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Competing on price? Ten steps to success

Price competition - blue poundBusinesses are often drawn into price battles. Follow Andy Coughlin’s ten steps to give you the best chance of winning deals when price becomes an issue — without simply dropping the price.

1. Do your planning

Whether or not you are competing on price right now, start planning for it. The first step before you get into negotiation is to look at your proposition from the customer’s perspective. Put yourself in the customer’s shoes and look at every stage of your product or service right from the time the customer first contacts you, through to the point they pay. Now do the same for your competitors. Where are the differences? What do you do better? Do this, and you will have done the hard yards in preparing to win business when price raises its ugly head.

2. Know your true price

What does it actually cost the customer to own and use your product? What’s included when they buy from you? What about the competition? What are they charging extra for? If you can clearly explain the true cost of ownership of your product, it’s a good way of showing your knowledge and expertise. A car salesman who can explain the cost of running, insuring, taxing the car, and knows its residual value when you come to sell, has a better chance of selling a more expensive vehicle. Some products command a higher price for a good reason — they last longer, are more efficient or come with a warranty.

3. Do you really need to compete on price?

It’s usually in a customer’s interest to look at what you are offering as a commodity. If they convince you it is a commodity, then they have greater chance of driving your price down. But there could well be things about what you do or offer that make it anything but a commodity. At a “Build your own house” exhibition I attended recently, I met a business selling hand-made bricks, which were considerably more expensive than regular bricks. I believed a brick was a brick. But the chap selling the hand-made bricks was convinced that his bricks were different, because they added significantly to the value of a house. In other words, he had decided that his bricks weren’t a commodity, and he was pricing them accordingly. Do the same for your product. If there is additional value, or a point of difference in your product make sure you put a value on it.

4. Ask your customers — who would you rather buy from?

Customers often know who they’d rather deal with. They’ve sometimes made their mind up early in the buying process, but they might not tell you of course! If you are being asked to reduce your price, you could ask your customer: if we were the same price as our competition, who would you prefer to buy from? And why is that? It’s a great way to find out what really matters to your customer. And, it’s a good way to get them to reiterate what it is about you they like.

5. Make the most of what you do well

Most businesses don’t want to compete on price alone. One way to avoid this is to examine every step of the customer journey process and look for the value you bring. Look at it through your customer’s eyes and look for the things you do well. One customer of mine commits to having phone calls answered in three rings — by a real person. Don’t take things for granted. Just because you do them well, doesn’t mean everyone does them well. Shout about them. And think what else could you do in your business to be that little bit better.

6. What is your customer’s mission?

Ask yourself how important your service is to your customer. When JFK visited the NASA space programme at Cape Canaveral in the early sixties, he met one of the cleaning staff and asked him what he did. “I’m helping to put a man on the moon, sir”, was his reply. He’d clearly connected his small role with the bigger picture. If you really know what your customer is about, and if your customer sees you as contributing towards that mission, then that should more than make up for the few percentage points your cheaper competitor could knock off the price.

7. What value do you and your team bring?

Great suppliers become a key part of a customer’s extended team. They can bring expertise, industry knowledge, and can also be a great sounding board. Get to know your customers. If you’re supplying nuts and bolts and never ask what the nuts and bolts are used for, you won’t have much of a chance to make an impression. Once you understand your customer, you can become much more useful to them. Recommend articles, send them links to relevant websites, share your expertise, introduce useful contacts and most of all, keep your eyes out for potential customers for them.

8. Who would you rather deal with when things go wrong?

Occasionally, things go wrong. And when they do, customers are glad they didn’t just buy on price. A skilful and experienced salesman can turn this to his advantage, especially when under price pressure. This is tricky but when done skilfully, this point can give you credibility and help you win trust, especially in the service sector or where there is some complexity in the delivery of what you do. If you are fantastic at customer after-care, and have a great track-record of managing the minor issues that can crop up from time to time, then make sure you are articulating this to customers and prospects.

9. Negotiate, but don’t give it away

One of the biggest mistakes sales people often make is confusing negotiations with discounts. Offering discounts is fine, so long as you know you are giving money away. Negotiation is about give and take — on both sides. If you are going to negotiate away the price, decide what you want in return. For a lower price, you might ask the customer to commit to a larger order or get them to collect the goods themselves. That’s negotiation. If you understand what options your customer has, you will find yourself in a stronger negotiating position. The good negotiator is clear on what alternatives they and their customer have.

10. Know when to walk away

If you are being hammered on price, decide whether or not you really want the business. Businesses in their start-up years are notorious for dropping their prices to win business. It’s called “buying business” or “buying market share”. Sometimes it can be a good thing to do. New retail parks often drop their price to secure the right anchor tenant, which then draws in the other tenants. And small businesses may drop their prices to win their first blue-chip client. Be careful if you go down this route. It’s often hard to put your prices back up, once you drop them. Make sure your full price appears in all documentation and clearly state why the discount was given on this occasion. Being able to walk away from a deal is vital so decide what your bottom line price is.

Andy Coughlin is an expert contributor to Marketing Donut and chief executive of Andy Coughlin Consulting. Click on the links for each step to read Andy’s in-depth advice on Competing on Price.

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