Pricing Optimisation

Unlocking Profits: 4 Strategies to Optimise B2B Pricing

 

Discovering the power of pricing

In the pursuit of improved profitability, executives in B2B industries have traditionally focused on cost management as a key lever. However, after years of cost-cutting and facing relentless inflationary pressures, pricing strategies are being rediscovered as the most critical mechanism for boosting margins. Organisations are now being compelled to critically assess the sophistication of their pricing approaches and to reflect on whether they are adequately adapting to evolving market dynamics.

Foremost among these market shifts is the increased level of price transparency in B2B markets. The rise of digital platforms, coupled with enhanced data intelligence, enables customers to compare prices across competitors with just a few clicks. Sales teams can no longer rely on product complexity or market technicalities to shield pricing—clients often come armed with as much or more information about pricing trade-offs than the sales force itself. Consequently, organisations and their front-line sales teams must deeply understand the value proposition underpinning their pricing strategies and articulate it effectively at both product and customer levels.

The willingness to pay for quality has reached unprecedented levels. A decade ago, it would have been hard to imagine a chocolate bar with high cacao content commanding ten times the price of a typical Mars bar, or blue-collar workers paying double for a craft beer brewed in a small-batch brewery. For suppliers, this shift presents a significant opportunity to capture incremental pricing where they can deliver unique utility not offered by competitors—such as integrated ordering systems, client stock management solutions, or just-in-time delivery capabilities.

The potential for companies that invest in enhanced pricing capabilities is substantial. Research consistently demonstrates that pricing adjustments can impact profits up to four times more effectively than other performance improvement initiatives. Additionally, pricing capability serves as a clear differentiator, with fewer than 15% of companies regularly reviewing their pricing strategies. While challenges such as data limitations, cultural resistance, and misaligned compensation structures often relegate pricing to the “too hard basket,” organisations that take a systematic, data-driven approach to overcoming these barriers can unlock significant untapped value.

Best-in-class companies are already recalibrating their assumptions about price elasticity, customer sensitivity, and buying behaviours. They recognise that today’s market demands a more agile, real-time approach to pricing—one that enables swift responses to market shifts and inflationary pressures while preserving their competitive edge.

 

Strategy 1: Deeply understand legacy pricing

More than any other factor, pricing decisions are often influenced by historical precedents. While anchoring is a well-known negotiation tactic, the pervasive impact of legacy pricing on current strategies is less understood. Companies frequently assume that the original pricing decisions made one, three, or even five years ago were based on profound insights into market dynamics. As a result, they often limit adjustments to incremental increases or decreases, perpetuating outdated pricing structures.

In our experience, relying on historical pricing as a foundation is inherently risky—particularly when discussions are framed around percentage increases to last year’s prices. At best, this approach relies on outdated metrics in relation to elasticity, willingness to pay, and competitive dynamics; at worst, it perpetuates errors rooted in an originally flawed base price.

The starting point for any pricing strategy should be a comprehensive understanding of the existing pricing structure. Key questions to address include:

• Where and how did these prices originate? What were the core assumption on which they were based?
• How well do they reflect the holistic value delivered to customers?
• Do they adequately account “willingness to pay” differences across segments, products and locations

Current pricing structures should be reviewed for consistency, including the application of customer-level discounts and rebates against standard criteria. Such a review often uncovers significant anomalies, such as non-transparent salesforce pricing concessions, data errors, or outdated customer segmentation. Our experience indicates that the prevalence of pricing anomalies increases with the complexity of product lines and customer bases. As complexity grows, many companies struggle to develop scalable, logical, and structured pricing models.

A crucial tool for uncovering value lost between the initial list price and the final received price is the Pocket Price Waterfall (PPW). In industries characterised by large contracts and standardised volume discounts, such as manufacturing or technology, businesses can lose as much as 30% of potential revenue due to poorly monitored discounts, rebates, and incentives. These hidden costs gradually erode profitability, often going unnoticed. By making these leakages transparent, businesses can visualise and address them, enabling more precise pricing adjustments that recover lost revenue. The PPW framework illustrates how identifying and resolving these value leaks can significantly enhance profitability without requiring a complete overhaul of the pricing model.

