B2B Payments

In B2B eCommerce, Lowest Price Isn’t Always The Right Price

Amazon has found a gold mine with its third party sales service. Because the company takes a percentage of each sale from its third party sellers, as well as additional logistics fees via the Fulfilled by Amazon service, the operations now amount to twice as much in revenue for Amazon as its own eCommerce services in which Amazon sources and sells products directly. That’s despite third-party sellers making up just one-third of Amazon’s overall online sales, according to Motley Fool reports last month.

With Amazon Business seeing its own impressive growth rate — even faster than its retail arm — the platform is an attractive option for B2B sellers looking to quickly launch an online sales presence to meet corporate buyer demand.

Yet the relatively high cost of working through Amazon also makes developing a proprietary eCommerce platform an attractive option, too, particularly as it would allow vendors to retain a greater portion of each sale. But taking this route places an immense amount of pressure on a supplier to provide an eCommerce experience as good as, if not better, than what Amazon can offer — a tall order, for sure.

Mitch Lee, profit evangelist at B2B pricing software Vendavo, says pricing is a critical component of that experience, and despite what some suppliers may believe, offering the lowest price isn’t necessarily the best strategy.

Willingness To Pay

In order to provide corporate buyers with the optimal eCommerce experience, and price products and services accordingly, Lee explained to PYMNTS that vendors must analyze what he described as buyers’ “willingness to pay.”

“There are a variety of degrees of willingness to pay, depending on what they’re buying,” he said in a recent interview. A supplier may look at one of its most important, largest customers and believe they have to offer that client the lowest price on every product.

“It is a simple, easily understood policy, but it doesn’t recognize the granularity of all of those interactions and intersections between all products the customer buys,” he said.

Knocking down prices once a year based on data from the CPI index can be “tremendously value-destroying and inarticulate in terms of retaining value that has been invested in the organization’s offering,” which is the very point of establishing one’s own eCommerce portal in the first place.

Suppliers have to examine a deeper level of granular data to assess the relationship between metrics like customer demographic, location, transaction and purchasing history, frequency and location of those purchases and more. Because while corporates do want to see a competitive price point, a price tag that’s too low could make for an uncomfortable buying experience, and doubts about product quality, warranty information, sourcing strategies and more, Lee explained.

A recent research report supports the claim that when it comes to B2B eCommerce, price isn’t everything.

Last week research released from digital commerce solutions provider Avionos revealed that 88 percent of business buyers would go to a vendor’s competitor for a better eCommerce experience — even if that competitor had higher prices.

Pricing’s Effect On Buyer Experience

In the raw materials segment, one buyer’s price consciousness will be significantly different from another’s. Lee offered an example of a pipe manufacturer and an MRI machine casing manufacturer, both requiring the same raw plastics material component, yet each with extremely different positions in terms of the impact of pricing.

Vendors have to be able to address the nuances of each customer in order to price accordingly and, ultimately, provide the best customer experience.

“I think people mistakenly equate low prices with good customer experience,” Lee said. “But a customer looks at pricing based on the context of the value being delivered out of that product.”

For vendors, particularly SMBs, this level of dynamic pricing and granular customer analytics is a sophisticated process. Integration into ERP systems is essential in order for invoices and, subsequently, accounts receivable and incoming payments, to accurately reflect the unique pricing offered to each client. Working with a technology partner can be an important part of pricing correctly and developing an eCommerce strategy that makes diverging from the Amazon behemoth a worthwhile initiative.

B2B organizations are beginning to recognize Amazon’s ability to carve out immense value as the middle man in a business-to-business transaction, said Lee. As a result, suppliers are taking steps to regain control of their margins.

“[Amazon] is one way to market, but another way is to be able to control how you preserve the value of the investment you made in developing your product, crafting your service and pulling together your offering,” he explained. “It means you have more say, more control in how value is retained over time.”

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