Part I: Dispelling the Pricing Myth
Greatness is not measured by what we do in good times, but how we respond to challenging times. You can ascertain the greatness of your organization by comparing your actions during this, the most challenging economy in 70 years, against the essential elements of economic recovery.
The truly great companies are going to lead the recovery and enjoy a gigantic lead over their competitors for years to come. How? By:
- Dispelling the pricing myth.
- Narrowing their focus.
- Stimulating job growth through innovation
In this three-part series we’ll discuss these essential elements of economic recovery. How will your organization measure up? Let’s see.
Dispelling the Pricing Myth
A common misconception is that buyers become more price sensitive during difficult economic times. Indeed, this belief becomes a self-fulfilling prophecy. Leaders expect buyers to become more price conscious so they discount their offerings to retain their customers’ business. Voila! Buyers’ focus on price intensifies. Imagine that.
It’s counter-intuitive, but buyers become more value oriented in a down economy. Here’s a simple example to demonstrate my point. You’re at the grocery store in the canned goods section. As you reach for your name brand green beans you notice that the store brand is 40 cents less. You think “Hey times are tough, I’ll give it a try.” So you pick up a can of store brand green beans and one of corn.
That evening you serve the green beans and find that they’re mushy and bland. Most end up in the garbage disposal. What are you going to buy the next time you’re at the store? The name brand. The store brand is more expensive even though the price is lower.
The following evening you hesitantly serve the corn. Much to your surprise it’s every bit as good as your name brand. Which are you going to buy the next time? The store brand. The quality is every bit as good as the name brand and the price is lower.
Both decisions are value decisions. The only price decision was to try the store brand in the first place. After that you returned to value. Sellers who understand this simple concept and are truly providing greater value than their competitors may lose a few sales as buyers try a lower price alternative, but that business will quickly return once buyers experience the difference.
If you’re thinking “That hasn’t been my experience.” Then there are several explanations for your experience.
- You’re offerings aren’t really superior.
- They’re superior, but not in ways that your customers value.
- You’ve stopped selling value.
Offerings Aren’t Superior
In the 20+ years that I’ve been helping clients increase their prices, I rarely find that they’ve overvalued their offerings. Indeed, the opposite is generally true; they tend to devalue their offerings.
While this isn’t a likely explanation for why customers aren’t returning after trying a low-price alternative, it’s still worth investigating. It’s possible that your quality and exceptional service have waned and you’re not aware of it. After all, many buyers will simply walk rather than complain. They may even use price as an excuse to keep from telling you that you’re dropping the ball.
It could be that your policy-making process doesn’t anticipate the impact of those policies on your customers’ experience. A more aggressive collection or credit underwriting policy may antagonize customers and drive them away. I almost left my credit card company when they unilaterally decided that I need an ‘upgraded’ card that had absolutely no benefits I wanted.
The key in evaluating the superiority of your offering is to look at it through your customers’ eyes. There is no other perspective that matters.
Superior, But Not Valuable
A more likely explanation for why buyers aren’t returning is that while your offerings are superior, your customers don’t value the additional benefits your offering affords. I learned this lesson from a printer who asked me “Do you think that customers coming to my print shop want a great print job or a good print job?”
“A great print job!” I responded. He smiled one of those ‘gotcha’ smiles and said “Most people can’t tell the difference between a good print job and a great print job and the great print job is a lot more expensive. My customers want a good print job because they aren’t willing to pay for something they can’t see.”
How about your offerings? Have you increased the quality/service beyond what your customers value? If so, it may be the reason they’re not returning after trying a low-cost alternative.
You Stopped Selling Value
Earlier we discussed the misconception that buyers become more price conscious in a down economy when, in fact, they become more value conscious.
It’s this belief and the attendant fear that a down economy engenders that cause us to stop selling value. Recently I gave a presentation to a group of business people one of whom was a product supplier to the construction industry. While logically he agreed with everything I was saying about holding your price in a down economy, emotionally he couldn’t get past the fact that his customers were opting for lower prices. By the way, his offering was the ‘gold standard’ for his industry – a reputation that was earned from decades of exceptional quality and service.
Here are some of the questions I asked him:
Q: Are your products’ tolerances better than your competitors?
Q: What does that mean for the contractor using your products?
A: Assembly goes more quickly saving time and money.
Q: Do your competitors’ tolerances result in higher product returns?
Q: What does that cost the contractor?
A: Lost revenues while he waits for the right material.
Q: What does that do for his reputation with the general contractor?
A: Makes it more difficult for him to get repeat business from the general.
Q: What does that do to the general contractor’s reputation?
A: Damages it with his customer.
Q: Does that make it more difficult for him to get repeat business from his customer?
Q: So how much money is at stake if all three of you lose a customer?
This business man, not only knew the answers to these questions, they were questions he typically used when selling before the economy tanked. The reason he no longer used this sales approach is that he believed that his customers ‘only cared about price.’
That’s the misconception that began this discussion. The reality is that buyers become more value conscious in a down economy, not more price conscious. Indeed, value is less important to customers in good economic times. You need look no further than your own buying history.
In good economic times there were things that you bought because you thought you might enjoy them, even though they weren’t really all that important to you. Not today, you’re foregoing that type of spending to maximize the value you get from every dollar you spend.
Those of you who can use these insights to get past the myth that buyers only care about price are going to hold, better yet raise, your prices and resume selling value. In the process you’ll not only recoup some of the revenue lost when the moderately-interested buyer left, you’ll help your buyers get the greatest value from their dollars. They’ll show their appreciation by returning time and again to purchase your offerings.
How did your company measure up? If it wasn’t as well as you’d hoped, you now have a tool to help you move you to another level of greatness. The next tool we’ll discuss is narrowing your focus.
Author – Dale Furtwengler