1. I learned long ago the
only way to use low pricing as a strategy is
if you are the low cost producer. In this
way you can outlast your competitors by
losing less. Once they are out of business,
you’ll own the market and can charge what
you’d like.
2. The other thing I learned quickly from
Hard Knocks University is that senior level
executives (the people that make the
final-final decision) do not care about the
lowest price. They do care about
affordability however. Don’t get the two
confused.
3. C-Levels and P&L leaders value business
results more than they focus on price.
Whoever is seen by the leader as a resource
- helping him /her do business better, will
get the contracts. What’s tricky here is
that you need to know what specific business
results the leaders value. Thinking they all
want the same things will send you down the
wrong path more often than not.
Each leader has his or her specific, subtle
or profound agenda. In order to eliminate
price as a deciding criteria and to value
price, you’ll need to know that agenda
exactly. Just as importantly, the leader
will have to know you know his / her agenda.
4. Don’t be confused that a formal request
for proposal to all competitors will mean
the buyers are comparing apples to apples.
Some aspects of the apples are more revered
and valued by some high level people than
other aspects which are touted by low level
people. How many times have you said - after
losing a bid, “If I had only known they were
really emphasizing that part of the spec?”
or something to that effect.
5. If the subordinates have blocked all
sales people from the getting to the final
decision maker, all competitors will look
alike to that leader. The subordinates pick
their choice and submit the recommendation
(usually informally). The ultimate
decision-maker gets some assurances and
gives approval. S/he is thinking the job
will get done and that’s that.
But what if one competitor got to the
ultimate decision-maker and knew what part
of the apple was valued more. What if that
competitor had advised the ultimate
decision-maker to compare that aspect among
alternatives? That competitor would have an
edge because s/he would have emphasized that
aspect. Then the choices would probably look
differently. The subordinate would have to
justify accordingly or select the competitor
who had learned the really decision
criteria.
6. Once a C-level or P&L leader is committed
to an expenditure or investment s/he will
say to the subordinate, “Do it and get a
good deal.” However, the subordinate
interprets “good deal” usually as the low
price among the reputable suppliers. The
best way to get lowest price is bidding –
commodity mentality.
Someone has to say, “Boss what’s a good deal
look like to you?” Subordinates usually
don’t ask that question. They fear they’ll
be perceived as out of touch with the
business issues. So they tell everyone what
they think the boss thinks is a good deal.
To avoid bad information the sales person
has to ask the boss directly what a good
deal looks like.
7. Unless someone gives the boss a
compelling reason to pay a higher price or
change what they’re now doing, they will go
low price or remain with the current
situation. Even if the operations people
say, “This would be great,” the P/L person
will say, “Unless the business is
threatened, let’s get along with what we
have.” “Unless someone gives me a compelling
reason, there is no need to spend more.”
This is why it’s so though to introduce new
technology without framing it around the
boss’s success factors.
An Example
Recently a semi conductor client of mine
wanted to move one customer’s (A) production
from one facility to another in order to
make room for another customer’s (B)
production. It was a special fab with
technology that B needed and A’s could be
produced fine in a standard fab. However to
do this, A (not B) would have to pay
$260,000 for new tooling. And to make
matters worse A’s unit price would go up
because the standard fab was older and more
labor intensive.
My client met with A’s operation’s and
purchasing people, and they went postal. “No
way,” they said. “Do you think we’re crazy?
Besides, our boss will fire us.” My client
asked for my help and I told them to get to
the GM and find out what was critical to his
success. So we strategized about getting a
meeting with the GM and what questions to
ask when they met him.
Well, they found out capacity was the key
success factor for the GM. In semi
conductors when business is good, customers
go on allocation and the GM knew it. His
most important issue was to get his products
to his customers or else his competitors
would.
So knowing this my client’s people went back
and came up with a plan to guarantee A his
capacity in return for paying the tooling
changes and incurring a higher unit cost.
Sounds crazy, but A went for it. The General
Manager, who was responsible for P&L, felt
the capacity guarantee was far more
important for him than the extra expenses.
Had my client not uncover how the GM really
felt, they would have failed negotiating and
could have lost Customer A. Had they stuck
with the operations or purchasing people,
they would have done more harm than good.
Conclusion: It’s all about the
C-level or leader who’s responsible for what
your products or services do for his / her
organization. If you can’t tie into success
factors, you’re one-of-the-bunch and the low
price bidder will be selected or you’re not
needed.
25scale.jpg)
