Oct 29, 2019
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Transcript
How can I compete against low-cost providers?
A few weeks ago, I was in a presentation, and during the break, a salesperson said, “I’ve got one of my long-standing customers who is now starting to question price.”
He continued, “I have this one
competitor who is offering cheap prices, across the board, to try
to buy the
business.”
I know this is a common
challenge that salespeople are facing. Let’s unpack this challenge
a little
bit. If you have a low-cost provider that is out there promising
cheap prices,
it really can screw up the market. Your existing customers that are
familiar
with your value added, see a lower price and compare that price to
what they’re
currently paying. That creates what we call an equity gap. They
start to
question the fairness of what you’re charging them for the value
they receive. As
they’re questioning it, they’re starting to become more open to
this other
alternative. This creates an equity gap that can frustrate
customers. It
certainly frustrates salespeople.
How
can I compete against low-cost providers?
The first thing to do is take
a look at this competitor. Do a basic SWOT analysis; try to
understand them; try
to figure out where they are vulnerable, or where they are weak.
When you analyze
cheaper competitors, you’re usually able to find one or two things
that are a
weakness that also can draw attention to a strength that you have.
For example,
I remember a group we did some work with a couple years ago. They
were selling
in industrial distribution, and they had a company that was
promising cheap
prices. After they analyzed this particular competitor, they
noticed that thee
salespeople were not very knowledgeable. In fact, they didn’t bring
any real
value. Now, when they’re going out there competing against this
low-cost
provider, they’re asking questions that call attention to this
competitor’s
weakness.
For example, when the customer
says to them “I can get this cheaper over at XYZ Distributor,” they
say, “I
know there’s a difference in the price, but what about the
experience of their
sales team? Are they able to come in and solve problems? Are they
able to bring
some experience to help you become more profitable?” They’re
calling attention
to that competitor’s weakness.
When you’re dealing with a
low-cost provider that gives stupid-low prices, use a framing
technique—we call
it the boomerang or casting a little bit of doubt. I’ll give you an
example. A
couple of years ago, I was interested in getting Lasik eye surgery,
and I went
to go meet with a reputable doctor. We talked about it; he asked a
lot of
questions, and he explained the whole process and even shared with
me the kind
of equipment he’s using. And then he gave me his price. The price
at the time
was about $5,000. I explained, “That’s quite an investment. I’m
going to do a
little more research.” I remember seeing billboards, and I heard a
radio ad for
this other doctor who was offering Lasik eye surgery. It was right
by my house,
so I decided to stop in. Now, it was a completely different
experience going to
the other doctor. As soon as I got in there, it felt like they were
pulling out
all the old used-car techniques. They were trying to schedule me in
to get the
surgery before I even had discussed with the doctor what I wanted
to
accomplish. Finally, I said, “Before I get surgery, I want to talk
to the
doctor.” I talked to him, and he asked me a couple of questions,
but then he
said, “I just had a cancellation next week. If you can agree today
to the
surgery, I’ll do both of your eyes for $500.” When he said,
I’ll do both of your eyes, I thought,
what was he going to do, just one of them originally? He was going
to do it for
$500. That, right then and there, made me think. I questioned,
“What am I
really getting from $5,000 to $500? A big, big difference.” I
remember calling
the other doctor. I said, “Just to let you know, there’s another
guy out there
that’s offering $500 Lasik surgery. What’s the difference?” He
responded by
saying, “Do you really want to go cheap on something like your
eyes? I mean,
$500 versus $5,000? Doesn’t that scare you a little bit?” And I
acknowledged,
“Yeah, it certainly does.”
That’s a boomerang technique.
And you can do something similar.
If you have one of your
customers saying, “We can get this cheaper somewhere else. We’ve
got this
low-cost provider here,” question it with, “I know what we charge
for this. I
know we charge a fair price.” “Do you really want to go cheap
here?” “Are you
concerned at all about their ability to deliver?” “With the price
that low,
doesn’t that concern you at all?”
Asking those types of
questions can cast a little bit of doubt, and also, you can use
that as an
opportunity to reinforce some of the strengths of what you offer.
Again, ask
questions that call attention to the weakness of that low-cost
provider. Use
that boomerang technique.
The other thing you’ve got to
remember, pricing builds perceived value. In the absence of all
other
information—price is one of the greatest indicators of quality and
performance.
When the customer says, “Your price is a lot higher,” use that as
an
opportunity to explain some of the value—what they’re really
getting. Keep in
mind, at some level, the customer is looking at your solution;
they’re looking
at a much cheaper alternative, thinking, I
pay more but I’m going to get more. We can tap into that a
little bit.
Speaking of pricing—building
in perceived value—I was listening to a great podcast episode on
Guy Raz’s How I Built This, and he had the
founder of Tempurpedic, the mattress company, on there. I forgot
the exact
story and how it all happened, but, I know they were trying to get
their memory
foam mattresses into one of those Brookstone-type stores. They
weren’t selling
all that well once they got the mattresses in there. But, then,
they ended up
raising the price on the mattresses. Once they raised the price,
they started
selling more. As consumers, we associate price with quality, which
means we
also associate cheap prices with lousy quality to some extent.
When you’ve got these low-cost
providers, there’s one other thing you have to remember—there’s an
integrity
element to this scenario. If you have a low-cost provider that
comes in and all
of a sudden you match their price—come down to their level—your
customer starts
to question your integrity. They’re thinking to themselves, “If you
can match
their price now, why weren’t you doing this all along?” You start
to lose a
little bit of credibility. By discounting in this type of scenario,
you’re
starting to lose a little bit of trust, which, I think, is a lot
worse than
losing an order. Explain to the customer, “Here’s what we
can do.” “Here’s how we’re different than that competitor.”
Maybe cast a little bit of doubt, but at the end of the day, you’ve
got to tell
the customer, “We’re already giving you our best price, and our
best value
along with that.” I wouldn’t discount, especially to go after a
low-cost
provider. You might end up losing more than just an order; you
might lose some
of their trust. Keep that in mind when you’re out there selling
against
low-cost providers.
Just a quick tactical review:
Number one – ask questions
that call attention to that low-cost provider’s weaknesses.
Number two – use the boomerang
technique. If the pricing is shockingly different, then go ahead
and call
attention to that and say, “I understand there’s a difference in
our price, but
doesn’t that scare you at all? If they’re coming in that low, I’d
be a little
concerned about their ability to deliver.” It’s okay to cast a
little bit of
doubt there. At the same time, you want to remind the customer of
the value you
bring that is different.
Number three – keep in mind
that pricing does build perceived value. If you decide to match
that price and
get down and dirty with that low-cost competitor, you could end up
losing more
than just an order. You could end up losing some of the trust that
you’re
building up.