How important is it to know exactly what your competitors are charging?
The lack of a consistent pricing strategy is a major problem for companies, especially those who have large key accounts with significant exposure. One the problems faced by companies and their sales teams when signing big deals is that the client can sometimes say “ah yes, but your competitors are offering the same for less”. Hmm… this can create a problem, but is it a relevant problem? Let’s think about that.
The instant reaction of a sales person might be to consider a price reduction – often referring the decision “upstairs” to the sales director – in order to clinch the deal. But this creates problems. If your company has a pricing strategy, then the first exception to the rules laid out by that strategy marks the end of the strategy itself. As we said yesterday on A Brand Day Out, it is crucial to have a pricing model which is consistent and can be translated to various commercial circumstances. Of course, this takes a rigorous approach but the results pay dividends.
However, back to the scenario in hand. Does the sales person need to panic at the point when the customer raises the issue of a competitor’s price? The answer, unless your product is fundamentally flawed in terms of value, is no. But, it could be argued, surely you need to know your competitor’s price model in order to fight back? Well, no again. Not really.
Of course, to have some knowledge of their pricing is important as it gives you a feel for what is known as the “neighbourhood price”. This is the price which might be an imaginary price in the customer’s mind, but which is based on some truths. It’s a price which has some reference points with which the customer feels reasonably secure. But to base any price on a “neighbourhood” assessment of value is to surrender profit to perception – ask any book publisher who has to sell through the book trade.
But for the sales person, knowing their competitors’ price structures and knowing their own makes them focus on a deal based on price alone rather than the value attributes of the product or service they are trying to sell. Indeed, in any transaction, price is largely irrelevant provided that enough has been said and done to convince the customer of the value they will receive. And value is in essence the return on investment (ROI) they make on their outlay. Value and differentiation here intertwine.
Is it possible for a customer to monetize the return on investment they will receive? In all likelihood, no. Which means that the focus of the transaction must be on what the product actually does and how it will make the customer’s life better.
This is where strategic marketing comes in, preparing robust sales documents which instruct the sales team on what the product does, why it does it, why it does it better, and what are the weak points? Transactions ultimately depend on conviction – if the customer believes, and you have a track record of truth, a sale is more likely. Irrespective of the competitors or their prices.
So, instead of focusing on price, companies need to understand their target customers and their behavioural traits. Of course, people do not behave rationally. Some customers may be driven by service, others by cost. Some by insecurity, others by ego. The key for companies and sales teams is to develop sales presentations which can be tailored to individual customer types without surrendering product value.
In the end, when a sale is made it needs to be profitable. If you are dealing with a customer whose only focus is screwing your price to the floor, then let them walk away. Their behaviour will probably never change and will almost certainly return again to haunt you. Better instead to have intimate knowledge of product or service performance and give it your all in the sales presentation. If customers cannot see the value at the price you charge there are 4 most likely reasons – either they are too mean, they don’t have the money right now, your product is out performed by a competitor or there is someone out there offering EXACTLY the same as you for less.