10 Key Components of a Sustainable Pricing Strategy

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Summary: Discover the 10 key components of a sustainable pricing strategy for B2B businesses. Learn how to build a strong foundation, develop an effective pricing system, and integrate pricing into your company culture for long-term success.

Over the past 20 years, strategic pricing has become a core competency for many B2B businesses. With the abundance of data and competitive awareness in the market, it’s difficult to imagine a company that hasn’t invested in building and refining its pricing system. However, while many businesses have made meaningful strides in strategic pricing, there’s always room for improvement.

Recent economic fluctuations have reinforced the importance of a strong pricing discipline. Companies with agile, easy-to-manage pricing systems capitalized on shortages and inflation. Unfortunately, there were other companies whose inconsistent or manual pricing processes led to squeezed margins and extensive efforts to keep up with cost increases.

Step 1: The Foundation

Leadership by Leadership

Data-Driven Decisions

Cross-Functional Pricing Team

The first group of key components to a B2B pricing strategy lay the foundation for pricing success. Without leadership from the top, the right data, and a motivated cross-functional pricing team, simply implementing pricing analytics or software may fall short.

#1 Leadership by Leadership

Strong leadership is crucial for a successful pricing initiative. If pricing is a core competency of your organization, buy-in needs to start at the top. Our best-performing clients have senior leadership involved in their pricing initiative throughout the process, leading by example and holding their teams accountable.

#2 Data-Driven Decisions

In the era of “big data,” any successful B2B company must base its pricing strategy on complete and accurate data. Customer transactional data provides insights into buyer behavior and price sensitivity across your business. While benchmarking pricing against competitors is valuable, your own sales data is the most telling about the price sensitivity of your customers.

#3 Cross-Functional Pricing Team

Pricing is not a job for one person or even one department. Companies who are successful in strategic pricing understand how pricing impacts sales, marketing, operations, finance, and even IT. An ideal cross-functional pricing committee should include representatives from each department. This team should be aligned in the organization’s pricing goals, meet regularly to review progress and work to continuously improve the system.

Step 2: The System

Meaningful Customer Segmentation

Granular Product Differentiation

Prescriptive Pricing Analytics

The next set of core components centers around the actual pricing system itself: combining the architecture and the analytics to provide your sales team with target price points for every sale.

#4 Meaningful Customer Segmentation

Differentiating pricing standards for different customer segments is essential. Larger customers with higher spend often expect discounts when compared to smaller customers with inconsistent purchase patterns. 

While this is critical to stay competitive and be able to sell key accounts, it’s also important in segment by customer type. If you’re selling to different types of customers, it’s important to recognize that they are buying your products for different reasons and have varying sensitivity to price as a result. Be sure that your segmentation aligns with the true price sensitivity of your different types and sizes of customers.

#5 Granular Product Differentiation

Like customers, products vary in market competitiveness and price sensitivity. Profitable businesses in every industry capitalize on these distinctions and sell products at significantly different margins as a result. Be sure that your pricing structure allows for differentiated pricing standards for products based on type, how it’s purchased, supplier, and several other factors. Ideally, each item (SKU) should have a unique margin applied to it that represents an optimal premium while remaining competitive.

#6 Prescriptive Pricing Analytics

Customer segmentation and product differentiation represent the structure that allows for strategic pricing. With that structure in place, leverage your data (#2 on this list, above) to determine optimal margins and list prices for your products. Many companies use velocity pricing to apply premiums. While that can be a starting point, more sophisticated analytical models offer greater accuracy that aligns your price points with the market.

Step 3: Company Culture

Sales Team Buy-In

Appropriate Guardrails

Ease of Management

Clear & Actionable Reporting

The final components blend the foundation and the system to ensure success, often distinguishing highly successful companies from those with modest gains.

#7 Sales Team Buy-In

Adoption and trust from the sales team are crucial. Naturally, salespeople are sensitive to having to sell at prices they perceive to be higher than the competition. That’s why designing and implementing strategic pricing in a way to reduce sales friction is critical.

Address sales’ concerns by ensuring clear communication, excluding sensitive customer/product combinations from changes, and maintaining flexibility for specific opportunities.

#8 Appropriate Guardrails

With flexibility comes responsibility. Price exceptions, or overrides, where salespeople deviate from the recommended system pricing, should have limits. Initially, it may be beneficial to avoid limits to achieve sales buy-in. Gradually, add sensible limits to prevent over-discounting, with dynamic and situational discounting limits based on the product and customer.

#9 Ease of Management

Simplifying pricing management is as important as improving margins. Recent swings in the economy have exposed flaws in pricing systems that require a lot of manual management and updating. Be sure to differentiate your business sensibly and structure pricing around multipliers (cost-plus or list-down) that can be easily tweaked and maintained globally.

#10 Clear & Actionable Reporting

Last but far from least, visibility into pricing results and continuous improvement opportunities is vital. Track progress in pricing methods (strategic pricing vs. override vs. customer-specific exceptions), gross margin, and system utilization. Additionally, review underperforming patterns to agree on corrective actions.

Refine Your Strategic Pricing One Step at a Time

Iterative improvements lead to significant profitability gains and build team confidence in achieving more success. Navigate your pricing journey by building a strong foundation, perfecting your pricing system, and integrating it into your company’s culture.

PriceGPS™

Strategically price every customer and product.

PriceGPS™ provides data-driven recommendations to help distributors and manufacturers maximize their margins and allow your sales force to focus on serving customers and delivering value.

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