![\"iStock_000011042796XSmall\"](\"http:\/\/theqmpgroup.com\/wp-content\/uploads\/2013\/01\/01\/six-common-sales-myths-4-its-a-price-driven-market\/iStock_000011042796XSmall.jpg\")
<\/a><\/strong><\/span><\/p>\nThese days, sales people and their parent manufacturing companies commonly find themselves confronting a series of \u201cnon-negotiable\u201d buyer requirements that would be laughable, if they weren\u2019t so real and becoming more common:<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 90 day payment terms<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Guaranteed cost-downs<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The lowest cost \u2013 period!<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The highest possible on-time delivery<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Impeccable quality<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Unlimited time frame on returns<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u201cNo-questions asked\u201d returns<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 No-charge, collaborative up-front engineering and\/or marketing cost sharing<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Transparent margin calculations<\/p>\n
–\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 And the requirement to keep a buffer inventory of finished parts in the factory \u2013 owned, of course, by the supplier<\/p>\n
\u00a0The not-too-thinly veiled threat hidden among those requirements is, \u201cIf you can\u2019t meet these terms, we can always find someone else to supply that part\/service in Mexico, Asia, Brazil, India\u201d or even, \u201cWe\u2019ll build those parts here \u2013 ourselves, inside\u201d.<\/p>\n
We talked about the Rock above. \u00a0 Here’s the Hard Place. <\/span>\u00a0<\/span><\/p>\n \u00a0In the banker\u2019s office the CEO and CFO of the small manufacturing firm are hearing:<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Your cash flow is slowing<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Your margins are slipping<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Your credit line needs to be reduced and renegotiated<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 We need to see your financials, monthly<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 We need to tighten up our loan portfolio because of the lending debacle of 2008<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 and\u2026 \u201cNo, you can\u2019t have any more leeway\u201d.<\/p>\n So, between the banks pushing for higher prices and margins on your products to improve cash flow (or you lose your financing), and your big customers pushing for lower and lower prices, what\u2019s a small manufacturing firm to do? \u00a0And, how does a sales person make a living if he isn\u2019t price competitive. \u00a0Isn\u2019t some margin, albeit low margin, better than losing a customer?<\/p>\n What Price Competition Really Means<\/span><\/p>\n Price-driven competition means that one or more of the following statements are true:<\/p>\n We have seen all of these situations in our client engagements \u2013 typically disguised and drowned out by the sales person\u2019s pleading and cries to \u201cdrop the price\u201d.<\/p>\n So What Can Be Done About This Kind of Situation?<\/span><\/p>\n The simple, yet most effective answer is: Decide which of the five statements above are true \u2013 then set about fixing them.<\/p>\n It is actually easier than you might imagine.<\/p>\n A Case in Point 1: Wrong Market Targeting<\/span><\/p>\n A client of ours had a new product that wasn\u2019t selling well. \u00a0It was price disadvantaged by a factor of 3 over competitive offerings in the general market!! \u00a0In spite of this, the new business development team was hustling to set up general distributors across the country.\u00a0 They were counting on a major price reduction they were politicking for with corporate to spur sales \u2013 when in fact corporate was quietly considering shutting the product line down.<\/p>\n We were asked to determine whether the product line was worth saving.<\/p>\n What little sales there were, were focused in two very narrow markets.\u00a0 Simply by asking customers that bought the few units that were sold in each of these markets why they bought this \u201cover-priced\u201d alternative, a set of inherent, here-to-fore un-promoted competitive advantages were revealed.<\/p>\n Then simply by pivoting the sales team to focus on the market in which the most compelling benefits were revealed the following results were realized:<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Not only did the price not have to be reduced, the market\u2019s desire for added features quickly brought the average selling price of the top model to 4X the original price!<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The single largest order for this product had been $20,000 \u2013 now with focus and a re-promoted and re-emphasized set of market-specific benefits the largest order from a customer exceeded $1,000,000<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The number of new customers buying this product quickly rose from 2 to over 150<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Price reductions were no longer discussed<\/p>\n –\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 The effort to saturate the market with distribution outlets was no longer considered necessary and saved a ton of money<\/p>\n Case in Point 2: Poor Economic Benefits Communication<\/span><\/p>\n In another instance a client was puzzled by the slowness with which their new product, designed specifically to help customers save substantial amounts of money, was not selling better. \u00a0The root cause was discovered to be the distributor sales manager who simply \u201c.. did not believe the economic argument\u201d and refused to promote it \u2013 in spite of the customer testimonials to the effect of the savings realized.<\/p>\n A rapid individual re-education was required, followed by a re-training of the distribution sales force, and the product\u2019s sales turned up shortly afterwards.<\/p>\n Case in Point 3: The CEO Gap<\/span><\/p>\n I once asked a group of 12 B2B CEOs to take out a blank sheet of paper and write down what they perceived as their best product offering, the product that they thought customers should appreciate the most. I also asked them to identify an ideal customer for that product.<\/p>\n I then asked them to identify the factors and calculate what economic benefit that ideal customer was likely to receive from that product. They stumbled. None of them could do it in the 15 minutes allotted.<\/p>\n If they can\u2019t do it \u2013 can their sales people?\u00a0<\/p>\n The Point:<\/span><\/p>\n Price-driven markets and situations are often a symptom of; a) misdirected market targeting or b) a lack of understanding of, and poor ability to communicate, market-specific economic, emotional or physical benefits of your product offerings to potential customers.\u00a0<\/p>\n Customers buy for their own reasons, not yours. No matter what you have convinced yourselves about the value customers should see, they saw what they were looking for when they decided to buy. \u00a0Sometimes it\u2019s not what you want them to see, but if it worked it is delivering real value.<\/p>\n So, if your sales people are screaming for price reductions and you have customers buying when you are not the cheapest price \u2013 those customers are seeing something you are not. You need to find out what that is and why. And if they are not buying when the economic case is real, independent of the price, your communication is broken somewhere along the line.<\/p>\n Oh yeah, one final point. If price was truly the ultimate deciding point for decisions, we\u2019d all be driving Versas.\u00a0 If it helps, here\u2019s a link to Car and Drivers article on the 10 Cheapest Cars<\/a><\/p>\n *****<\/p>\n If you\u2019d like to learn more about dealing with price-based competition call Jerry Vieira, CMC at 503.318.2696 or email to jgv@qmpassocites.com<\/a>. The QMP Website is at www.TheQMPGroup.com<\/a> and more insights can be found at The QMP Insights Blog<\/a> <\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Between the banks pushing for higher prices and margins on your products to generate improved cash flows (or you lose financing), and your big customers pushing for lower and lower prices, what\u2019s a manufacturing firm to do? And, how does a sales person make a living if he isn\u2019t price competitive. Isn\u2019t some margin, albeit low margin, better than losing a customer?<\/p>\n","protected":false},"author":5,"featured_media":3315,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,9,10,95],"tags":[38,93,104,54,106,108,60],"yoast_head":"\n\n