to the anticipated achievement of goals
based on the initial agreement or understanding in a business transaction
5. Experienced goal achievement: This premise relates to the actual
achievement of goals over time through the ongoing usage and experience of
products or services
6. Transactional value: It pertains to the value realized in individual transactions
between businesses
7. Relational value: This premise focuses on the value derived from long-term
business relationships and partnerships
8. Unification of diverging value conceptualizations: This premise aims to
reconcile and integrate different perspectives on value that may have been
contradictory or divergent
 9. Consideration of the interplay between transactional and relational value
perceptions: This premise highlights the importance of understanding how
transactional and relational value perceptions interact and influence each
other in business relationships

Managerial Implications:
• Necessitating that all supplier activities focus on creating and delivering more
value than competitors
• Understanding customers' goals, priorities, and criteria for goal achievement is
essential for suppliers, as all value appraisals by business customers can be
traced back to their goals
• Ultimately, focusing on customers' goals and their achievement represents a
useful starting point for all customer-related management activities and can
help overcome tensions and conflicts in supplier firms
6. CAPTURING VALUE IN BUSINESS MARKETS
Three Approaches to Pricing
1. Cost-Plus Pricing
• Based upon knowledge of their own costs, supplier adds some percentage
onto those costs to arrive at the market offering price
• Target gross margin or net profit margin often serves as the „plus“-component
• Cost-plus pricing erroneously assumes that the customer cares about the
supplier’s costs
• The value that the market offering provides to the customer is not considered
à The supplier risks being noncompetitively high priced or giving away too much
value to the customer!

2. Competition-Based Pricing
• Supplier managers set their prices in relation to what the competitors’ prices
are
• Same price signals a commodity product, higher or lower prices may be due to
differences in quality, service, etc.
• Prices changes by competitors tend to be imitated with perhaps slight
deviations as managers attempt to create greater sales volume of margin
• Only one supplier can have the lowest price à inherent risk of a price war
à By relying on competition-based pricing, firms are giving away a crucial element of
their market strategy to their competitors!

3. Value-Based Pricing

à Suppliers create net-value for their customers by sharing the incremental value!

Two Pricing Strategies: Skimming & Penetration

à What part of the incremental value to retain as profit and what part to share with
the customer as an incentive to purchase is a strategic decision!
Skimming
Pricing strategy in which a product or service is initially launched on a market at a
high price, which is later gradually reduced.
à Example: Salesforce
Salesforce's skimming pricing strategy was effective in positioning it as a
premium, innovative solution in the CRM market. By initially targeting large
enterprises and early adopters willing to pay a premium, Salesforce
established a strong market presence and reputation. As the market for cloud-
based CRM solutions matured, Salesforce gradually lowered its prices and
introduced more affordable options to capture a broader customer base.

Penetration
The aim of the penetration strategy is to penetrate the market as quickly as possible
and gain a high market share as quickly as possible. For this to work, the price is
kept low at the beginning and is gradually increased later.
à Example: Slack
Slack's penetration pricing strategy was highly effective. The low entry cost
encouraged widespread adoption, and as businesses grew accustomed to
Slack, many transitioned to the paid tiers for more advanced features. This
strategy allowed Slack to build a substantial user base quickly

Reading 5:
Capturing Value in Business Markets – Anderson/Narus/Naranyandas,
2009

Importance of Pricing Decision-Making:

• Pricing decisions in business markets often rely on intuition, opinions, rules of
thumb, and managerial judgment rather than systematic analysis
• Pricing considerations occur at the strategy, tactics, and transaction levels,
with the strategy level being the primary focus
• Pricing strategy focuses on where within this range to position the market
offering, and how to shift the range itself and the supplier's relative position
within it
à Although we advocate a value-based approach to pricing, we have found that
most firms rely on the traditional methods of cost-plus pricing or competition-based
pric-ing. Each of these approaches may appear to give the business market manager
some comfort as a basis for setting prices, but each has some problematic aspects

Traditional Pricing Approaches:

• Cost-Plus Pricing:
o Based on the supplier's costs with a markup for profit
o Assumes customers consider supplier costs when determining value,
which may not be accurate
o Risks uncompetitiveness or undervaluing offerings if value is not
considered.
• Competition-Based Pricing:
o Sets prices relative to competitors' prices
o Assumes accurate knowledge of competitors' prices, which may be
unreliable
o Can lead to price wars, eroded profitability, and signaling lack of
differentiation
o May result in undervaluing offerings without understanding their true
value to customers

Value-Based-Pricing
• Price should be set in relation to a market offering's value
• Deciding on a specific price involves multiple considerations
• Underlying equation: (Value₁ - Price₁) > (Value₂ - Price₂)
• Feasible range of prices determined by Price₁ - Price₂ + AValue₁₂
• Penetration vs. Skimming Pricing:
o Penetration strategy: Lower Price₁ to give most incremental value to the
customer
o Skimming strategy: Maintain a higher Price₁ to retain more incremental
value as profit
o Considerations in Pricing Strategy: Factors influencing strategy choice
include market size, growth, competition, and value proposition
persuasivenesS
• Customers vary in the value they place on a supplier's offering à Pricing
strategy must account for this variability within market segments
• Because it is based upon what the customer is willing to pay for a market
offering, value-based pricing is preferred over other approaches to pricing
• Requires accurate understanding of value and price, often through customer
value assessment methods