We’ve all heard the claims; it’s simply too difficult to compete against low-cost overseas manufacturers. You’ve likely experienced this first hand. I know I have. First, overseas competitors have lower labor costs. Second, the labor laws are stacked in their favor. Third, their overall costs to manufacture are much lower than ours. Fourth, they aren’t held back by a lot of “red tape,” and can therefore take advantage of several loopholes, ones that lower their landed costs into North America. However, despite these inherent advantages, despite their propensity to continually lower prices, there are still strategies your company can use to level the playing field against overseas competitors.
What Does a Lower Price Mean?
When a customer asks for a lower price, what are they really asking for? Now, you’re probably reading this and wondering why I would ask such a redundant question. After all, when a customer asks for a lower price, what else could they mean other than to be asking for a lower price? However, it’s never quite that simple. Still unsure of how to answer? Well, then try this instead: What does a lower price mean to your customer? It means they’ll save money, or put differently, it means they’ll lower their costs.
Every company wants to lower costs. So, if a customer’s request for a lower price is nothing more than a request for your company to help them lower their costs, then does that necessarily mean your company has to immediately lower its product’s sticker price? It doesn’t. Can you save your customer money without lowering your product’s price? Absolutely! This is the first strategy of defeating an overseas competitor:
“A customer’s request for lower prices is nothing more than a request for you to help them lower their costs. Once you realize this, you can start saving your customer money without lowering your product’s price!”
Strategy #1: Remove Price From the Equation
You must move your prospect away from discussing your product’s price and onto discussing other ways your company can save them money. This is where you redefine your customer’s purchase criteria. If you can't compete on price, then don't. Ignore that temptation to sell by matching the lowest possible competitive bid. Appeal to your brand and its value. This is where you set the stage for lowering your customer's costs without reducing your price. How is this done? Ask them what their price concerns are. That’s really all there is to it. Use something like….
- “I understand your concern about pricing, but isn’t this concern ultimately about lowering costs and saving money?"
- “Isn’t this concern more about having to save money?”
- “We understand your need to lower your costs. As such, we’ve come up with a number of ways to lower costs for our customers.”
- "We understand how important it is to reduce costs. In fact, we've been aggressive in reducing costs with our own vendor base and we've started using the same approaches with our customers. Interested in knowing what these approaches are?"
The above video explains how you can expose your overseas competitor's offer and is from the post: Stop Losing Business to Overseas Competitors: Define Your Customer’s True Purchasing Costs
Strategy #2: Define Cost Saving
The first step was to get your prospect away from comparing your product’s price versus the pricing from overseas manufacturers. The next step involves providing your customer with definitive cost savings, ones that back up your claim of being able to lower your customer’s costs without lowering price. Here are a couple of strategies to pursue:
Cost-Per-Use Benefits: Does your product have any cost-per-use or longevity benefits? If so, can you quantify these benefits in terms of savings for your customers? When doing this exercise, try to apply a dollar value to the savings of using your product versus your competitor’s product. Come up with a simple table or side-by-side comparison (without naming the competitor of course). A general comparison is often enough.
Freight: Does your company have better freight costs because of high volume shipments to other companies near your customer's location? Can you pass these freight savings onto your customer? Lowering your customer’s freight costs goes a long way to saving them money. Lowering their incoming freight costs saves your customer money on inventory financing and helps them to better manage their inventory.
Warehousing: Does your company have any extra warehousing near your customer, or another stocking location that might allow you to store product until they are ready to take additional releases? Or, can you define your customer’s costs of inventory financing? For instance, some companies must purchase large volume of product from overseas competitors in order to make up for the long turn times. The longer they hold that product, the more expensive it becomes – due to inventory damage, obsolescence & financing.
Consignment Inventory Agreements: Running a consignment inventory agreement is a fantastic way to save your customer money. Your company ships one lump sum of product to your customer’s location. In return, you customer lowers their per-unit freight costs on incoming parts. They are only invoiced for what they use in the month they use it, which further empowers them to lower their financing costs of inventory. Finally, consignment inventory agreements are contractual agreements, ones that lock up long-term business. Most importantly, consignment inventory works just as well in retail and wholesale industries, as it does in a business to business (B2B) industries.
The consignment table and video is from the post: Supply Chain Management: Pros & Cons of Consignment Inventory
Quality Benefits: This isn’t to be confused with the aforementioned cost-per-use benefits. Instead, it means to tie in your product’s higher quality to the savings it provides against lower priced, lower quality overseas product. You must define the benefits of this higher quality. For instance, let’s assume your overseas competitor is running a consignment inventory agreement with a customer of yours. An important question might be to ask what that customer does when confronted with defective product. What does the customer do when they have to wait 6 weeks for a shipment of product, only to find out that product is defective? Do they then go out and purchase from a local company, one who will certainly charge a higher price – maybe even an expedite fee? Now, did the customer really save any money? No, they didn’t. This is ultimately why you must help them find these hidden cost drivers. There is a definitive cost to buying bad quality product and it's often overlooked by companies.
Strategy #3: Find Internal Champions
You're probably well aware of the importance of finding internal champions for your product. However, this isn’t the real strategy in this case. Instead, it’s to understand whom you are dealing with. In essence, you must come to understand the type of decision makers your company sells to.
The Buyer: A buyer or procurement professional is measured by their ability to lower their inventory costs. The strategies in step #2 point to how your company can lower your customer’s inventory costs without lowering your price. If you can help your procurement contact lower their inventory costs of ownership, then you've helped resolve a huge area of concern.
The Engineer: An engineer will base their decision to buy on a product’s, or project’s design time, and or its overall budget. They are ultimately looking for a high quality product that won’t blow their timeline, one they can work with. In essence, they want a functional product that will make their design or project work. Selling them on features and benefits is always best as it speaks to your product’s functionality and ease-of-use.
The Business Owner: Finally, a business owner is ultimately concerned about everything. They want lower costs, lower inventory costs, a better product offering and fewer headaches. They are looking for a big picture solution, one aimed at helping them lower their overall costs of ownership. Ultimately, they are more inclined to be interested in consignment inventory agreements and on your ability to provide a product they never have to worry about upsetting their own end-user customer base. In essence, a business owner is concerned about their customer – so understand your customer’s "customers" and define how you’ll help support them.
Now, is this all there is to defending business against overseas manufacturers? Of course not! However, it should give you some ideas about how you can change your customer’s purchase criteria. If you can’t play on price, then don’t; play on another level. Play on a level where those overseas competitors can’t beat you. Move the discussion away from your product’s price and onto how your company can reduce your customer’s costs. Talk about your product’s quality, your lower per-unit freight costs on incoming shipments, your immediate turnaround times, your emergency inventory and ultimately, your product’s cost-per-use benefits. Define these savings and get your customer to admit that price concerns are ultimately cost concerns. Once you’ve done that, you can then move forward with saving them money without lowering price.
Comments