In a competitive marketplace, many B2B businesses fall into the trap of believing they are selling a commodity—just another interchangeable product with little differentiation. However, this mindset severely limits pricing potential and strategic positioning. The key to breaking free from this commodity mindset lies in understanding value more deeply and leveraging value-based pricing. There is often far more value embedded in an offering than companies recognize, and by systematically identifying and utilizing different value categories, businesses can command higher prices, differentiate themselves, and drive greater profitability.
For example, we recently worked with client in professional services that was consistently told by its key clients that it was "just a commodity" whenever it was renegotiating high stakes and long-term contracts. From a purely product-based perspective, this was accurate—it was indeed a commodity. However, by taking a more granular approach to value, we uncovered significant competitive advantages that customers were actually willing to pay for, despite their claims to the contrary. This deeper understanding, combined with a structured approach to pricing and negotiations, made all the difference.
Understanding value beyond the product
The term "value" is often seen as abstract, but it can be broken down into distinct value categories that help businesses uncover pricing potential and competitive advantages. Let’s explore these categories:
1) Product value
Product value is the most visible and frequently analyzed category. It includes attributes such as quality, functionality, features, and performance. This is where most businesses focus their efforts when justifying pricing. However, relying solely on product value often reinforces the idea that all competitors are offering similar solutions—leading to price wars and margin erosion.
2) Service value
Beyond the product itself, the accompanying services can add substantial value. Elements such as customer support, warranties, onboarding assistance, customization, and training significantly enhance a buyer's experience. Many companies underestimate the power of service value in influencing customer decisions and justifying higher price points.
3) Situational value
Value is not static—it fluctuates based on context. Supply and demand, urgency, and scarcity all create situational value. A product or service that may seem like a commodity under normal conditions can become highly valuable in specific situations. For example, during supply chain disruptions, businesses willing to guarantee availability can command premium pricing. Understanding these dynamics enables companies to position their offerings strategically.
4) Deal-specific value
Customers assess value not just in absolute terms, but relative to alternatives. Factors like switching costs, relative deal size, urgency, and integration challenges contribute to deal-specific value. If, for example, changing providers involves significant effort or financial outlay, businesses can leverage this to justify higher pricing.
5) Customer perceived value
Finally, different customers perceive value differently. The same product or service can have vastly different worth depending on a customer's individual priorities, preferences, and willingness to pay. Some customers prioritize convenience, others emphasize reliability, while others may value prestige. Understanding these perceptions allows businesses to implement segmentation strategies and tailor pricing models accordingly.
Unlocking competitive advantage through value-based pricing
Recognizing and leveraging these value categories is more than just a theoretical exercise—it is a strategic imperative. Companies that actively identify, communicate, and integrate these value dimensions into their commercial strategies can:
- Escape the downward pricing spiral of commodity competition
- Command premium prices by showcasing differentiated value
- Tailor pricing models to align with customer willingness to pay
- Enhance customer loyalty by delivering beyond product attributes
By unraveling the true value within their offerings, businesses can move away from cost-plus pricing and adopt a pricing strategy that reflects their real worth. In doing so, they not only maximize revenue but also create a sustainable competitive edge.
So, do you still think you’re selling a commodity? Think again!
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