When you hear “I can purchase this elsewhere at a lower price,” remember that your quoted price is linked to the total value you are promising to produce…and evaluating value goes both ways. It’s just a trade…the customer is trading you price for the value to be delivered.
Focus on defining value. Buyers might think of value as how much you are willing to discount while you see value as the additional benefits you will be generating for the customer.
If a price reduction is requested by your customer, preserve the linkage between your price and the total value you are producing – trade any reduced price only for a reduction in proposed financial benefits. This will focus your negotiation on the amount of value the customer perceives as beneficial. Never quote a price until you establish value.
Before arriving at this point, learn your customer’s needs and goals. Then format your proposal to clearly describe how you will produce quantifiable benefits related to these goals.
Recognize the price sensitivity factors that help you determine why this customer’s business is important for you:
- Your level of preference with the customer vs. competitors
- The customer’s annual sales & profitability of those sales
- Consistency of payment vs. agreed payment terms
- Required service level – technical assistance required, frequency of small or rush orders, etc.
- The impact that your proposed product/service cost will have on the customer’s business
Next, identify the most important issues that will influence the customer’s decision:
- Timing – how urgent is the customer’s need?
- Uniqueness of the problem that your offering seeks to solve for the customer
- Exclusivity of your proposed solution – how many alternatives to your offering are available?
- Is there a budget or funding deadline?
- Is there a compliance requirement? What are the consequences of non-compliance?
- How much impact does this decision have on your customer’s business?
- How reliable is the customer’s credit reputation?
Keep price in balance with value and all parties win.
Do you have a pricing strategy that trades value for price?
How is this strategy managed?