Every company wants to properly service its customers; they just don't want to accomplish it by reducing prices every time a customer asks them to. It's a balancing act between capitulating on a customer’s request for lower pricing, and sticking to a product’s or service's main features and benefits. It seems the one customer request that often disables sales professionals is the request for lower pricing. However, there are ways to lower your customer's costs without lowering your prices.
Understanding Customer Price Demands
What is the single biggest concern all businesses have? Is it improving new product development, increasing sales and growing market share? While each of these are important, there is something far more important. In this case, the one concern all businesses have is how to control costs. Without cost controls in place the company would ultimately fail in its new product development initiatives, lose sales and ultimately, lose market share.
Customers immediately associate lower pricing on parts and materials with lower costs, and they’re right. Certainly makes sense doesn’t it? Well, the fact is, when a customer requests lower pricing, what they are really looking for is cost control. Therefore, to answer that aforementioned question is pretty simple. When customers request better pricing, what they really want is lower costs.
Once you realize that a customer’s request for lower pricing is really a call for help to reduce their costs, you’re that much closer to protecting your product’s pricing. In fact, this opens up a number of different approaches to help the customer reduce costs without lowering your product’s price. In this case, it's the ultimate invitation; your customer is asking you to showcase what your company can do to distinguish your capabilities. So, what are some of the approaches you can use to lower your customer's costs while protecting your pricing?
1. Cost-Per-Use Sales Approaches
When confronted with a customer's request for lower pricing, immediately think of how your product can successfully lower the customer’s costs. Does your product have any cost-per-use benefits that make it a more viable product offering? A product with lower cost-per-use benefits is one that will save customers money.
The key is to convey those savings in a way that speaks directly to your customer’s concerns. Take the time to appply a dollar value to the impact of your product’s cost-per-use benefits. When customers want lower prices, they don’t want a lower priced product that will ultimately raise their costs because of poor quality. They want a product that will lower costs and last.
2. Lower Freight
One of the best ways to help a customer save money is to take the time to investigate different freight methods. What is the current freight cost to ship the product from your company to the customer? Could the customer reduce their per-unit cost of freight with larger volume orders? Do you have better freight rates because of the amount of shipping your company does with other customers in the same geographical location? Take the time to investigate lower freight options for your customers. At the very least, they’ll appreciate the efforts.
A consignment inventory agreement is a fantastic tool your company can use to lower your customer's per-unit freight costs on incoming parts. You'll offer a better price, ship one large sum of product and your customer won't be burdened by the prospect of inventory stock outs.
3. Lower Customer’s Inventory Costs
Every company wants to lower its inventory cost of ownership. In fact, inventory costs are often overlooked by sales professionals when discussing ways to help their customers save money. However, with the right contractual supply agreement, your company can become a more active participant in helping your customer manage their inventory costs. For instance, if your customer was willing to commit to a larger purchase volume, would your company then be willing to hold that inventory for extended periods? If yes, then use that to your advantage.
This video explains how to defend your business from overseas competitors by helping your customer define their purchasing costs when buying from your competition. This should help your sales team better understand the costs of inventory and how to defend your position as the incumbent supplier.
4. Reward Programs
There are several reasons why it’s important not to lower your product’s price. For one, it helps to manage customer expectations. Customers must come to understand that your product’s pricing is reflective of its features and benefits. If the product has better quality and lasts longer than the competition’s, then it most certainly deserves to be priced higher.
When confronted with those situations where you must do something to retain the customer’s business, don’t lower the sticker price of the product. Instead, use reward & incentive programs that help to lower the customer’s purchase costs over time. In this case you won’t be reducing the price of the product, but will provide a discount based on the number of units purchased over a given period of time. Keep the product’s price the same, but offer an incentive program that rewards the customer’s loyalty.
The above table and video explain the purpose behind using a back-end rebate and reward program that improves your customer retention. You can read more by going here.
We’ve examined four simple approaches to responding to a customer's request for lower pricing without having to reduce the product’s price. However, there are more. Every company is different. All have different approaches as well as different strengths. What might work well for one company, might not necessarily work well for another.
Take the time to come up with a list of ways your company can help customers lower their costs, without lowering the price of your product. If properly managed, your customers will come to rely upon your company as solution providers. The purpose is to get your customers to stop thinking about pricing, and start thinking about reducing costs. This requires your sales team focus on these four aforementioned approaches.
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