 

Strategy 2: Transforming Pricing Strategies to Reflect Customer Value

Value-based pricing is a strategic approach that sets prices based on the perceived value a product or service delivers to customers. Unlike cost-plus pricing, which focuses on internal costs, value-based pricing considers external factors such as customer needs, preferences, and market dynamics. By aligning pricing with the unique benefits and value propositions of their offerings, businesses can justify premium pricing and differentiate themselves from competitors.

To successfully implement value-based pricing, businesses must segment their customers based on factors such as needs, preferences, and willingness to pay. This segmentation enables targeted pricing strategies tailored to the specific value perceptions of each group.

“Pricing is about finding balance – an ongoing and ever-present need to identify the exact equilibrium.”

B2B businesses often fail to recognise variations in value perception and willingness to pay, particularly across different geographies. A prominent example is the common approach of national companies in applying flat, McDonald’s-like pricing structures across all states and cities. This is often due to system limitations or an unquestioned belief that fairness necessitates uniform pricing. However, such an approach invariably leads to unintended value leakage.

Coles and Woolworths, for example, excel in micro-segmentation by geography. These retailers not only conduct deep analytics to understand affluence and willingness to pay, by location, but also operate agile systems that allow pricing adjustments at the store and SKU levels.

Equally important in price setting is recognising areas of homogeneity in value perception. Disney exemplifies this approach. While it does offer adult and children’s tickets like most theme parks, Disney understands that the primary driver of an adult’s purchase decision is the desire to take their children to Disneyland. As a result, the pricing differential between adult and children’s tickets is minimal—typically just a few percent—despite cultural norms to price children’s tickets significantly lower.

Segmentation for pricing purposes should be seen as a journey for most B2B companies. Substantial value can be unlocked simply by reconsidering pricing and margins based on factors such as customer size, the competitive characteristics of product groups and the location of depots. As an organisation evolves its segmentation strategy new opportunities emerge. For example, pricing segmentation based on customer sourcing strategies (e.g., whether a customer purchases a broad range of products or cherry-picks specific items), account management needs, and supply chain integration can optimise revenue while incentivising behaviours that drive back-end efficiencies.

While value-based pricing offers significant advantages, it also presents challenges. Measuring perceived value accurately requires robust market research and customer feedback and competitive pressures necessitate constant monitoring of competitors’ strategies. Furthermore, while cost considerations are less central in this model, they remain essential for ensuring profitability. Ultimately, the goal is to strike a balance between capturing value and managing costs effectively.

 

Strategy 3: Embracing Dynamic Pricing in B2B Markets

Dynamic pricing enables businesses to adjust prices in real time based on market conditions, demand, and customer behaviour. While widely adopted in B2C industries with high fixed costs and fluctuating demand—such as airlines and hotels—B2B industries have traditionally been more hesitant. This reluctance arises from system limitations, customer expectations for fixed pricing, and entrenched historical practices. Consequently, B2B businesses have often relied on quarterly pricing reviews, where procurement, sales, and management employ blunt pricing instruments, primarily aimed at passing on cost base increases incurred during the quarter.

However, the evolution of pricing practices suggests the likely disappearance of the quarterly review in the short to medium term. The economics of large B2B businesses are too fluid to sustain a static three-month pricing cycle given fluctuations in costs and competitive pressures. Dynamic pricing allows companies to predict and act decisively—raising prices to capture upside opportunities or lowering them to mitigate volume losses. It also enhances the speed and accuracy of decision-making, delivering more granular insights for competitive advantage.

Technology as the Enabler of Dynamic Pricing

Digital technologies and platforms are not only disrupting traditional B2B sales models but also enabling the transition to dynamic pricing. Moving from static catalogues to real-time pricing gives customers unparalleled access to pricing data and equips sales teams with real-time information. Dynamic pricing also enables the creation of feedback loops, with sales teams capturing and inputting win/loss data to improve system accuracy and uncover valuable new insights over time.

At the core of dynamic pricing is the development of a pricing algorithm—a concept that can be challenging for middle-market businesses that sometimes struggle to articulate how they currently price their products. The process of bringing together departmental leaders to discuss optimal pricing strategies—by product, condition, and customer—often reveals insights far beyond what can be ascertained from examining legacy pricing structures.

Building Dynamic Pricing Capabilities

The development of a pricing algorithm begins with aligning it to the organisation’s goals and transaction complexity. At a basic level, this might involve decision trees and hard-coded margin rules that offer transparent pricing logic built on structured data. For more complex scenarios, machine learning and neural networks can analyse large, unstructured datasets to deliver real-time pricing recommendations.

