Where does your company’s pricing strategy fall on the Pricing Maturity Model? If you’re unsure, you may be sacrificing an opportunity to maximize your business’s profits.
Pricing for value is a key element of the selling process. Along with pricing methods, your company should also focus on understanding and communicating your value to customers, in order to sell at the highest profits.
B2B pricing plays an important role in your company’s growth. If your prices are too high or too low, your company’s revenue probably isn’t reaching its full potential. Companies that build expertise and optimize their pricing strategies benefit from profitable margins.
But how can you make the most of your pricing strategy? By understanding and using the Pricing Maturity Model, you can use data and technology to turn your company’s pricing into profit.
Quick Takeaways
- The Pricing Maturity Model helps businesses understand their pricing principles and how they can be improved to promote growth
- There are 4 levels of maturity in the simple Pricing Maturity Model: manual pricing, pricing as a project, pricing as a process, and pricing as a system
- A recent survey conducted by BigCommerce found that price was the second most important selling point in the B2B industry
- Up to 77% of B2B companies revisit their pricing strategy at least once per year
Understanding how to assess your company’s Pricing Maturity Model is key to making pricing decisions that maximize your profit.
What Is The Pricing Maturity Model?
The Pricing Maturity Model is a pricing framework that helps businesses understand the development of their pricing principles. Today’s businesses operate on many different professional levels, and make pricing decisions based on several factors:
- Subjective knowledge
- Experience
- Assumption
- Competition
- Data
The Pricing Maturity Model categorizes factors like these into 4 different pricing levels to determine a business’s maturity.
Conducting a B2B competitive analysis can help businesses learn how their competitors perform, and find opportunities to out-perform them. Not to mention, it also helps businesses stay up-to-date with industry trends and standards.
Why Is Your Pricing Maturity Model Important?
The Pricing Maturity Model is important because it helps businesses determine how their pricing model can be improved. By understanding how your business’s pricing model performs, you can also learn how to make changes that lead to a higher profit.
4 Levels of The Pricing Maturity Model
Below, you can gain a basic understanding of the Pricing Maturity Model and determine where your company stands. Most businesses find themselves between levels 1, 2, and 3, and major companies, like Amazon, operate on a Level 4 pricing model.
Level 1: Manual Pricing
Manual pricing is the most basic level of pricing. This involves selling products and services at any price to whomever wishes to purchase them.
This level of pricing is most prominent in places like local markets where business owners are willing to negotiate on price. Most pricing decisions made at this level are made using subjective knowledge.
Level 2: Pricing as a Project
Pricing as a project is much less subjective than manual pricing. Level 2 businesses make an effort to sell the right products and services to the right customers at the right price. According to a survey conducted by BigCommerce, the right price (value) is the second most important selling point in the B2B industry.
At this level, businesses often have established pricing rules to ensure consistency within their organization. These rules could be set to ensure a certain profit or restrict a maximum discount.
Level 2 businesses also keep track of their pricing model, using data tools like Excel or PowerBI. Doing so helps to keep costs, sales, and prices in order.
Level 3: Pricing as a Process
Level 3 organizations have standardized processes for their pricing. Each process is established considering several factors, such as competitor prices and cost of goods and services.
Most of the time, businesses with Level 3 pricing models use software that helps determine and keep track of their pricing processes.
Level 4: Pricing as a System
Level 4 pricing is the most advanced pricing level, where pricing products and services performs as a system. Companies like Microsoft perform on Level 4 of the pricing maturity model.
In this case, companies use algorithms to automatically establish the best price for each customer. With advanced technology like artificial intelligence and machine learning, Level 4 pricing models are constantly conducting controlled tests to optimize prices for maximum sales
How to Assess Your Pricing Maturity Model
Now that you understand each pricing level, you can learn how to improve your company’s pricing strategy. The steps below can be used to assess your business’s pricing maturity model, and move from one level to the next.
It’s important to note that about 77% of B2B businesses revisit their pricing strategy at least once per year. This way, companies can ensure that their strategy aligns with both industry and customer needs.
Level 1 to Level 2: Focus on Pricing
If your business is operating on Level 1, you can start operating on Level 2 by opting for a price-driven approach. Instead of focusing on selling inventory, shift your focus to selling your value at a profitable price. Start by determining the cost of your products and services, and then choose the right margin and rules that promote a consistent profit.
Level 2 to Level 3: Focus on Value
Businesses with a Level 2 pricing approach should focus on driving value. Start by developing a clear understanding of the value your products or services deliver to your customer. This can look like:
- Lowering your overall costs to produce or deliver
- Improved quality or durability
- Adding benefits like better integration with other components
Excellent sales people use these value drivers to educate their buyers and achieve agreement on higher prices or better purchase terms.
Through competitor research and understanding your business’s strengths and weaknesses, you can determine a price that aligns with the values of your target customer. At this level, you should also consider implementing simple software designed for pricing analytics.
Level 3 to Level 4: Focus on Automation
Companies operating on Level 3 can grow to Level 4 by gaining a better understanding of their product mix and the effect it has on profit. Since companies on Level 3 already know a lot about the nature of their pricing, they need to focus on guiding the next generation of product development to maximize profits.
To move to level 4, B2B companies should:
- Analyze customer feedback. By using automation tools to collect and analyze customer feedback, companies can better identify gaps in the market and make improvements.
- Automate supply chain management. Automation tools can help optimize the supply chain, reduce costs, and improve efficiency.
- Use predictive analytics. Predictive analytics can help B2B businesses forecast demand and identify the most profitable product opportunities.
By focusing on these strategies, B2B businesses can automate their processes, leverage data analytics, and make informed decisions about their pricing strategy to increase profitability.
Level 4: Focus on A/B Testing
If your company’s pricing model is already operating with artificial intelligence and machine learning technology, you are already operating at a mature level. Although, there is always room for growth.
Businesses with a Level 4 pricing model can focus on A/B testing and improving pricing algorithms to ensure you are up to date with the latest trends and innovations.
Start Conducting B2B Competitive Analysis Today
Now that you understand each pricing level, you can learn how to improve your company’s pricing strategy. The steps below can be used to assess your business’s pricing maturity model, and move from one level to the next.
It’s important to note that about 77% of B2B businesses revisit their pricing strategy at least once per year. This way, companies can ensure that their strategy aligns with both industry and customer needs.