It’s a buyer’s market and you are probably getting whacked with a big heavy customer stick to LOWER PRICES! There’s nothing you and I can do about the balance of power right now. However, I wanted to provide eight ideas for you to eke out some competitive advantage even in an environment of buyer power:
1) Raise switching costs. What can you do to make it excruciatingly painful for your customer to change to a competitor? In one example, I provided a customer with a software solution that my competitors didn’t offer. It made it so easy to do business with my company that even if the other guy came in with a lower price, it was going to be difficult for the customer to rip out that software. I was able to keep the business, even at a higher price.
2) Know your role in the supplier base. Are you the industry leader? Are you a new entry trying to gain share? Is your customer just using you to lower prices against the incumbent? Knowing these answers will help determine your pricing strategy.
3) Look to the long-term. The recession is a war. Are you in a position to win or lose? How are you trying to position yourself for the END of the recession? Is this the chance of a lifetime to build marketshare at the risk of short-term losses? Do you have the financial strength to outlast the other guy? Consider the long-term opportunities amid the short-term pain.
4) Involve the entire supply chain in the bid. Do unto others … if you are being pressed for price concessions, it’s only fair and wise to seek similar help from YOUR suppliers. What can be done to lower your costs of goods sold to put yourself in a better position to compete? Is it possible to strike pay-for-performance incentives with suppliers to help you win share?
5) Engineer the bid to be in your favor. Make sure the customer’s specifications incorporate ALL the value-added services that YOUR company can provide, making it just a little more difficult on the competitor. Here’s an example, in a highly competitive bid for an aluminum contract, I pointed out to our customer that specifying large coil sizes would improve their plant’s productivity. It just so happened that the leading competitor couldn’t manufacture that coil size. Oh well ….
6) Expand the pie. Instead of thinking about bidding on one piece of the pie, can you use this painful bidding process to create a bigger pie for the long-term? Can you trade price concessions in one area for opportunities to participate in other lines of business? Ask the question, “If we help you in this area on price, would we have a chance to bid on another product we don’t sell to you today?”
7) Use this as an opportunity to build loyalty. You are getting beat down by lower prices but your customers are probably suffering too. Don’t dismiss the fact that doing something BOLD to help your customers get through this recession may build deep loyalty to you and your company that will pay-off in the future.
8) Take the emotion out of it. All too often people make regrettable business decisions in the heat of the moment. Make sure you are making decisions based on the cold hard reality of financial advantage, not a personal will to “win.” Let your accountant help you when the emotions are running high! Know your walk-away price and stick to it.