Competing on price destroys your ability to create and deliver the value that you promise. Excellence isn’t cheap, and it isn’t easy. Without the ability to capture the price you need to deliver your dream client’s desired outcomes, you fail to deliver and step onto the path to commoditization.
Here’s how (the names have been omitted to protect the guilty):
A Short (Illustrative) Story
The salesperson says: “Our dream client really want us. They understand why we are their best choice, and they want all of the things that differentiate us and define us. They want us, but we have to sharpen our pencils.”
The sales manager looks at the deal and concludes: “That price is really too low, but it is a lot of business. Let’s do it.”
Executive management looks at the deal, and they bless it: “We need more revenue. We need more deals. This isn’t the deal we need, but it is a deal. Let’s take it. We must grow the top line!”
And down the slippery slope they slide.
As margin pressure increases, the sales organization complies, lowering their prices. Then, with less money to create and deliver on their real value proposition, corners are cut. There is less money to spend because the profit isn’t there. And without the profit, it becomes increasingly difficult to create value, and it becomes even more difficult to deliver it.
Now, the sales organization starts to make very different decisions. They try to deliver on their real value proposition, but without the money to support that delivery, they fail. So they begin to operate as if they made the strategic decision to compete on price. They start trying to cut costs, effectively competing on price.
Excellence is lost. Abandoned really. Low price is the new reality.
How to Avoid the Commodity Snare
If you haven’t made the long-term strategic decision to compete on price, dont! If it isn’t your company’s competitive strategy to be the low price leader, then don’t try competing as if you are. That’s a very different value proposition, and one that is extraordinarily difficult to execute.
Instead build a pipeline that prevents you from acting out of desperation. The ability to walk away from a deal is a powerful sales-enabler. If you aren’t desperate, you can more easily defend your real value proposition and capture the right price to deliver it. Do enough prospecting so as not to be desperate.
When pushed on price, push back. Don’t allow your dream clients to hurt themselves by making a decision based on price. Don’t let them underinvest in the result that they really need. Instead, push back and help them understand the investment required to get the result they need. Help them to understand why the investment is necessary. Make a serious, concerted effort to explain the higher cost associated with paying a lower price.
Know that some deals are better the second time around. Some of your dream clients are going to decide to learn the hard way, and they are going to pay a higher cost because they refuse to pay a higher price. As their problems grow and multiply, you need to be there to pick up the pieces. Never stop pursuing your dream client. Your lower price competitor will struggle to get the outcomes, and you will be recognized as a better choice later.
How do companies that don’t have a lowest price strategy end up selling price?
How do you stick to your guns when there is so much margin pressure?
How does discounting affect your ability to deliver your value proposition?
How does discounting affect your business model?