How to successfully trade the price minefield
One of the hardest things to do is write a price quote or an estimate that is going to be successful. Very often there is a preferred supplier and you are beaten price wise so that the buyer can use it to their advantage against the preferred supplier or suppliers.
One solution worth implementing is when you are asked to submit a quote, visit the business, and speak to the actual decision maker about the value.
In this situation, you are in a position to discuss the value with the decision maker instead of blindly bidding and hoping for success. In my experience, it’s a better approach than one that relies solely on price.
Plus, you’ve just increased your chances of success because during value discussions you’ll gather vital information that will allow you to emphasize your quote.
Value is the basis of commercial exchange. You provide products and services to customers so they can create their own value.
Any customer who comes to you because of your low price will be the first to leave to go to another low priced competitor.
You need an answer to this very important question. “Do you know the value you provide to your customers?” Unless you know the answer to this question, you cannot have a logical pricing structure.
How are the prices set? Do you look at your costs and then add a margin that you think is reasonable? This is quite a seductive method because anything you sell will make a profit, but there are a couple of problems with this approach.
First of all, your customers don’t care about your costs. They only care about the perceived value you deliver.
If you ignore the value you bring to your customers, you are in great danger of undervaluing and therefore limiting your profits. On the other hand, pricing to cover your costs can actually keep prices higher and reduce sales.
Second, the problem with cost-plus pricing is that it assigns all overhead to the pricing calculations. Now it seems to be quite reasonable until you consider that these costs appear to be variable when they are not.
The difficulty arises when you have low utilization of plant and machinery and allocate these costs per unit, which prevents you from setting competitive prices to increase sales and increase utilization. Or lose profits or sales.
The other problem with cost-plus pricing is that you miss out on being an entrepreneur when the opportunity presents itself. You are locked into a rigid formula that does not allow any deviation to take advantage of the situation. For example, the customer may need a product urgently. If you’re not practicing cost plus pricing, you can add a premium each time.
The successful producer of an article sells it for more than it costs to make it, and that is his profit.
But the customer buys it only because it is worth more to him than he paid for it, and that is his profit.
No one can make a profit for long by producing something unless the customer perceives that they are making a profit using it.
In business, it is vital to remember the customer gain. In other words, if you put your need to make money before the needs of your customers, you’re doomed. Customer satisfaction can make or break you.