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Beating Lower Priced Competitors

by David Brock on September 26th, 2014

I read an interview with a very well known sales pundit on the “6 Ways To Beat Lower Priced Competitors.”  At the end, I sighed, thinking, “How can some of the ‘best in the world’ continue to get things so wrong.”

There were six items listed, without knowing them, you can probably guess, they are the old stand by’s taught in every Sales 101 course.  In certain situations, some may be valid–but that’s not my point.  Whether they are right or wrong, is not the issue.  How we determine what is important and differentiated is what’s critical and how we win business.

What does your customer care about?  What’s important to them, why?  What do customers value and why?

Until we understand what customers value, we have no way of presenting the value of our solutions or no way to create differentiated value.  Until we determine what customers value, we have no context in which to create or build value.

So how we differentiate and how we leverage our differentiation must always be based by understanding, prioritizing, and quantifying what our customers value.  Absent this, we are guessing, and we are wasting our customers’ time in trying to present our differentiation.

Price will always be an issue with customers.  When all else is equal, the only differentiator is price.  If we let everything else be equal and we aren’t the lowest priced provider, then we deserve to lose.

But everything else is never equal.  The low price competitor can only compete on price.  The low price competitor has probably not invested the time in understanding what customers value, in helping the customer discover value, in helping c0-create or construct value.

So for those of us who invest in these elements, we are actually tremendously advantaged over the competitor that can only compete on price.  We know all the other issues the customer cares about.  We have helped them discover what they value, together we have built value through the buying process.  It’s likely the low price provider hasn’t done this and doesn’t know (frankly, they can’t afford to invest in those activities).  So they are really disadvantaged, and great sales people know how to leverage this.

Great sales people know that everything else isn’t equal and they strive to tilt everything to their favor, choosing to differentiate in ways that are meaningful and impactful to the customer and their success in achieving their goals.

So beating lower priced competitors can be very easy, if we are doing our jobs in how we engage customers.  If we understand what they value and how we deliver value in each area.  If we help them discover what they should value, if we are working together to create value, we have changed all the rules in how the customer makes their decision.  Their decision will be based on getting the best price for those things they value.  If no one else has done this, then they aren’t even in the ball game, and whatever their price is, becomes irrelevant.

Stated differently, even free is too expensive if it doesn’t directly address and deliver on those things the customer values.

It’s really not that difficult, and if we do our jobs right, the customer tells us every single time.  If we are top performers, we help the customer further by shaping and creating distinctive value, further distancing us from those who are clueless but can only say, “Buy my product because it’s cheapest.”  They can’t say, because they probably don’t know, “Buy my product because it delivers on the value that’s most important to you.”

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19 Comments
  1. Dave,

    Okay, I had to search the article down, but did and I read it. The possible approaches weren’t horrible in and of themselves, but I do agree with you on the context gap and customer focus, and this is something I’ve been harping on for awhile now.

    Any of those possible approaches might work, in the exact right situation, based on the context and what matters to the customer. (It did strike me though that using them would probably be a reactive response to not having nailed what the customer really needed in the first place, or when responding to an RFP or coming in later to an opportunity, versus having created one.)

    My way of addressing this recently is represented in this slide: http://www.mikekunkle.com/wp-content/uploads/2014/08/Customer-and-Solution-Acumen-Fig-2.jpg

    If you understand what’s important, and why, get out all the business needs and the priority of them, understand how your buyers are each measured, and then each buyer’s personal needs and motivators, you can clearly identity the negative implications of inaction, the positive outcomes of acting, and then tie your solution to all those things (especially the metrics that matter).

    To me, doing this better than most (and most don’t do it all that well), is your best defense against any other seller, lower-priced or not.

    • I don’t disagree Mike. But I think the real issue is the contextual/customer focused issue. Differentiation and value creation always starts with “What does your customer value?”

      So reeling off “my product has more features and functions, we have great quality, we are easy to do business with …….” is meaningless if the customer doesn’t care. So the advice is really misguided.

      Maybe I’m a little grumpy today, but those items may have been differentiators (if the customer cared about them) in the 80’s and 90’s, but today, they tend to be table stakes. If you don’t have them you don’t even get to play. So differentiation ends up being much richer, deeper and complex.

      I love your positioning. The only addition I would suggest is for each of those elements there is a business aspect and a personal aspect (e.g What’s in it for me, the individual customer). Too often we miss the personal aspect, when those tend to dominate the actual decision making process.

      Thanks for adding to the discussion. It’s Friday, I’m tired, and grumpy, and tired of bad stuff 😉

      • Martin Schmalenbach permalink

        Great stuff gents!

