Reduce Price Pressure: Focus on Value
“You can’t shrink your way to greatness.”
Companies are increasingly finding that their traditional value proposition is falling short. The strength of their brand has less value in the buying process, and competition is intensifying from well-resourced established players and emerging niche players. Pressure to reduce prices is now the norm. So, margins are deteriorating and profits are shrinking.
Do you offer your top B2B customers value and if so, what does that mean? More importantly what matters to the senior executives in your top customers? Are they willing to pay more for the ‘value’ you deliver?
How can you overcome price pressure?
You need to offer the lowest price or the best value. If you take the value approach, you need to present your value in hard, measurable terms. When the value is created and communicated, it can then be shared with the customer via value pricing. Procurement and sales can both win when it’s not just a vague promise and value is understood, concrete, measurable and a delivered promise.
As business conditions remain tough, some of your negotiations get tougher and pressure on price increases. Your competitors are hungry for business and will aggressively drop their prices. So, more often you will face customers saying ‘no’. When customers say no, some businesses will immediately drop their prices to beat their competitors – but think carefully before you do. Consider this story from Managing Negotiations.
A group of explorers in the Arctic on a sled were being chased by wolves; they decided to throw the wolves a steak to stop them chasing the sled. After they threw the steak the wolves stopped to eat it. So, the explorers thought that they had solved their problem. However, 30 minutes later the wolves are back chasing the sled even more enthusiastically.
In business if you drop your price at the first ‘no’ from a customer then you simply teach customers to say ‘no’ more often and look for more drops in price.
Reduce Price Pressure using Value
Great businesses fail when they make internal decisions without considering what their top customers will pay for and value. Great businesses succeed in very competitive global markets, because account management for their top customers enables them to change their businesses to produce better results for their top customers.
Successful businesses grow because they meet with their top customers and they know their business, their threats, and the joint opportunities. The reason that they continue to grow is that they adopt the philosophy of rapid adaptability by meeting internally every 90-days to review their top customers. Senior managers are engaged in strategic conversations about what needs to be done differently for their best customers. Fresh account data – every 90-days enables these strategic conversations and makes senior managers more persuasive with their senior executives. Enabling them to persuade senior executives to change their organisations to deliver more value to their top customers.
If you don’t engage every 90-days and discuss, dissect, and decide to make some rapid changes, your competition will out-manoeuvre you with your customer. Today if you are not relevant, you will become a commodity and only be able to negotiate on price not value.
Drive value, Drive Growth
Many problems seem complex and related to only price. Try looking at the problem from a completely different perspective: use value.
The reason so many companies are increasingly finding that their traditional value proposition is falling short is simple. Their value proposition is only based on their products – added value. To win in more competitive markets, companies must now compete with a value proposition of added value AND strategic value.
The moment your top customers engage with you around value the whole relationship changes. When you can prove that your value is helping them grow, they will respond with more business opportunities for you and your organisation.
So, reduce price pressure and with your top customers and focus on delivering value. For more advice on reducing pressure on price read our ebook, Reduce Price Pressure: Provide Value.