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Demystifying Price Elasticity in B2B

In an Expert Interview published to the PricingBrew Journal entitled, Exposing the Power of Price Elasticity in B2B, I had the opportunity to spend an hour talking with Barrett Thompson.

For those who may not know Barrett, he’s the General Manager of Pricing Excellence Solutions at Zilliant and one of the smartest guys you’ll ever meet when it comes to price elasticity…or price segmentation…or impact measurement…I could go on…and on…but you get the point.

Our discussion covered a lot of ground and resulted in a virtual primer on price elasticity in B2B. But before getting into the deeper stuff, I asked Barrett about the benefits of measuring price elasticity in B2B. What does understanding price elasticity allow you to do that you otherwise wouldn’t be able to?

When you have elasticity, you have a mechanism to predict what the volume impact will be when you make a price change.

Simple, yet incredibly profound. Classic Barrett.

How many B2B companies really know what’s going to happen when they change their prices? Sure, they might have a basic, Econ 101-level understanding that when prices go up, volumes go down, and vice versa.

But how many B2B pricing people could estimate—with any degree of certainty— what would happen to their revenue and profits with a 4.6% price increase? How many could identify which specific segments could actually absorb a 6.5% price hike? How many could figure-out which specific price-points would increase profits by 3.2% without sacrificing any volume?

Setting prices without an understanding of elasticity is like throwing darts while wearing a blindfold. Yet that’s exactly the game too many B2B companies are playing with their pricing—they’re throwing prices into the marketplace, crossing their fingers, and just hoping nobody gets hurt.

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