        I’d add this little perspective to the business + personal needs, and a mild warning….

        The business results are the primary component of ‘WHAT’ a client contact is looking to have as an outcome once the decision is made. And this can include sticking with the status quo.

        The personal wins to achieve, and personal losses to fix and/or avoid, are what primarily drives the ‘WHY’ and along wth that, directly affects the sense of urgency this particular contact will have regarding this particular decision.

        P.S. – I like ‘grumpy’!

        • Martin Schmalenbach permalink

          And I forgot my warning….

          Which is that, looking at recent research by the CEB, selling individually to each decision maker and influencer drives a reduction in the overall shared criteria that multiple influencers/decision makers have to act on, leaving very few, often only one, which is price…

          … because today, increasingly, we see 5-6 people being critically involved in purchase decisions, and they seek consensus (or share the blame/risk, if you are a cynic/grump!) amongst themselves for the decision. Given such nuance, subtlety and complexity, when price is all they can agree on, perceived risk is lowered enough to get a decision when the price is low enough.

          What are most sales people doing? Selling to the decision makers & influencers (if they can find them all) on an individual basis – the very actions of sales people seem (according to CEB) to be driving part of the pricing challenge we’re all facing!

          • Martin, you raise several really important issues in this comment. I’ll start backwards.

            1. To often, it is the actions of sales people (and managers) that drive the pricing issues and challenges. A few days ago, I wrote and article based on a discussion with a VP of Procurement. He cited 3 examples with “household names” of major technology companies, where they started the discussion with price, where his team wanted to look at other issues. Needless to say, he got what he wanted at a much lower price than he expected and than he was willing to pay. Too often, the pricing issues we face are a result of sales error.
            2. The CEB data is really interesting. As you know from diving into it, the actions and behaviors of individuals change when they are in a group. So what we might discover in 1 on 1 conversations, may change in the group conversation. I think there are some real opportunities here. I think the issue of not knowing how to buy and how to organize themselves to buy is one of the biggest issues around No Decision Made. I think sales can offer tremendous leadership in facilitating the buying process and helping the customer align diverse agendas, priorities and objectives. The other aspect it the issue our mutual friends at CEB talk about all the time, unless the pain of doing nothing exceeds the pain of change, there is little reason for the customer to do anything. As sales people, we tend to focus on the change, not the consequences of doing nothing.

        • What and Why… so important. I see both applying to business needs and personal needs, though. Quick example, grossly over-simplified just to make the quick point… (I should probably know better but will try anyway)

          Situation: A manufacturer of highly-complex machined parts for robotic surgery equipment is seeing much higher scrap rates for a new part in a new product that is going to market. It’s increasing costs for this new line and has impacted order delivery on a tight timeline, twice already.

          CFO business need
          – What: Get costs back in line
          – Why: To avoid EBITDA impacts

          CFO personal need
          – What: Safety
          – Why: On the Q2 investor call, advised they’d hit the projected Q3 EBITDA this time, after a rocky 2nd quarter (different reason, but now… this happens)

          VP of Manufacturing business needs
          – What: reduce scrap rates
          – Why: get large, short-term orders out on time, without delaying other order starts

          VP of Manufacturing personal needs
          – What: Achievement / Recognition
          – Why: Has a long history of on-time deliveries and low-scrap rates and this situation risks that

          Could do this for each decision maker. And how you’d position and message your (same) solution would vary, for each.

          • Martin Schmalenbach permalink

            Hi Mike

            Thanks for the quick response – looking through your example, I think we’re really on the same page here – a reminder to self that email/text forums can lose something in the translation!!

            That said, it’s always good to kick around and explore potential misunderstandings – I almost always get something out of this – usually a deeper clarity about an existing position, though I DO delight when I come to taking a quite different position as a result – some true learning!!!

            Thanks again for the dialogue – looking forward to learning more with you (and you Dave!)

            Cheers

            Martin

  2. There are TWO master selling Skills,
    1: Selling against Price with Value, and
    2: Selling Against Value with Price.

    The Competent, symetrical, Saleperson should be able to do do BOTH.

    And, they should know when to to use either appropriately.

    Selling on Value or Price, much like Scissors, Rock and Paper,
    it depends on the Client’s preference and the Competitor’s ‘move’.
    If you have less Value, then you may have to sell on Price.
    [and remember Value is not based on YOUR belief,
    but the CUSTOMER’S perception]

    A good Price Seller, using Price effectively will, over the year, make a far greater Margin Contribution, than a a mediocre Value “Price Hold-out” who isn’t Selling ‘anything’ but constantly complains about their Price!

