The salesperson asks their prospective client, “What would it take for me to get all of your business?” The prospective client replies, “I don’t really have a relationship with anyone at my suppliers anymore. You’d have to beat my existing rate.”
Then the prospective client proceeds to tell the salesperson the rate so that they can receive a lower price. Not substantially lower, but just enough to move the business. The salesperson gets approval to beat the rate and does. A deal is a deal, right? What could possibly be wrong with this scenario?
A Swift and Certain Sword
If you can win your prospective client’s business simply by beating their existing price, what do you think will happen when they are offered a lower rate by one of your competitors? Why would you believe that they wouldn’t drop you for a lower priced competitor just as quickly as they dropped the provider before you?
This is how you become a commodity. This is how you lose your margin. This is the slipperiest of slippery slopes.
This is not effective salesmanship.
First, the agreement to reduce the price presumes there is no greater value that might be created. By failing to explore a greater level of value creation, the salesperson has failed their new client, they have failed their company, and they have failed themselves.
Second, they have confirmed in their new client’s mind that the only value that might really be created is around a lower price. They have reinforced the client’s belief that they are buying a commodity and that they should be treated as such.
But the final failure is worst of all. Did you catch it?
All Things Being Unequal
The client said: “I don’t really have a relationship with anyone at my suppliers anymore.”
So, what does that mean that the prospective client found valuable enough to pay more to obtain?
What does it say about his willingness to pay more for a different level of value creation?
What does the question suggest is the key component to that higher level of value for which he is willing to pay more?
What, then, should our salesperson have responded with when her prospective client suggested she could have the business if she beat the current provider’s price? She might have said: “I could lower your rate, but I don’t think that’s the right answer here. Instead, I’d rather make sure we build the right solution for you and that means making sure we build the right relationship. You may no longer have a relationship with your current provider, but you will have a relationship with me. I’ll make sure we deliver and that you get your money’s worth.”
If you are willing to win on price alone, then you have to be willing to lose on price alone. There is always someone, somewhere, who is willing to beat your price to obtain the business. If you aren’t willing to create more value, you aren’t worth paying more to obtain, then you can expect to be commoditized. In fact, you are causing the commoditization.
When should you compete on price?
Should you take a prospective client’s business if the only value you create is a lower price? How much of an obstacle to changing providers does lower price is created by lower price alone?
How valuable are relationships when it comes to winning and price? How does the relationship translate to something worth paying more to obtain?
Is it always necessary to match or beat your competitor’s price to gain the business? What value then does the salesperson create?