Reflect on Reference Prices in B2B Selling

Selling to another business is different in notable ways from selling to individual consumers. Research findings from INSEAD, Indiana University, and University of Southern California focus on differences regarding reference prices.
     For the most part, consumers in North America who are purchasing as individuals prefer fixed pricing because they can then leave the transaction with the belief they got the best available deal. This is true both in-store and on-line. On eBay, which had its start as an auction site, most purchases in recent years have been made with the “Buy It Now” button at a fixed price. The thrill of the bidding was snuffed out by sniping—sophisticated shoppers using automated systems to place the winning bid at the last instant.
     However, business-to-business (B2B) customers expect negotiated pricing. As the retail seller, you benefit by being skilled at adjusting pricing and terms to fit the situation. What’s the size of this sale? What’s the likelihood of and likely dollar amount of follow-on sales? What payment arrangements is the shopper expecting? What out-of-the-ordinary requests are being made?
     In doing this, you’ll have a reference, or anchor, price in mind. So does your B2B shopper. To decide if a price is high or low, each of you is thinking, perhaps subconsciously, of what’s considered a medium price.
     Here’s my adaptation of the INSEAD/Indiana/USC research findings:

• Business shoppers rely on reference prices when deciding on purchase quantities. If you quote a price for a single item that is lower than the shopper’s reference price for a single item, the shopper tends to purchase a higher quantity. If your single-item quote is 10% lower than the shopper’s reference price, this produces an increase of about 9% in the quantity purchased. 
• If you quote a price for a single item that is higher than the shopper’s reference price, the shopper tends to purchase a lower quantity. If your quote is 10% higher than the shopper’s reference price for a single item, this would, on average, lead to about a 25% reduction in quantity purchased. Related to this, the shopper will then negotiate more sharply for all aspects of the transaction, beyond price. 

It could be to your advantage to quote a single item price that’s below the B2B shopper’s reference price for a single item. This is counter-intuitive. It seems you’d want to persuade the shopper with higher savings from a larger-quantity purchase.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Stay Aware of B2B Distinctions 
Anchor Browsers onto Higher Prices