    Selling on Price, is as much a skill as selling on Value.
    The key word is “SELLING”

    http://brianmaciver.blogspot.com.es/2012/09/selling-against-value-with-price.html

    • Martin Schmalenbach permalink

      Interesting perspective from Brian – one I hadn’t considered much before, so thanks Brian for that!

      It cuts both ways – how many times do we hear clients tell us that the anticipated run rate is 100,000 units per year, and of course, this being a new product, there will be some ramping, but they’d like the 100,000 quantity price point/discount up front….

      It’s a tricky one for the individual sales person – selling on price is something we’re really working hard to eradicate – we have a particular business model, it’s served us well for 25+ years and 95 consecutive quarters of profit, rarely has a quarter not been sequential or year-on-year growth, and our net margins are around the 32% mark – not something you can achieve and sustain by selling on price. Forgive me Brian if I am misunderstanding part of your premise (I did follow your link & read your blog post from 2012!)

      Our sales cycles tent to be measured in months, much of what we sell are seen as commodities, and for 40+ years clients have been used to 8-12% annual cost reductions just because the Sun rose every day… With growth flat in our industry, near as dammit, there’s nothing to fund such pricing any more, just as client organisations are looking for margin growth in flat markets by squeezing their supply chains…

  3. John Sterrett permalink

    Great comments all, but we have to remember that the low price seller has only one arrow in the quiver. And by inference, if low price is all they have, then necessarily they have to do volume or at least volume per sales person to stay in business. As their people are pushed for ever higher productivity per man hour, they become less able to sell, and become merely reactive order takers.

    Some of our customers will only value price. Let them go to the low price guy. If you provide the services and differentiation the other customers value, you will sell plenty at a higher margin. Again, it’s what is valued by the customer. Sometimes you have to walk away from a low price deal. But often you can structure a LTA or VPA with terms, rebates or value-added services that are appreciated enough by the customer to warrant the higher price. That’s where i live.

    When I begin to see my product or service as a commodity, that’s when the battle is lost.

    • John, you offer a lot of value (at a low price – free) with that comment. 😉 The last sentence would make a great poster. Good stuff.

      I diagree, though, that a low-price seller has only one arrow in the quiver. I’ve seen all of these:
      * Due to better operational management and a lower cost base, what is basically the same product is sold for less or able to be discounted more heavily
      * Sometimes a lower-price product still offers good follow-up service, speed of delivery or implementation, simplicity or ease of use, better distribution, or some such factor that makes them at least “appealing” if not always “compelling” to a value buyer (or their procurement folks).
      * Sometimes you’re battling a loss-leader strategy by a company that wants to gain entrance to a market.

      I have always worked in higher-priced, value selling companies; it’s my personal preference. And I’ve trained a lot of reps and sales managers to sell against the above situations. But unfortunately, it’s not always just against lower price alone.

      • Martin Schmalenbach permalink

        Mike – sorry, but to me, what you are describing in your first point the reasons why a low price seller can offer low prices (better cost management) – which by the way is not sustainable in a highly competitive market…

        Your second point to me is explanation for how a product/service, even the overall account relationship, has grounds to not be seen as commodity, and therefore, by definition, low(est) price. If a customer refuses to value these extra aspects available from doing business with you, either withdraw those extra aspects, and/or severely limit the resources you put in to the relationship, seek to change the nature of the relationship over time or walk away from the opportunity, perhaps the whole account, and put your limited and expensive resources (sales & support people) on to more profitable opportunities and accounts. You owe this to your employees, your other customers and your shareholders.

        With your third point – yes, you are, so help that client establish themselves in their new market by finding ways for them to better penetrate their market, and minimise current and future avoidable costs – cost reduction is NOT the same as price reduction, and if you do create this extra value WITH the client, then it is utterly reasonable in my book to ask for a reasonable share of that value you helped create, by not having to discount your prices to them…

  4. Dave, I like grumpy. Some of my favorite people are curmudgeons. Not seeing a disagreement. Probably means I didn’t communicate something I intended.

    FYI, I include both business and personal needs/motivators in the mix. Not as clear in that one slide but that’s an excerpt. Everybody has their favorite slice, but aside from the business metrics that matter to a specific buyer, I include how they are measured personally, as well as personal needs like safety, order, affiliation, power, achievement and recognition. Positioning and messaging varies based on both business and personal motivators.

    😛

    Mike

  5. Martin, strong comments, all around. You obviously have deep experience in this area and I respect that. We (or I?) were discussing selling against lower-priced competitors, not just those who discount. Those points I tossed off, were simply meant to offer examples that a lower-priced competitor doesn’t always have just one arrow in the quiver. Nonetheless, allow me to respond by point.