But the development of pricing algorithms requires a nuanced approach. For example, high-volume, low-cost items may follow one methodology using generalised market-based assumptions with respect to elasticity, while high-value products might adopt a bespoke approach that involves mapping customer buying factors and quantifying them through sophisticated calculations.

The chosen pricing logic will dictate the data capabilities the organisation must acquire. Identifying the real-time data needed to “feed” the pricing engine is critical to ensuring that it consistently delivers optimal pricing recommendations to the organisation, salesforce, and customers.

Performance Management and Integration

Top-performing companies complement dynamic pricing engines with a performance management layer. This layer provides easy-to-read visual outputs that synthesise key metrics, enabling managers to monitor performance effectively. Integration is critical. The pricing engine must seamlessly interface with the tools that sales teams use daily for quoting and negotiations. This ensures that pricing recommendations are not only accurate but also accessible and actionable in real-time sales environments.

Achieving success requires investment in the right tools, algorithms, and data capabilities, as well as careful alignment with organisational goals. Ultimately, dynamic pricing transcends optimising margins—it is a strategic capability that enhances competitiveness, improves customer satisfaction, and drives sustainable growth.

 

Strategy 4: Engage people for pricing success

One of the most overlooked aspects of pricing optimisation is the human factor. Even the most advanced pricing tools will fail without buy-in from key stakeholders, particularly sales teams. Historically, the sales force has been the primary owner of pricing decisions. Efforts to eliminate the sales force’s subjective evaluation and discretion in pricing decisions are often perceived as disempowering—an outcome that runs counter to the purpose of any pricing initiative, which is to grow revenue.

Moreover, sales teams almost universally believe that lower prices lead to more deals. The implementation of structured, real-time pricing algorithms will likely face resistance, driven by fears of price increases and lost volume.

Engaging Sales Teams in Pricing Optimisation

Leading companies use a range of approaches to secure sales team buy-in to pricing optimisation. Perhaps most importantly, the new approach must incorporate sales teams’ knowledge from the beginning. By involving salespeople in the process rather than treating them as passive recipients of a changing price list, they will see that their experience is an important part of the new model.

Equally important is clear communication. Pricing optimisation isn’t about raising prices across the board—it’s about making smarter, data-driven decisions. Providing sales teams with clear rationales and flexible recommendations, rather than rigid pricing rules, helps build confidence in the changes. Pilot programs that showcase the success of pricing models are also invaluable for fostering trust.

Supporting Sales with Advanced Pricing Tools

A strong case for adopting advanced pricing tools lies in their ability to help sales teams navigate increasingly complex product portfolios. By leveraging advanced analytics, these tools provide data-driven guidance tailored to specific products and customers, effectively replicating the decision-making process of top-performing salespeople in each scenario. When these recommendations are intuitive and seamlessly integrated into negotiation processes, they significantly enhance the sales team’s efficiency and overall effectiveness.

Performance Management and Incentives

Incentive structures must be recalibrated to reward sales teams for adhering to pricing recommendations. Compensation frameworks should directly align with outcomes generated by the pricing tool, ensuring that performance is consistently recognised and incentivised. Moreover, leveraging gamification can enhance engagement by tapping into the inherent competitiveness of salespeople. Transparently sharing insights into which teams are delivering the highest value can serve as a powerful motivator, fostering a culture of continuous improvement and collaboration.

 

Conclusion

Pricing is too often an afterthought—a reaction to a request for proposal or a periodic agenda item in quarterly reviews. However, firms are rediscovering that pricing is one of the most powerful tools to improve financial performance. This creates a new imperative to bring pricing front and centre, making it a continuous process of review, analysis, and optimisation. To achieve this, firms must first develop a deep understanding of legacy pricing models before transitioning to a more value-based methodology. This approach leverages micro-segmentation to isolate differences in willingness to pay across sub-segments.

Beyond realigning pricing to value, businesses should adopt a dynamic approach, investing in the data and analytics that enable real-time recommendations to maximise revenue. This technological shift must be accompanied by a program that positions the sales department as a key partner in the pricing transformation, supported with appropriate engagement, training, tools, and incentives.

By transitioning from traditional cost-plus models to data-driven approaches, top performing organisations can unlock hidden margins whilst strengthening their core capabilities.