PricingBrew

Insights & Tips

Already a subscriber? Login

Become a subscriber and unlock an information arsenal focused on making your pricing efforts more effective.

The Failure of Price Tags

You might not realize it, but for most of human history, price tags didn’t exist. In fact, they didn’t really take off until the 1870s when large department stores began opening. Before that, merchants typically sized up customers before they told them how much something would cost, and haggling over prices was part of the process.

The only exception was stores run by Quakers. Yes, Quakers, the religious group that settled Pennsylvania. They had a “same price for all” policy and didn’t negotiate their prices. And interestingly, Rowland Hussy Macy, the guy who founded Macy’s department store, was a Quaker, so it stands to reason that he was one of the early pioneers of price tags.

Of course, customers love price tags.

Most people prefer not to have to negotiate, and it just feels fair when everyone is paying the same price for something. In fact, when Coke tried modifying its vending machines so that drinks cost more on hot days, consumers were outraged. NPR had a story about the incident and the whole history of the price tag that is pretty fascinating.

But while people like price tags, set prices actually make markets less efficient. Capitalism works on the law of supply and demand, and when prices don’t change in response to demand, shortages or gluts in the market can result.

Fortunately, price tags haven’t taken over in most B2B markets the way they have in B2C markets (although set pricing is becoming more common as more business products are being sold “as a service.”)

However, if companies want to reap the full benefits of not having price tags, their pricing teams need to do a very good job with segmentation.

The lone merchant running a general store in colonial America could probably do a pretty good job of setting prices just by looking at his customers’ footwear. Barefoot customers might pay one cent for a bag of flour. Those with plain, serviceable leather shoes might pay two. But high-heeled, red shoes with embroidery and fancy buckles might well bump your price up to 50.

With today’s B2B buyers, salespeople don’t have the same kind of physical cues to help them discern which buyers might be willing to pay more. They need experienced pricing practitioners to analyze the historical data and group customers based on their willingness to pay.

If you aren’t doing this kind of segmentation today — or if you think you aren’t doing it as well as you should — we have a few resources for you. The webinar on The Fundamentals of Price Segmentation in B2B covers all the basics, and it’s a great place to start if you don’t currently have a segmentation model or you think yours needs some tweaking.

If your executive team is resistant to the idea of price segmentation, check out the tutorial How to Explain Price Segmentation to Others. The express guide on Understanding How B2B Pricing Is Different can also be helpful, especially if you or some of your team members have come to B2B from the B2C world.

If you grew up in the United States, you’ve probably absorbed the notion that everything has a price tag. But price tags aren’t the norm everywhere — or for most of history. And when it comes to B2B, not having a price tag is a good thing.

Get Immediate Access To Everything In The PricingBrew Journal

Related Resources

  • Using a Cost-Plus Mindset to Your Advantage

    Case_Using a Cost-Plus Mindset to Your Advantage

    An edgy case study that exposes how one company got "creative" to improve profitability without having to change their sales team's ingrained cost-plus pricing behaviors.

    View This Case Study
  • The Functional Area Cheat Sheet

    Functional Area Cheat Sheet Splash

    A quick overview of the common ways different internal groups can have an effect on pricing outcomes and suggestions for how you might be able to diplomatically help them help you.

    View This Tool
  • Are Revenue Management and Pricing Different?

    Amit Aggarwal Interview Splash

    Some practitioners will use the terms "revenue management" and "pricing" interchangeably. In this expert interview, Amit Aggarwal, the Executive Vice President of Revenue Management at iHeartMedia, helps explain the differences and why they matter.

    View This Interview
  • How to Price New Products

    Pricing New Products NarSplash

    In this on-demand webinar, learn about three common types of new products that pricing teams are likely to encounter, and explore the core strategies and processes for dealing with the realities associated with them. Hint: "Best practice" is not always realistic.

    View This Webinar