Steepen Flat-Rate Bids in B2B

Experienced purchasing professionals have a flat rate bias. They prefer purchase terms in which a fixed amount is paid for a period of consumption of an item or service over purchase terms in which there’s a separate charge for each usage. This tends to be true even when the flat rate fee is likely to be more expensive than that for a per-usage agreement.
     The study findings from Sweden’s Linköping University and Finland’s Centre for Relationship Marketing and Service Management documenting this bias indicate administrative savings as an explanation. Managers with experience in purchasing for their organizations might easily perceive that it’s easier to administer a fixed rate agreement. This could be especially true for organizations anticipating high fluctuation in demand for what they’re buying. The flat rate serves as insurance.
     That’s logical. Still, the study also supports explanations which suggest experienced purchasing managers are not wholly rational about this. For instance, in choosing between the two arrangements, disproportionate weight was given to the maximum past usage figure. This favored the flat rate.
     There are also factors that may or may not be rational. The study findings indicate a flat-rate bias is more likely when there’s been a long-term relationship between the provider and the business customer. This could be quite logical in the sense that a new user of an item benefits from monitoring per-usage costs in order to determine the value of the fixed fee price. But it’s not logical if the user has already had experience with another supplier or if the emotional nature of the business relationship makes a difference.
     Business-to-business customers often expect a person-to-person relationship. According to research at University of Geneva, there are two dimensions to that expectation: 

• Secure business attachment. Your B2B customer may want to rely on you for quick answers to questions about purchases made from your business and for quick solutions to problems with purchases. 
• Close business attachment. Your B2B customer may want to develop personal bonds with you or your outside sales agent, exchanging information about family and friends, for instance.

     A flat rate may benefit the marketer because revenues are more predictable than with per-usage plans. If this is true for you, steepen your use of flat-rate bids in B2B negotiations. Detect which of the rationales for a flat rate would be compelling for the prospect and maintain the type of business attachment the prospect prefers.

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