How to Defend Price by Backing Up the Buying Center

March 19, 2019

How to defend price by backing up the buying center

It should come as no surprise that we often hear from companies that their competition has improved or that the market is becoming commoditized. This is a common plight of an Automotive Supplier.

What may surprise you is that despite this, only 20% of suppliers really invest in developing proof as to why they are different and better than their competitors. That means that 80% of all suppliers fail to do so or don’t do enough.

Sometimes I get the counter: “But we’ve got a great relationship, this business is all about relationships.” It’s true that relationships matter, but in big deals they are only a prerequisite. They are not enough, and there is a simple reason for that: your counterparts have to justify in front of their management and coworkers why they want to spend more on your company when they could get a similar product or service somewhere else for less. Give them the answer of “but, I like him so much”, and you will know that this argument does not have much clout.

Companies that excel at price defense know this dynamic and systematically back up their customer’s buying centers with reasons why their company is the smart choice – despite price.

This enables your fans in the buying center to fight for you AND to further their career at the same time. With strong arguments, they can stand in front of their management and coworkers, and claim:

“A is the cheapest competitor, but B offers so much more; they offer X, Y and Z. Plus, if we dig a little deeper, we see that while B is more expensive on first sight, it makes us a lot more money in the long run. That is why B is the much better choice.”

If the buying team has no proof that your products are a) more reliable, b) more effective, or c) more efficient, they have no option but to choose based on price.
So what are the rational reasons why your customers should choose your company? If you don’t have a clear and strong response to this question, here are three areas to consider:

It’s common knowledge that purchasing departments are driven by price, but in our experience we find that they are driven even more by security.
The reasoning is simple: You don’t lose your job as a purchaser because you did not get the lowest price, but you might lose your job or reputation when you are the guy who purchased the airbags that now fail, or the steering wheel buttons that now malfunction.
The problem is that just saying you’re the most reliable doesn’t cut it. In order to leverage security for your price defense, you have to invest in proving it. Here are a few examples of how to do this:

  • We have won X top supplier awards in the last five years.
  • We took over business from competitors because they could not live up to very high expectations. Here is an example. You can call our customer Mr. XYZ to better understand why we are a very good choice.
  • We have the best testing in the business, we put our products through XYZ testing to make sure each product out the door is top quality. We have a PPM of Y.
  • We have the best warranty in the business because we know our product is good and we stand behind it.

Having more effective products can come in many shades. Have a look at a few examples:

  • Our product offers ABC functions which no one else has, these functions make it more effective because of XYZ.
  • Our product is the best product on the market, we know because of this data which shows that it outperforms the market on XYZ
  • Our product lasts 20% longer than your current product. Have a look at these test results.
  • Our brand is attractive for your end-customers. On average, end-customers are willing to pay 10% more for our products. At a price of $500 for this option and 1 million cars over lifetime that adds up to $50 million over lifetime.

It is not only the outcome that counts. It is also the amount of work and time that a company needs to invest in order to reach it goals. Have a look at some examples for reasons in this area:

  • Our technology allows you to save on material costs, assembly costs, testing costs and/ or logistic costs. If we assume xyz this adds up to $1 million in savings.
  • If needed, we can reach Start of Production within 3 months after we get the project awarded or the product change is agreed on. Look at these examples.
  • We have a global footprint. Our technicians and engineers can be within 24 hours at all of your locations to discuss matters face-to-face. And they speak your language.  

Is generating proof easy?
No, it is not easy. But it is absolutely worth it.

To a large degree providing proof is a question of collecting and structuring the knowledge that top sales people in your company have. But often we find that companies also need to systematically invest in proof. This can be KPIs, reference customers, testimonials, product tests, product prototypes, product demonstrations, awards, product features, or case studies.

Proof is especially powerful if:
1.   The proof is objective (e.g. research results)
2.   The proof is tangible (e.g. product demonstration)
3.   The proof is quantified (e.g. $1 million dollar of savings)

Will purchasing bow in awe?
Please, never expect this. It would be foolish of purchasing to openly accept all the proof you are providing. But don’t be fooled by that. We experience it often enough: They may not admit it openly, but if your arguments are strong, they will gladly use your proof when they stand in front of their management and explain why they are the smart ones that chose your company.

Bringing It All Together
80% of all suppliers don’t systematically invest in backing up the customer’s buying center with proof of why they are worth the money that they ask for. Chances are high that this means for your company hidden profit potential that can be realized by investing in …
•    Proof of why your company is more reliable
•    Proof of why your products are more effective
•    Proof of why your products help your customers be more efficient

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