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The cheaper competitor conundrum

Value-based pricing beats the cheaper competition

When negotiating final pricing with customers, a common concern 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 criterion in procurement negotiations, where you should talk about value, not price. 

Responding to this common challenge, we have recently developed a Negotiation Masterclass on navigating 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 Ds of MEDDIC: Dc (Decision criteria) and Dp (Decision process)

 

Value-based pricing: the power of numbers

Customers buy for four underlying 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 the clear value before entering the lion’s den of the procurement office.

Those Metrics must include your financial differentiation and value versus your competitors. 

For example:

  • Are you faster to implement?  By how much? What is the intrinsic value to the customer?
  • Does your implementation require fewer 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. The time you spend here will be paid back later when you don’t have to enter price negotiations. 


Value-based pricing is challenging to argue with if you have sufficiently demonstrated that value with Metrics, compared to your competitor and the current state.


If your customer knows the upside of implementing your solution, 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 solution is priceless information when going into negotiations. 

Yes, there might be a cheaper competitor out there, but cheaper for what? Is your competitor offering the same return for the business? If you know the value you bring and 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:

You should only be entering into procurement negotiations if you have confirmed that you are technically selected.

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 by you, 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. When you meet:

  • 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, and so on. 

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. 

 

Critical Criteria

If you know the “must-haves” for your customer and 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. 

 


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Contact us today for Decision process specific issues to discuss our Masterclass and further boost your sales.