Value-oriented Selling and Pricing of Industrial Goods and Services
08.09.2021
Is your company facing increasing price pressure? Then you are in good company: In a survey by the German Engineering Federation (VDMA), around 70 percent of machine builders cited growing price competition as a major future challenge (Commerzbank: Industry Report 'Mechanical Engineering in Germany', April 2021).
What can be done about it? Basically, there are two strategic options: Either you try to survive on the market with lower prices than the competition or you offer innovative solutions with substantial added value. A low-price strategy always carries the risk that competitors will enter the market with even lower-priced offers and start a price war in which everyone loses in the end.
Not every customer is prepared to pay for added value. It is therefore useful to segment customers based on their needs and willingness to pay. As a rule, two groups of customers emerge here: buyers who tend to purchase on the basis of value and who want a close personal relationship with the supplier, and customers who buy exclusively on the basis of price.
In order to serve both groups economically, it is advisable to develop differentiated offers and sales approaches: For the value-oriented buyers (value buyers), customized products and services with measurable financial benefits, e.g. in the form of cost reductions, are developed together with the partners on the customer side. The financial benefits provided then form the basis for determining a price that corresponds to the added value delivered (value-based pricing).
The price-oriented customer segment is served with lower-priced standard products that can be cost-effectively produced in high volumes. These customers receive little or no sales support and they place orders automatically via, e.g., online platforms. Here, pricing by adding a markup on manufacturing costs (cost plus) is recommended to ensure that a profit can be achieved even at low prices.
The two sales and pricing approaches described can be used to serve different customer groups optimally and economically.
How do you segment your customers? Which sales approaches do you use to interact with the different customer groups? How do you determine your prices?