Price-Setting in Business-to-Business Markets

Abstract

Although cost-plus pricing is often used in B2B markets it has the serious drawback that it ignores both customer price sensitivity and potential competitor action. Most B2B markets are oligopolies so that there is an ever-present risk of a price-war if any of the competitors engage in aggressive price-cutting. Firms should be encouraged to think of pricing as a continuous process rather than a once-off decision. This process involves several different departments, which may have rather different views on pricing priorities (for example, sales people tend to over-estimate the responsiveness of customers to price, while accountants tend to focus on the short-term cash-flow implications of pricing rather than longer-term strategy). Two aspects of pricing that are particularly important in B2B markets are bid pricing and price-setting within long-term buyer-seller relationships. Pricing raises a number of important ethical issues, notably anti-competitive pricing, price fixing, price collusion, price discrimination, predatory pricing (dumping) and price gouging