The Cheaper Competitor Conundrum
A common concern when you are negotiating final pricing with customers, is being told that there is a cheaper competitor.
Maybe your natural reaction is to lower your price to ensure you are the cheapest vendor.
This price-based strategy will ignore every other decision criteria when you are in procurement negotiations, where you should be talking in terms of value, not price.
Responding to this common challenge we have recently developed a Negotiation Masterclass on how to navigate the selection process, so that price isn’t the nucleus of the negotiation.
For those who have completed one of our MEDDIC courses, we are largely talking about the two D’s of MEDDIC - Primarily Dp - Decision Process, with a bit of Dc - Decision Criteria, thrown in there.
Value-Based Pricing – THE POWER OF NUMBERS
Customers buy for 4 basic reasons – revenue growth, cost reduction, risk reduction and shareholder commitments. Without one of these reasons, any deal can become null and void.
By creating a value-based approach to a sales process, before we have reached the pinnacle of the negotiation, we will have collected a range of numbers (metrics) to understand a clear value before entering the lion’s den of the procurement office.
Those metrics must include the financial differentiation and value of you versus your competitors.
- Are you faster to implement?
- By how much?
- What is the intrinsic value to the customer?
- Does your implementation require less resources?
- By how much?
- Do you have a unique blue widget?
- What is this feature worth vs competitive solutions?
It’s best practice to be ready by drawing up a competitive table showing the top criteria with associated metrics. This is a quick, irrefutable way of demonstrating value over price.
Failing to prepare (a business case) is preparing to fail
Now you are using metrics to differentiate yourself from your competitors, there are some other tactics to use along the path to procurement negotiations that don’t focus on price:
- Business Case:
Compiling the business case is your opportunity to show the value your solution brings to the company. Don’t try to cut corners or rush this step in your hurry to get a signature on a page – time spent here will be paid back later when you don’t have to enter price negotiations.
Value-based pricing is difficult to argue with if you have sufficiently demonstrated that value with metrics, comparing it to your competitor.
If your customer knows the upside of signing your deal, together with a clear understanding of the ROI by doing so, price negotiations should not be a worry.
- Price Expectation:
Knowing your customer’s expectations on price for your deal is priceless information when going into negotiations. Yes, there might be a cheaper competitor out there, but if you know the value you bring, and that the company has the budget for it, you can be confident in your price further down the line.
So, have you confirmed with the Economic Buyer, or your Champion, that the business case supports your price expectations?
If you haven’t, proceed no further until you have.
- Technical Selection:
Unless you have confirmed that you are technically selected, you should not be entering into procurement negotiations. They may be called negotiations, but unless you are technically selected beforehand, all you will be doing is offering incentives to get the deal. This is a lose-lose situation for your deal.
Forewarned is forearmed
Now you have made your robust and compelling business case, confirmed the budget is there and that you have been technically selected, there is still work to be done.
Procurement negotiations require preparation and planning on your side, and you can bet your commission that your customer will arrive prepared.
All information is good information.
A great way to start is to have a meeting with your Champion:
- Go over the business case
- Re-confirm all your metrics
- Re-confirm that you are the selected vendor
- Find out what a win looks like for your customer – payment terms, required technical support, speed of deployment etc.
Be clear on what an acceptable win looks like for your business:
- Minimum acceptable price
- Reduced functions/internal resources you can offer to meet the lower price
- How far you can go with payment terms
The information you get from your Champion, and even the Economic Buyer, will help you formulate your negotiation tactics and give you confidence when you enter the negotiation room.
Go into these meetings having game-planned each scenario so you are comfortable holding your ground when negotiations get tough.
If you know the ‘must-haves’ for your customer AND if you know the ‘can-do’s’ of your business, you can start working on a win-win outcome.
So, next time you go into negotiations, and are told there is a cheaper competitor, your response won’t be to lower your price, but to reaffirm your value and negotiate on areas where you know you can afford to give.
If you are interested in new ideas, inspir’em sales meeting exercises and lesson plans are available to continue the development journey of your teams.
If you would like to delve deeper into MEDDIC for the whole sales cycle, we run both online and live courses.
For Decision Process specific issues, contact us today to discuss our Masterclass and further boost your sales.
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