The tale of the $8.71 bag of screws...
We all fight price. The China price, the internet price, the sharpen-your-pencil-or-lose-the-business price. It is relentless for many of us in the marketplace. The pressure to focus on price above all other things is one of the most exhausting parts of developing new client relationships.
When you are a smaller company, the issue of price can be even more debilitating if there are real cost concerns involving scale. In these cases, larger companies with greater purchase power and volume have an advantage that can seem insurmountable. However, it doesn't have to be that way. You can compete and demonstrate your unique value outside of price. It does require you to be an expert in the real money issues of your prospect. Let me provide an example:
One of my clients is a distributor who found himself competing with his own supplier for some major contracts. Under their agreement, certain contracts could be deemed "enterprise accounts" which allowed the supplier to sell directly to select customers, usually the biggest ones. My client's markup put him in the higher priced position almost every time.
Here was his approach. He would meet with his prospect and have the following conversation:
"I sell XYZ materials and I would like to be your provider. I know that you can go directly to my supplier and get a lower price, but I think you should buy from me and let me explain why. For an example, let's take a commodity product that you could purchase from either of us, a bag of screws for installing vents. A typical bag of screws for installing vents is priced to you at $0.79 from them and $0.85 from me. But what does it really cost? I palette pack your supplies for your installations on a multi-floor project not only floor by floor, but zone by zone including all of the necessary materials for that install. So instead of an installer having to leave the point of installation, ride the elevator, pick his own materials order, take back to the site and begin his work, it's all right there. This saves you on average for every 250 square foot zone, about 1.25 man-hours of labor. When you buy from me, my bag of screws may price at $0.06 more, but it costs only $0.85 per bag, where theirs costs $8.71."
If you focus on the specifics of the tale, you might miss the meat of the lesson. What I think my client did well includes the following:
1) He focused the discussion of money on the customer's money, not his price.
2) He knew that the real expense was not in the materials, but the labor. By knowing their money as well or better than they did, he was able to address the real issue of cost.
3) He was using real numbers. He showed his math and he easily could have worked the calculation with the customer by asking what an average technician's labor hour cost.
The point of the story is that by being the relevant expert on the prospect's business issues and being able to focus on the true costs, he was able to demonstrate value and knowledge more compellingly and win the sale.
For more information on beating your competition without having the lowest price, join us for our upcoming free webinar on "Dirty, Sexy Money - How to Talk to Prospects About Money Without Focusing Only on Price" on Jan. 27th.