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The first exception is the end of your price strategy

August 31, 2010
Morgan Sports Car Image

Morgan Sports Car - not the sort of product that price buyers have any success with

Running a business is tough enough without price buyers hanging around for the best deal. Yet how often does it occur, particularly in the sales environment, that prices are reduced just to clinch the deal? When this happens, your price strategy goes out of the window.

Whether “they’re one of my key accounts” or whether “she bought me a nice lunch”, reducing the prices for customers without an equivalent reduction in value sold is a recipe for long term disaster. It is important for sales people to understand that a lower price is not an opportunity for a sale but an opening for lost profit.

So what can be done? First and foremost, a price strategy is exactly that: a carefully defined strategy upon which business growth predictions are made. All elements of a product sold have a cost attached to them; all elements of a price have value attached. The key is to divorce the element of cost and focus only on the price. Because the price is your company’s statement of its products value. Once your costs enter the discussion, the customer’s focus is then on “meeting” you somewhere between your costs and their budget. This is the wrong discussion to have.

The right response is: if a price reduction is requested, what is given to such customers in return? They don’t want to pay £1000 for an off-the-page advert? Wil they pay £800 if they book 4 advertisements? If your product is laden with features, your pricing strategy should account for each feature so that if certain features are de-listed by the customer your price is one which known to you and acceptable to them. But to offer your customer everything for a lower price is economic madness.

Of course, sometimes, you get the “customer from hell” who just wants to make life difficult. They research all suppliers to arrive at “average” costs and then bargain you down to a deal based on this average. Walk away! If they do that, they’ll be back again next year which means that when the time comes to renew your deal with them, your price strategy will be focused on the prices of your competitors rather than your value.

In the UK right now, with the “austerity budget”, suppliers to government are having to face the ultimate “price buyer”. The UK government is demanding better prices or they will go elsewhere. This is a frightening challenge for suppliers but nonetheless a lesson for companies who do not understand their value nor do they create value.

Those companies who understand this dynamic will emerge effective and profitable because they continue to leverage value in a competitive environment. Those who fail to do this (and who rely on government as their main customer) will face serious challenges.

But the key to success is not just lowering prices to keep the business, it’s about delivering the value to attract the business. Morgan Cars, that apogee of idiosyncratic motoring, is a classic case of a company which understands its value and remains in business. If you know your value and stick to your price strategy, you will be in a stronger position yourself.

Image of Morgan courtesy of the Morgan Motors website. Check out their 3-wheeler kids pedal car too! Amazing!

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