    1. Cost containment can be a strong part of a strategy and can be sustainable long enough to create pain for others in the market, or situational. Just one example: If you’re a smaller company selling against a giant who has economy of scale in their supply chain that you do not (or don’t yet), their cost management and/or lean strategies can offer them the ability to price or discount lower, while keeping higher margins than you. Sustainable? Maybe and maybe not. But I’ve worked with sales forces who faced this exact issue.

    2. In your comments on my second scenario, you describe exactly what I’ve taught people to do in this case – seems we’re aligned there. Again, mine was merely an example that price isn’t the only thing in every lower-priced competitor’s quiver.

    3. Not sure I follow. I mentioned battling against a lower-priced loss-leader competitor, and I think you responded as if your prospect was using a loss leader strategy and that’s why they wanted a low price from you (I think, sorry if I didn’t follow that right). Think we are talking about different things here. (Or I’m confused, it happens 🙂

    In any case, thanks for the great thoughts and “conversation.” Good to meet you here.

    Mike

    • Martin Schmalenbach permalink

      Hi Mike

      Again, thanks for the quick reply!

      To your first point – that’s a great example, and on closer reflection, what I’m taking away from this is that yes, often a larger supplier can provide economies of scale as the driver to lower costs that a smaller supplier can’t… so what can a smaller supplier offer in value? Always a good question and this is where the ‘nature’ of support & service, and agility/nimbleness in decision making can provide a faster response/resolution over the larger supplier, something that a customer could value…

      So the lesson here is to always explore deeply what it is in totality that the client really values in a given situation… there is room for the little guy to play too!!

      Your second point – yep, agreed!

      Your third point – we may well be talking about different things – I’ll go away and ‘noodle’ on that a bit more!

      Again, thanks for the dialogue!

      Cheers

      Martin

      • Wow, what an interesting discussion you two are having, I’m joining a little late. There’s so much stuff here, I won’t be able to respond to all, and I’ll add some more, possibly stirring up the pot.

        1. We’ve each encountered those who are trying to “buy the business,” through pricing. Most times, while it’s painful as a sales person to lose that deal, it’s not a sustainable strategy over time. I’ve been involved in some deals where a specific competitor has had that strategy, in which case the bigger picture–making it as painful for them as possible and driving them out of business is something that’s something of a workable strategy. It’s a macro strategy, doesn’t help individual sales people, and takes some time/risk.
        2. There are some that have economies of scale, but I’m seeing that less and less. (Some caveats). Usually, competitors tend to be watching each other pretty closely, and are roughly in the same price range, so it’s a little easier to compete on non price issues.
        3. The worrisome one’s are the game changers. Those with a different business model or a dramatically different approach to the market that enables them to come in with very high value at game changing prices. We are seeing this more and more with interesting start ups and in some cases with global competitors. I’ve seen several Capital Equipment industries completely restructured and the perennial giants collapse because of this. The enterprise software versus the SaaS approach have forever changed those markets. These are fundamental corporate strategy/business model issues — most of which sales sees/is the victim of first.
        4. Out of curiosity, it’s interesting to reflect on some of the CEB data, where price ended up being about 9-10% of the decisionmaking process in buying decisions. I suspect, a lot of what we see as “pricing” issues, have more to do with sales error than price being the issue.

  6. This is a great subject that is always an issue in my sales training workshops. In the technology industries there are many options in capabilities, based on application, budget and priorities. Comparisons are standard practice in both capital and consumable products.
    When a competitor offers a lower price, it may be because of sales volume rather than high net profit per item It may be because of lower manufacturing costs or cost of sales. Whatever the reason, the price is lower and a big factor in decision making. My clients learn to ask, if the price was the same, which one would you buy?” If the answer is the (competitor), it’s not a price issue. If the answer is in your favor ask, “what are you giving up by buying from the (competitor)? Wait for the answer and ask, “how important is that to you now and in the long term?”
    If it’s very important, calculate the price difference and ask, “is it worth this amount to get exactly what you say is important now and in the future?” If not so important, try adding value with an extra low profit service or consumable item. My clients report that this skill set is very effective, but no skill set is a “secret formula” for a successful sale.

    • Thanks so much for moving this discussion from LinkedIn to here. So many more will see your great observations. At the root, it’s really about understanding what your customers value and how you can deliver against what they value. Too often we fail to explore, verify, re-verify, and align our value delivery with those things important to the customer. Thanks so much Lew!

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