Make no mistake; no customer buys anything just because they like you.
Truth is, you either bring a great deal of value to your customers or they take their business elsewhere. Your products and capabilities must provide customers an opportunity to achieve greater returns on their business.
The nature of price competition
In sports competition, the more intense the process, the better the game.
The key to success is to put you heart in the game and play it as hard as you can. In sports, the ultimate goal is to WIN.
In price competition, the more intense the process, the worse the game.
The key to success is to weigh thoughtfully the cost of each confrontation against the likely reward. In business, the ultimate goal is to PROFIT.
When pricing, don’t get constrained by tactical thinking
To achieve the greatest profitability, a sales person’s job is to ask strategic pricing questions.
Do Not Ask:
“What price do we need to cover our costs and achieve our profit objectives?”
“What changes in our prices or product mix would increase the contribution available to cover our costs and increase our profits?”
Do Not Ask:
“What prices are the buyers willing-to-pay?”
“What level of price will enable us to achieve our market share objectives?”
“What level of market share can we most profitably achieve?”
“Which portions of the market can we profitably fight for (with what weapons?) and which should we yield to the competition?”
“How can we minimize the adverse effects of price competition in pursuit of sustainable profits?”
Managing price competition without undermining profitability
There are only two ways to prevent price competition from undermining profitability:
- Develop competitive advantages
- Manage the competitive process
The ultimate goal in managing price competition is to create stable competitive environment in which you can earn the best possible sustainable return on investment.
Recognized market leaders are likely to initiate price increases but often do not initiate price cuts. Often, the price leader role is filled by a firm that has technical leadership and low unit manufacturing cost.
The market leader often has the largest and strongest distribution system. Market leaders generally also have technical leadership. Customers are anxious to maintain relations with suppliers who are in the forefront of technology.
As a sale person, your goal must be to implement a pricing plan that provides leadership to the industry and communicates your desire to stabilize the markets and capture your value. It should incentivize your customers to trade up and earn you a reasonable return.
That’s a win-win for everyone.
How do you communicate your value and pricing with your sales team and customers? Let us know.