The following is a guest post from Adele McLean from Holden Advisors.
How many people in your company are focused on controlling costs? Count them. Go ahead, count them. Now, how many are dedicated to managing price? If your company is like thousands of others out there, far fewer people are dedicated to pricing than to costing. We can all quote the adage “1% improvement in price can yield a 10% improvement in profit”, and that is impressive for any company. That is the promise of the longest profit lever – pricing. Yet, we dedicate a small fraction of our resources to the actual practice of pricing.
Even smaller still is the amount of resource dedicated to price getting. We’ve spent billions investing in price setting optimization. We can set prices for the smallest, most well-defined segments. But one often overlooked opportunity today for significant revenue and profit improvement is how to defend that carefully crafted price in the face of tough price negotiations, or what we call price getting.
For years, procurement has invested in training and gamesmanship all dedicated to one thing – discounts. To counter this imbalance, we need to equip our sales people, and other customer facing teams, with a few best practices for explaining and defending price to realize the great payoff of improved price getting.
The foundation of price getting is being able to understand and defend value. We define value as the impact of your product and service on a customer’s bottom-line versus the competitor’s impact. Most organizations focus on features and benefits and have a very internally focused view of their solution’s value. The key to price getting is to understand your value through the lens of the customer’s financial performance. Once the foundation of value is known and established, you can then:
1. Create Give-Gets
These are price-value trade-offs that enable sales to offer options to enable maximum financial impact to customers.
2. Build backbone in sales and customer facing teams
Ensure all customer facing teams are versed in the value you deliver, skilled in collecting new data to support financial impact of your solutions, and habitual about asking good, open-ended questions to uncover new opportunities with customers.
3. Gain executive support to defend your value
Develop real backbone by developing negotiation strategies that include walking away from a customer bluffing their way to lower prices and ignoring your solution’s value. The organization must be aligned on the customer strategy before the negotiation begins.
The result of improving price getting is an improvement in ROS, deeper relationships with customers, and most importantly, improved revenues and profits.