Pricing continues to be a key factor in winning or losing sales opportunities, and while few vendors take pride in being the low cost provider, at times it seems they set out to be just that, or they take few steps to avoid it being forced on them. There are times when companies consciously use price as a temporary strategy to gain market share, or directly impact a competitor. Rarely have I met a VP of Sales who says:
“We’ve decided to be the cheapest on the block, so long as we don’t go broke, I want you to teach my guys how to get to the price discussion quickly, demonstrate just enough value to justify that price, and then let our ops team manage diminished expectations.”
I say rarely, because I have met leaders who seem to work like that, but don’t articulate that way. I have met consultants who suggest “win the business on price, and then keep it on service.” The challenge is that few can recoup the concessions and get the price back up to where it should be and are stuck at that lower price band, and corresponding margins. Of course during the next vendor selection round they may have to lower the cost just to keep the account, or replace it, when someone undercuts them. Either way expectations have been set.
No matter what many will tell you, it is more often about buyer’s perception about the relationship (as in relative to, not relationship as in the soft-sell mantra) between price and expectations, and not price and deliverables. Promise great – but then deliver only good, and you could suffer; promise good and deliver good, you meet expectations. This is why “under promise – over deliver”, still works.
The fact that it is more about expectations rather than deliverables is actually a good thing for those sellers willing to sell value rather than price. In the past I have shared the ”Actionable Definition” of Value; it centers the conversation, the sale, on the buyer’s objectives, which gives one the opportunity to leverage the give and take between price, value and expectations.
One of the first things we need to understand and establish during the Discovery stage of the sale, is the buyer’s specific ratio of value/expectations to price; think of it as their level of conviction. Here is how it works, buyers are looking for maximum price concessions while giving up the least amount of value. If they can get the seller to give up one unit of price, while at the same time they give up less than a unit of value in return, then they perceive themselves to be ahead, and the ratio is less than one. Based on experience, this tends to be the case the majority of time. If the reduction of value is equal to the price reduction then it is one-to-one.
What’s interesting is that it is this same ratio that has led some value driven vendors lose deals they feel they should win against lower cost providers, the ratio works in the lower cost provider’s favour. They are willing to give up “the right little bit” of service for a greater savings. The key for you is to understand not only what those element are, but where they rank for the buyer. This will vary for each buyer, which why focusing on objective is a must, and not taking a cookie cutter “solutions” or the usual consultative approach, which will leave them short and disappointed every time.
If all that wasn’t enough to manage and deal with, you also need to clearly understand your competitors, their offering and cost structure. Incremental improvements in process and technology, can change the landscape, competitors may be in a position to deliver the same level of service as before but a reduced cost, and when that occurs, they can leverage the ratio in a way that creates a win-win with buyer, and a lose-lose for you.
As with most things in sales, once you incorporate this line of thinking into your repertoire, you can also use it to disqualify buyers who are purely price driven and will suck every concession out of you without reciprocating in any way. While everyone is trying to economize, smart companies and worthy partners understand that a weakened supplier is not good for anyone in the long run. Without profits, R&D, innovation and other value elements will suffer and by extension so will the buyer’s business.
The price dance is not going away anytime soon, but understanding core blocks of price, and how it relates to the buyer’s expectations and more importantly their objectives will help you build value based relationships that will last long enough for you to get a good payback on what it cost you to acquire the client, and work with buyers who understand that profits are important throughout the ecosystem.