This month’s focus: When Paying Less Isn’t Worth The Price
Many times no matter how hard we try price is the only thing a potential customer will focus on before negotiations can move along any further in earnest. No matter how hard you try, you can’t talk value until you overcome a particular price point of contention where the only thing that matters first is: Are you cheaper on X product or service? Yes or no?
When this happens repeatedly we tend to overcompensate by leading with our chin. When we do, we unwittingly forget that price isn’t all that matters, and we get sloppy in our own due diligence about why a potential customer would buy from us, or switch from a current supplier to us.
Case Study: I had been working on expanding business with a customer where I was supplying some of their main items yet, was a mere pittance of their overall business available. The items I was supplying were highly contested for and I was the winning supplier repeatedly. After many discussions (and probably some pleading) I finally was given a chance to bid for the remaining items.
Using my previous history with the establishment I believed I knew what I had to do and what would gain me access to the rest: Price. So, after discussions with my buyers and management I put a sharp pencil to the items and submitted them for a face to face review. The result? I was cheaper, and by a considerable amount on many items. (between 5 and 10% respectively) Did I get the business I now thought was surely mine?
When the prices were tallied it was made clear that I had in fact undercut my competitors on a great many of the items. However, what came back as response stuck with me to this day. Although I could save them money, it wasn’t enough to switch. I was informed that if I could not save them at least 10% overall per delivery – the paperwork alone and change of staff habits were not enough to warrant a change in vendors.
When I instinctively replied, “Well why don’t you just take the items I’m priced best on and not change everything.” The immediate response came back, “We’d then be cherry-picking vendors and that would leave us vulnerable to disruptions, for we would only be a price customer instead of a valued customer. And we can’t afford disruptions just as much as we can’t overpay for product.”
I suddenly realized why my own orders from this company were so consistent. I already kept a sharp pencil and delivered great service. My competitors I had to imagine had done the same as in looking to cut me out – but had met the same.
I had become sloppy in my approach thinking it was all about price when it wasn’t. Price although important played second fiddle to other considerations. Had I taken more time as to qualify why this customer would change vendors I might have had a better strategy going in, or had patiently waited for the right opportunity, rather than trying to make one where one wasn’t to be made.
Saving both my time – as well as theirs.
© 2014 Mark St.Cyr
Profiting At The Bottom Line™ is a monthly memo, which is pithy, powerful, and to the point. It focuses on innovative techniques and or ideas that you can put to work immediately in your daily or business life.