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A number of my subscribers and clients have come back to me with a question: I'm the Goliath. How do I compete against the smaller, more agile David out there who drastically discounts to win business?
Red Alert. First of all, once you learn that one of your competitors in a deal has "bought" business in the past at a price you could not (or would not) meet, your alert status should immediately shift to orange (if not red).
Remember, early in evaluation cycles prospects may say that price is a consideration, but not first on their list. Later on, once they have ignored or devalued any unique capabilities that your product or service can provide--to the point where they "can see no measurable difference between your offering and your competitor's,"--price gets elevated to the number one consideration. We've all seen it happen. By that point its generally too late to remedy the situation. You're trapped. So recognizing potential situations early on where a buyer will buy on price must become second nature.
Here are some recommendations that will point you in the right direction:
Qualify. In any competitive sales situation you have to monitor the prospect's decision criteria like a pilot checks her instruments--ever-vigilantly. During the course of an evaluation decision criteria often change. In fact, aren't we often the ones who attempt to effect that change to gain competitive advantage?
Among the most critical of all decision criteria these days is price. What are the key evaluators', buyers', recommenders' and decision makers' requirements and expectations with regard to price today. If you are just getting engaged with a prospect and their number one decision criteria is price, you (or your management) will have to decide whether it's even worth competing. Clearly, knowledge of your competitor's historic actual selling price will be critical in this decision. So will an understanding of your prospect's recent buying patterns with regard to price.
Buyers focused on price de-emphasize or entirely ignore factors such as:
Supplier product or service quality
Supplier viability
Supplier post-sales support capabilities
Post sales costs (contributing to total cost of ownership)
The knowledge and experience a vendor can bring forth
Areas of additional value that you may be able to provide above and beyond what they have specified
Quality of vendor personnel
References
Address the issue head on and early. "Is your company going to make a decision based entirely or substantially on price?"
And please, make sure you are asking these questions of, and selling to, decision makers. All this matters very little to the people at lower levels in organizations.
Educate yourself. Here are just some of the questions for which you need answers to outsell a competitor that dramatically discounts to win business:
Is their discounting tactical or, in the case of some very successful companies, strategic--a key component of a go to market strategy supported by their business plan? (It's hard to compete against Sam's Price Club on price...)
When do they offer these drastic discounts and under what conditions? How do they dilute the value of what you are selling in the prospect's eyes?
How well do they deliver post sales service?
How often do they issue new products or upgrade their services?
What is the satisfaction level of their customer base?
What is their financial position? If they are publicly held, look at their P&L, Balance Sheet and Cash Flow Statement for the most recent quarter and going back in time. If they are privately held, get your CFO to create a pro forma set of financial statements that might "represent" what that competitor's financial position might look like.
What do you know about their human assets? Look into staff and executive attrition rates, quantity and quality of SMEs (subject matter experts), levels of staffing, support hours, etc.--anything that will point toward discount-caused reduced margins impacting operating effectiveness.
Look at their corporate culture. What do they value? Integrity? Quality? Are they doing the right things for building a long, profitable future or are they highly opportunistic, with little regard to what will happen tomorrow? Can they sustain?
Uncover what the competition uses to deflect their prospects from exploring the areas listed above. In technology, you'll often find that the lowball competitor has the sexiest demo, for example.
One client did a terrific job of figuring out that their competitor's service and support resources were stretched very thin. A few subtle and well-planned comments to the prospect suggesting they look more deeply into certain "areas" pointed them in the right direction. As a result of a bit of probing, the prospect found that my client's competitor couldn't appropriately support them post-sale. "If they can't bring people to the party now when they are selling to us, it'll only get worse if we become their customer," the prospect told our rep. Bingo.
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