The Primal Scream of Low Price

The Scream This week I spent several days training a contractor’s sales staff. Inevitably during training, the primal, fearful scream of low price comes up.

And it usually sounds like this: “Customers only buy low price – how can we compete?”

My response to that scream has three parts to it:

1) Price is meaningless…without value

2) Communicating value is the contractor’s burden

3) Customers only pay within their market’s price range

1) Price is meaningless…without value

It’s true. Price only matters when customers know what they’re getting.

Think about this: “Does low price win every time”? Of course not. Because if it did, then only low price contractors would exist.

Let’s put it another way. Imagine a janitorial market where the average price per square foot is $1.10 per year.

In this hypothetical scenario, LazyBoy Cleaning (my made-up company) comes in to town and starts pricing janitorial bids at $0.25 per square foot, per year.

Any poor customer who hires LazyBoy Cleaning will be sorely surprised to find that for our $0.25 my brother and I only come into their building twice per month and empty one trash can each. And that’s all.

The moral of LazyBoy Cleaning is that customers expect something in return – for whatever they’re paying. Their money in exchange for value. Now customers may not pay much, but they’re still expecting something in return.

Separating value from price makes price meaningless. It’s what customers get for their money that matters to them.

2) Communicating value is the contractor’s burden

Customers often have a hard time figuring out the value contractors will provide.

As contractors we’d like to imagine that customers look into our souls and select us every time because we’re nice people and darn it, we deserve more business.

So much for fantasy.

Since customers have the money, it’s the contractors’ responsibility to communicate what customers get in exchange for that money.

If contractors don’t communicate value, customers have an easy out. They use price to choose. Who can blame them? It’s right there in front of them. All the contractors provide pricing. It’s numerical. Low number wins.

So, like it or not, contractors have the responsibility of value communication. That’s what contractors’ proposals are for.

3) Customers only pay within their market’s price range

Customers buy services in a marketplace made up of a range of prices. That range comes from contractors’ pricing to a specific bid. A customer looks at those prices, and voila! They have their market price range – top, middle and bottom.

No matter how wonderful a contractor’s service is, customers won’t pay outside that market range. Customers, constrained by budgets, use that market range for what they should, could or might pay.

The good news for contractors

Each market range has a top end. And if a contractor can successfully communicate their value to a customer, they’re in position to win the contract at the premium end of the pricing range.

And it’s a rare and wonderful day when a contractor is the sole bidder. It does happen, I’ve heard.

In the final analysis

Contractors win or lose bids on their ability to communicate value in the bid process.

The first step is to figure out what customers value. Then what price customers are willing to pay for it.

How well do you communicate value?

~~~~~~
Chris Arlen
President, Service Performance

Technorati: selling, proposals, low price

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