Adapting to Demands for Price Transparency
It’s not a secret that price transparency is creating havoc for many distributors faced with competing against annoying popup sites, and manufacturers positioning themselves for direct sales. Despite what may be a decades-long business relationship, distributors are increasingly being presented with cheaper prices their customers have found through simple internet searches. This will impact negotiations with existing customers who might be considering a new product category or hurt relationships with new customers who may have seen lower prices elsewhere.
Highly optimized, smaller sites that simply present products at extremely competitive prices without a lot of added value are putting pressure on distributors to meet or match these prices without any consideration for overhead. The ability of customers to search quickly for specific products has created a disruptive influence that is driving down profits as distributors attempt to compete. Bigger distributors like Grainger have even announced “bottom” pricing strategies that reduce profits in the short-term in an attempt to gain more business and increase revenues overall in the long run. Experts remain divided on whether this will work.
Another aspect that adds more impact to this disruptor is the reliance so many distributors have on complex, manual pricing mechanisms. This year, analyst firm Gartner has predicted that 40% of B2B digital commerce sites will be using algorithms and digital CPQ tools to provide dynamic pricing. Distributors without the ability to rapidly update pricing on public sites, and configure customer contract pricing quickly will lag behind the competition.
Pricing transparency is not only disrupting the industry; it’s one of the main obstacles to successful digital transformation. But it doesn’t have to be a negative force. At Insite we believe that the customers’ demand for at least partial transparency when it comes to pricing can provide powerful momentum forward. In our view, distributors should consider transparent pricing not as a headache, but as a way drive three key performance indicators for eCommerce: search, conversion, and customer value. Adopting this new mindset and focusing on these three KPI’s can actually turn pricing transparency into a transformative tool that strengthens the B2B commerce cycle.
A major benefit to the digital transformation of the B2B commerce cycle is that previously unknown, new customers can find a distributor based on organic search. This turns price into an entirely new customer acquisition channel with a fairly low cost. A truly unified commerce cycle will then make those new customers available to sales and service representatives who can nurture the relationship into a more substantial opportunity. Providing price transparency for some strategically chosen, highly optimized products can attract new business organically as more researchers go straight to the internet to find their information.
Optimizing the public portion of a distributor’s commerce site for certain prices, and keeping those prices updated dynamically can help make pricing transparency work for, rather than against, a distributor by providing strong inbound traffic benefits. To be an effective tactic, however, the commerce platform must be able to handle the complexities of B2B pricing mechanisms, including contract-based pricing. Additionally, it must update the information real time for both self-service, and the offline operations involved in sales and support.
Conversion rates are another KPI that distributors have not encountered in a traditional business model, at least not the digital variety. A unified commerce environment will provide 24/7 access to real time information that supports a B2B omnichannel experience. B2B customer expectations have been that every role within the buying cycle know what interactions, on- and offline, have already occurred and the exact information that has been exchanged. That means at any time a customer may leave the self-service experience, pick up the phone or online chat, and expect a company representative (most often the salesperson or CSR) to know every single action they’ve taken. Pricing is a key part of this “hybrid” model as customers move between in and out of a self-service/full service experience. Pricing that is public can drive strong conversions to more robust business, but only if the full service and self-service experiences are fully integrated.
We’ve discussed how pricing transparency can help generate inbound traffic in the form of potential customers. That traffic, and more importantly the behavior of the users engaged with the commerce site, can be used to develop new lead generation tools, or to determine whether it’s time for a sales rep to intervene and nurture the process with a larger customer opportunity. Once again, however, the commerce platform must be able to handle the B2B buyers’ journey, and the numerous roles involved within a transaction. A system that does not understand the complexity of a multi-touch, multi-role customer experience can never tap into the power that pricing transparency can deliver for conversion.
One last, but very important point to remember is that within B2B commerce the best price is not always the price. When it comes to popup sites, or tiny companies that can provide rock bottom prices, there is a larger cost to the customer service. A unified commerce solution that is integrated with enterprise systems can provide correct, real time pricing and promotion information for each unique customer account. And that accuracy for distributors’ customers is often much more valuable than an actual price discount. In our previous blog series for manufacturers, we discussed the value of cloud-based distributor marketplaces. These sites provide robust customer experiences, rich product catalogs, and other complex needs of the B2B buyer that cannot be supported by a lone website or price-cutter.
Positioning pricing transparency as a competitive advantage requires a change in mindset, it’s true, but it also requires the right technology to support the mechanisms needed in a unified commerce environment. In the end, distributors need to remember that the real goal of B2B commerce should be to drive efficiency. The resulting reduction in cost of sales, and the increase in perceived value in the mind of the customer, will usually offset the challenges caused by pricing transparency.