Pricing

Free Goods Engender Entitlement – B2B Pricing

By Ben Blaney
May 6, 2012

I fly a lot. And, as one of the top 3% of customers of my preferred airline, they treat me pretty well, on the whole. I don’t pay a fee to check a bag; there is sometimes an accelerated lane at the security check; I board the aircraft first, so I can be sure of overhead bin space. Most of all: they give me free upgrades to a better seat.

In the 40-ish flights I’ve taken this year with a premium cabin, I’ve been upgraded every time but once. That one time, boy – was I a ghastly pouting snob, silently furious at my perceived ill-treatment (and this blog piece can be regarded as penance for that shameful reaction).

free

There’s a serious B2B pricing point here. Giving products or services, which ordinarily come at a price, for free, is a serious matter, and companies should think very carefully indeed before implementing these policies.

Firstly, it communicates to the customer that they need not pay; this is fundamentally a bad message to send.

Secondly, in many cases it’s based on very spurious logic. The airlines, to go back to my illustration, could claim that it’s worth foregoing to potential revenue from the premium seat, to ensure my revenue for the rest of the year. This might be true, but it’s such a crude instrument that it ignores a crucial aspect – how profitable I am. Remember – a firm’s most profitable customers need not be their largest in revenue.

Additionally, the practice of giving free goods or services ignores a key selling technique – upgrade the mix. This can be rewarding for both vendor and customer, when done with skill and flair.

Here at Vendavo, we’re always interested in hearing your feedback. If you didn’t manage to make it to our Profit Summit this year, we’d love to see you next year. And in the interim, maybe I’ll see you in an airport somewhere – I’ll be the guy checking the upgrade list.

 

  • B2B , potential , pricing , product , profit , Profit summit , revenue , service

    Ben Blaney

    Ben has 10 years experience in the pricing space, managing people, processes, and projects, delivering operating income improvements in excess of $50MM. He leads Commercial Excellence at a division of Colfax Corporation. Prior to that, Ben led pricing for a division of General Electric, worked at Vendavo, and ITT Corporation. He is a Certified Pricing Professional, a Six Sigma Black Belt, and holds both major project management certifications (PMP and PRINCE2).