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How to Easily Avoid a Price War

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Want to avoid a margin-killing price war? Simple. Focus on the "cost of not buying." Don't present features and benefits, overcome objections, and then try to close the deal. Instead, research your customer and craft questions that will uncover areas where the customer does not yet understand the cost of a problem. Then help them estimate the financial impact of that problems. Here's how:

STEP #1: Identify the Customer's Problems. The majority of business purchases are made to solve some sort of problem, e.g., productivity problems, delivery problems, quality problems, etc. These problems consume resources and drive costs within the customer's organization. Find areas in the customer's business model where your offering can solve problems. Best case, your offering should do this in a unique way that competitors can't imitate.
STEP #2: Estimate the Financial Impact of the Problems. Depending on the size and sophistication level of the customer, they may -- or may not -- be aware of the true economic impact of these problems. If not, then you must use your expertise and experience to help them determine how much the problems are actually costing them. You want to uncover accurate dollars-and-cents information in order to quantify the total economic worth of your offer.
STEP #3: Determine the Root Causes of the Problems. It's not enough just address the "presenting" problems. You want to provide a long-term solution that will create more economic benefit for them. This is not only better for them, it also allows you to increase the total economic worth of your offer, because the root causes may spread financial problems throughout the entire organization.
STEP #4: Estimate the Financial Impact of those Root Causes. Find opportunities where you can help the customer address these root causes, either with your product offering alone or with a combination of your product and additional information, or services and support, such as problem solving, application engineering, start-up assistance, etc. The most opportunities you can find to help, the greater the economic value of your solution.
STEP #5: Create a "Cost of Not Buying" Statement. Based upon the above, create a summary statement of what it will cost the customer if they do not buy your product. Once you've got the customer to agree on the impact, you've already closed. The rest is just detail work. In most cases, the "cost of not buying" will be so great that the price of your offering will be rendered entirely irrelevant.

BTW, the above is based on a conversation with Robert Nadeau, a consultant who helps companies with pricing issues. Very smart guy.

posted by Geoffrey James
November 2, 2009 @ 11:03 am

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