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Customers Should Care About Your Profitability!

by David Brock on February 16th, 2017

Too often, we succumb to price pressure–even worse, we lead with price, making pricing the center of focus of our sales efforts, then being forced to discount to “win” the business.

What if we started shifting our conversations from discussions of discounting to educating them about the importance, to them, of maintaining our pricing and our profitability?

In complex B2B sales, the profitability and success of the suppliers is critical to the success of customers.  What happens to customers who focus only on hammering vendors on price?

  1. To meet price goals, suppliers start sacrificing quality or ability to meet commitments.  We’ve seen this time after time in various industries.  Quality of procured products decline, driving down the quality of the products our customers provide to their customers.  The result is their customers are upset and stop buying the products.   Returns, warranty, service costs skyrocket, their revenues and profits plummet.  But high pressure on prices has to come out of the vendors somewhere, often it’s product quality, delivery, or risk.
  2. Perhaps, customers can maintain product quality from their vendors, but what about innovation?  Their customers are always changing, forcing them (our customer) to innovate, changing business models, introducing new products and services, and growing.  In turn, they need suppliers that are on the same journey, suppliers innovating with them, looking at the end customer needs, understanding the strategies, priorities, growth opportunities of each customer and responding by creating products and services that support their own growth and innovation.  As customers start having unreasonable expectations for pricing actions from suppliers, suppliers have less to invest in product development and innovation, and become less able to support the growth of their customers.
  3. Pricing pressure reduces investment in sales and marketing.  Some customers would see this as a blessing, fewer sales and marketing people make their lives easier—or does it?  If we are doing our jobs as marketing and sales professionals, we are helping our customers find new ways to innovate, grow, and serve their customers. We are helping our customers improve their product quality, reduce expense, adapt better practices.  We are helping our customers learn and discover, growing in their careers and growing the business.  Pricing pressure reduce our ability to fund sales and marketing in helping our customers, we can no longer afford to do these things—where does the customer go to get this help, what does it cost?  If they don’t have this help, what happens to them?  What risks do they face for their future, how do they manage those without the help of trusted advisors from trusted suppliers?
  4. We need fair profits because those profits don’t sit idle, they are invested in growing the organization and it’s capabilities to better support customers.  Those profits are invested in new plants, people, acquiring other companies, all of which enable us to do more for and with our customers.  If we aren’t able to grow and invest, at all levels, our abilities to serve our customers, helping them grow and invest become limited.

What about the customer that says, “We can always find other suppliers…..”  Fundamentally, they’re playing a short game.  As suppliers choose not to play that game, dropping out of competing for business, the only ones that are left are the bad ones.  Those that compete only on price, continually cutting their investments in R&D, sales/marketing, product quality, investments in their plants.  Overtime, the number of alternative suppliers dwindles to a few–each of which since they compete only on low price, becomes very risky.  Eventually there own viability becomes questioned, or the risk to the customer skyrockets.  Sure, it works for a few years, but long term viability comes into question–first for the supplier, then to the customer.

We’ve seen examples in many industries where customers have so squeezed their supply chains that they ultimately fail, causing the customer to fail.

Our pricing and profit margins exist for a reason.  The core is to continue to allow us to grow and innovate by helping our customers grow and innovate.

We need to defend our pricing vigorously, not just for what it means to us, but for what it really means in supporting and growing our customers!

We need to make sure our customers understand this, that they understand our strategies in investing and growing so they may, in turn grow.

We need to defend proudly, our right to fair prices and fair profit margins–because it makes our customers healthier and better.

We have to be prepared to walk away from customer who don’t see the value in our success, profitability, and growth.

We as sales and marketing professionals need to be able to conduct and support these conversations with our customers, not wasting our time looking for approvals for deeper discounts.

 

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