When it comes to B2B sales strategies, nothing is more frustrating than having to deal with a competitive bid that forces you to defend your product’s price. This is especially true when your company has spent all that time justifying the price by focusing in on your product’s features and benefits. Unfortunately, if there is a lower price available in the market, eventually your customers will hear of it. So, what does your company do when faced with a competitive bid? Do you match it or leave the price as is? Well, most companies given in and lower their price. However, there are benefits to not matching competitive bids.In a number of cases, the rewards far outweigh the risks!
In yesterday’s post “B2B Sales Strategies: Importance of Market data in Price Negotiations” I explained how market data on competitive pricing can become a fantastic tool when confronted with a customer’s request for lower prices. It explained how the best companies track their own pricing relative to their competitor’s pricing. The idea is to use the market data to gauge the reality of the customer’s claim. If your company has solid market data on pricing, then you’ll always be one step ahead of your competition.
Today, I want to expand more on the decision not to match that competitive bid. In this case, your company is fairly confident the customer is unable to secure the order. Or, your company is taking a calculated risk that your competitor won’t be able to deliver the price relative to the service your customer requires. Perhaps your company has razor thin gross profit margins and can’t afford to lower your product’s price. Whatever the situation, here are the benefits of leaving your price alone and choosing not to match your competitor’s offer.
Learn about how to handle price demands, concessions and customer scare tactics.
1. Properly Managing Customer Expectations
All the work your company’s marketing & sales team did to justify the product’s price tag will immediately be thrown out the window the moment you decide to lower its price. In this case, capitulating on the customer’s price request is simply setting the stage for future price concessions. It affects your company’s ability to properly manage the customer’s expectations. By not lowering your price, your company has essentially backed up its claims that your company’s product warrants its price tag.
2. Commitment to Long-Term B2B Sales Strategies
Let’s assume for a moment that you don’t lower the product’s price and your company loses the business. If and when that customer returns, price won’t be the deciding factor. In fact, the moment that customer returns, your company can immediately assume that your competitor wasn’t able to “deliver the goods”, so to speak.
If the customer left because of price, then the only reason they would return would be because your higher price is no longer an issue. By not lowering the price, and having that customer return, you’ve successfully defended your price and protected your gross profit.
3. Justifying Gross Profit
Gross profit is essential in sales. In fact, gross profit is the ultimate indicator of a sale’s value to your company. After all, if there’s no gross profit, there’s no value – it’s that simple.
Your product’s sales must justify your company’s costs relative to designing, manufacturing and marketing the product. You are well within your right to defend your product’s price. If you feel the customer’s price request is unwarranted, then make the decision not to match the competitive offer.
4. Protects Your Business & Market Pricing
As previously mentioned, once a lower price hits the market, customers will get a hold of it. The question you must ask yourself is: “What does matching this competitive bid mean for our business?” While you may be able to keep the price confidential with this one customer, eventually that customer will advise your competitor that you matched their bid.
That competitor will then lower their price and use your pricing against you to secure business with your other customers. What happens when your other customers hear you haven’t offered them this lower price? Suffice it to say, they won’t be happy.
If you need input on how to defend your position as the incumbent supplier against overseas competitors, please read: Stop Losing Business to Overseas Competitors: Define Your Customer’s True Purchasing Costs
5. Avoid the Dreaded Price War
The last thing your company wants to do is get into an endless price war with your competitor. All that does is erode market share, reduce prices and lower your product’s gross profit. In addition, the further your company gets into the price war, the more likely you’ll lose your perspective. Your focus will shift from protecting your business, to just making sure you beat your competitor. In the end, you’ll end up with a price so low your gross profit will be virtually nil.
A number of companies purposely low bid customers in the hopes of driving down their competitor’s pricing. Is this happening to your company? When faced with a decision to match a competitive bid, take the time to review its impact on your business and what it means for your market. The best approach is to justify the customer’s request by asking for a concession.
When it comes to B2B sales strategies, securing customer concessions allows your company to justify matching competitive bids. These customer concessions could be larger volumes, longer purchase commitments, or partial prepayment of the order. In essence, it’s about making sure your customer provides you with a reason to lower the price.
I’ve included a link to an article that explains how your company can stay one step ahead of your competitors with respect to pricing. It’s a customer reward program that incentivizes customer loyalty and provides your company with the right of last refusal. The video below explains how the program works. The link is just below the video.
The Customer Retention Plan That Keeps Customers & Grows Sales!
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