B2B Value Capture Strategies: A four-part series
Value capture strategies for existing products and services are most often implemented in the marketplace as various pricing tools. In this series of articles, we will be discussing four specific pricing strategies that can help capture more value with your B2B accounts. The first value-capture pricing strategy we’ll cover is bundling.
Value Capture Strategies part 1: Bundling
We experience and participate in B2C bundles / packages on a regular basis. These include restaurant menus, consumer goods, mobile apps, streaming services, wireless and phone plans, and more. These examples showcase how effective bundling can be for capturing more value with existing products / services over a longer timeframe and for a larger set of customers. While many of these types of bundles help consumers simplify choices and often provide better value than purchasing items a-la-carte, in the B2B space bundling strategies have to go beyond these two benefits.
B2B buyers are generally measured on their financial results and need to successfully compete to sell products and services to their customers. Therefore, any bundling purchases they make from your company must help them meet these objectives. But bundling can be difficult to implement correctly. Mistakes in bundling can lead to reduced margins, unhappy buyers, and devaluation of products and services. The remainder of this article will showcase critical bundling pitfalls to avoid along with four robust tests to determine if your bundling strategy will succeed.
B2B Bundling Pitfalls
The following examples are B2B bundling strategies you should avoid.
Bundling “shell game”: This approach essentially forces customers to pay for certain items in a fixed package that they don’t value. An example of this is sales “cramming” where sales reps are incentivized to keep adding products / services to a total package to increase revenue and commissions with no counterbalance of satisfaction or retention. It is critical to understand what customers' pain points are first and how they are solving those problems before creating a package solution that is more “valuable” to them than their current state.
Bundling as a discounting tool: When packaging doesn’t lead to increased demand - then it has simply become a means to reduce margin. This approach is often used in a lazy attempt to retain business that is at risk. Just lowering the overall price doesn’t create more stickiness, and the business will still be “at risk”.
Bundling to obscure pricing: There is nothing wrong with keeping certain pricing confidential to increase competitiveness. However, creating bundles to intentionally confuse buyers or mislead them about market-based pricing is a sure way to lose business. If you know a buyer would be upset if they were able to see a comparable a-la-carte pricing breakdown for similar type customers, then the bundling strategy will ultimately fail.
Unbundling that takes away value that was previously included: We have seen this strategy play out most often in airlines as they have begun to unbundle nearly everything that was “included” in most tickets; carry on luggage, seating assignment, checked luggage, flight credit, boarding group, frequent flier redemption, etc.. This approach only works in industries where there is a mostly inelastic demand curve and few competitive offers. Otherwise, this strategy will lead to strong discontent and business losses from existing accounts.
B2B Bundling Success
The following are four robust ways to determine the success of an existing or future B2B bundle. A truly effective B2B bundle should accomplish all of the following:
Increase buyer convenience: Examples of this include reduced research, buying, and/or implementation time, simplified choices that benefit the buyer, increased competitive advantage, or reduced risk.
Improve the buyers top and/or bottom line: a) Reduced cost to serve: The bundle solution must reduce what the buyer currently spends resources on to make or do themselves or purchase from another source. b) Increased sales: The offering must enable the buyer to increase their sales in a way that they can not do themselves or through purchases from a similar vendor.
Increase your value proposition to your customer segments: Different combinations of products / services bundles should be tested across customer segments to ensure they deliver more value when purchased in combination versus one-at-a-time. The best bundles are targeted and customized towards different customer segments “pain points” and are effectively “fenced off” from other segments who do not meet specific criteria.
Increase customer demand: If 1,2 and 3 are done correctly, the result should be increased customer demand for existing products / services. If demand does not increase, then the bundle should be restructured and validated to ensure it meets the first three tests.
Next...
In Part 2 we will discuss how B2B businesses can implement usage-based pricing strategies to increase value capture.
