Have you been asked to drop your pants on price? It feels pretty gross doesn’t it? But just because your competitor engages in a price race to the bottom, doesn’t mean you need to. Check this out:
How to win a price war
You’ve been asked to tender for a big contract. Your prospect says: We really like you for this job, it’s basically yours. Except, of course; it isn’t. We need you to do it for $10K/$100K/$1M less. Otherwise, it goes to your competitor. Now what?
There is only one way to win a price war, and that is to change the game. Instead of walking away, welcome the opportunity to show how you are different. Here are 8 actions to get you battle ready:
1) Understand your competitor’s price strategy
Why is your competitor engaging in this price war? They must be feeling the pain of your growth if they are willing to drop their price to win the job. How they do this is either by cutting costs or underwriting a loss.
First; look at their cost structure. Are they trimming costs or do they have a structure which better sustains reduced prices? (e.g. better supplier prices, lower fixed costs).
Next; do they have wider profit margins? This one really stinks. If they are a bigger player, they’ve become big because the market has rewarded their staying power. They’ve been holding their breath before; cross subsidising their losses across profitable clients. Until they drown their challengers, and correct their pricing into profitable terrain. The market being the ultimate loser.
Finally; what is really going on inside your competitor’s business? Who is leading the business? Are they losing their killer instinct, or are they beasts at managing their cost structures and innovating to maintain their profit margins?
You’ve been invited into the tent, but your price is deemed too high. Now what?
Figure out whether there is a way you can persuade your prospect that you are different. And that your differentiation will save them money and heartache in the long run.
Sit them down and step them through why your offer is more expensive. Your approach should justify the price. This could be a better process, accountability to meet their budget or superior results.
Once you’ve made your case; shut up and listen. Listen to what your prospect is saying, listen to their objections. Sometimes no amount of differentiation will persuade them your price is worth it. If this is the case; thank them for the opportunity and walk away. This might not yet be at the stage where it becomes a happy or profitable relationship.
4) Honest conversations
Have an honest conversation with yourself: Are you truly different and can you justify your price? We really need to be different to win in the long run, so this is the time to really hone in on differentiating your product, delivery or customer experience.
Talk to your customers: Find out what they think of you, whether they would promote you and why. This will help you understand whether your differentiation is real and valued.
5) Analyse it
Analyse your market. Is there anything going on that is changing the playing field or the way your prospects are buying? Perhaps there is a good reason to change the way you operate?
If so; are you better off competing on geography, customer segment or product? Will you compete at the low, middle or high end of the market? Pick your battle field, to focus on your win.
6) Smell their weakness
It is easier to win against a weaker competitor, rather than spreading yourself too thin across the lot. Are you up against an incumbent with a docile leadership team and a high cost structure? Snap!
7) Rally your allies
The enemy of your enemy is your friend. There will be clients or suppliers out there who have been burned by your competitor and who might become your best allies.
Flying under the radar while you organise your allies, will enable you to surprise your opposition.
8) Profit fixes everything
You can play a defensive game to stay in the market and battle on for another day. This is a fine strategy and is accomplished by reducing your overheads and generating profits on lower turnover.
There is also another way: sell like crazy, while controlling your costs in the process. This strategy does sound like more fun. And having fun is a big reason we are doing this, isn’t it?
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