What does your company do when confronted with a customer request for lower pricing based on a competitor’s bid? Does your company use market data to justify your product’s price, or do you simply capitulate on customer requests and match the competitive offer? Most companies give in on customer price requests because they lack the tools to stand firm. Instead of using market data, they immediately go on the defensive and lower their price. In the end, it means accepting a lower gross profit and forever setting the stage for capitulating on future requests.
A Simple Market Intelligence Gathering Strategy
Solid market data can mean the difference between business won or lost, and ultimately, whether the sale has a healthy, or unhealthy, gross profit margin. Most companies ignore the long-term consequences of lowering their product’s price. Instead, they concern themselves with short-term results, instead of their long-term growth objectives.
Some companies justify lowering the price in order to retain market share. In other instances, they believe they’ll be able to raise pricing at a later date. Unfortunately, once that lower price hits the market, it has a cumulative effect and companies are rarely able, or willing, to raise the price again.
Now, I am not implying that companies should never lower pricing. What I am implying is that your company should have the relevant market data before deciding to lower your price. This data allows your company to make a calculated decision on whether to match that competitive bid, or stand firm. In essence, it’s about justifying your decision based on the market information at hand. So, how how should your company track market data on pricing? Well, one tool you can use is the back-end rebate program, one that increase customer retention and gives them a reason to provide your sales team with information on competitive bids.
The Back End Rebate Program
The customer back-end rebate and reward program is a simple tool that can provide you with instant feedback on market pricing. The program forces your customers to provide you with up-to-the-minute market pricing once they receive a competitive bid. The table and video above are from the post: Sample Back-End Rebate Excel Sheet for Customer Retention
Importance of Tracking Market Pricing
For any company to benefit from market data requires that company keep a record of market pricing relative to volumes. For this to work requires the company’s marketing and sales team properly track pricing within the market. This includes not only the company’s own price, but the competitor’s price as well.
To simplify this analysis, we’ll assume a company has tracked its own business relative to its competitor’s business in a given territory. In this case, the company has used the aforementioned rebate program. The first table shows the company’s current prices and volumes as well as its existing business. The table shows the price and the corresponding volume sold to each of the company’s customers in this territory.
The second table below is a record of the company’s lost sales to its competitors. In this case, the company has tracked the business lost at each specific customer and the estimated price that customer secured from the competitor. The yellow section entitled “Delta” is the difference between the company’s own “Price Scale” ( table above) and the competitor’s estimated price (table below). For instance, the first customer listed is “Steve Services” and their volume of 8 units was sold by the competition at a price of $4.90/unit. The Delta is simply the company’s own price of $5.00/unit, minus the competitor’s price.
Use Market Data to Your Advantage!
When your company tracks market pricing, you are in a much better position to determine your company’s overall sales strategies and whether or not to match a competitive bid, or hold firm. The "Delta" allows you to gauge the variances in pricing within the market. It’s essential to keep a record of pricing in the market and to match that pricing to the corresponding volumes.
Most companies lose business and never take the time to ask why. More importantly, very few take the time to document when and how it occurred. The "when" portion of market data is of utmost importance - as market pricing tends to fluctuate over time. The rebate program covered in this article should help you improve your company's ability to track the pricing from competitors.
The video above outlines some strategies your sales team can use to handle customer scare tactics, pricing and concessions in negotiation. You can read more by going here. If you need specific statements your salespeople can use to defend your company's pricing, then go here.
Tracking market data is an essential part of identifying and closing on opportunities. The best companies have their sales and marketing teams track market pricing, and they use that information to win business. To succeed means to be able to justify your company’s decision to maintain or lower pricing. It’s a good idea to have regular meetings and discussions about recent market trends.
If properly managed, this can become a vital tool for the company’s sales force. Regardless of the size of your market, keeping abreast of your competition, and their approaches, will help to better position your company when confronted with a customer's request that you lower your price.
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