When price becomes almost irrelevant.

When price becomes almost irrelevant.

Nov 1, 2018 | Marketing, retail, Sales

Price is just an arbitrary scale for the ‘unquantifiables’ which has only two functions:

  • it is a reflection of the amount someone is prepared to sell something for.
  • It is a relative measure, helping you to make purchase choices by giving you and the seller a constant scale and language to reach an agreed point of exchange.

How often do you choose a restaurant because it is the cheapest?

You might decide to go Italian, or Chinese, then decide which one. You decide on a variety of factors, parking, quality of the food and service, are they licenced, who is it that is going with you, is it a special occasion or just a meal. The conversation in your mind goes on and on, often almost unnoticed.

Why is it then that we tend to make major commercial decisions on price?

Almost every  time I am involved with a client in a commercial purchase decision, one party or another uses price as a major point of choice and often leverage

Why?

Few people buy purely on price, and often you would not want them as a customer anyway, so why let them hammer you down?

Think about the value, what it is that the product or service is delivering, how it solves a problem, how it reflects the image to be projected,  how it fits in with everything else going on.

Price is just a means to come to a point where the value can be exchanged.

Value is what is important, price is just a way of converting value to a common language.

Next time you  are being belted about how high your prices are, agree, they are high,  but they deserve to be because of the value delivered.

Just talk about the value.

Talk persuasively about value, and price will become a result, not a driver of the decision.

The real challenge is to figure out how to do this in a situation where the other party has all the power.  A small supplier selling to one of the Australian supermarket gorillas has little leverage, the definitions of ‘Value’ will never be easily reconciled, so the hard choice is to walk away, and deliver value to  customers outside the supermarket system.

Header credit allanandallen.com

9 ways to ‘stack the deck’ to win that vital tender

9 ways to ‘stack the deck’ to win that vital tender

Jul 25, 2018 | Marketing, Operations, Sales, Uncategorized

 

The better prepared the tender, the better the chance of winning.

Hard to disagree with that statement, but then what makes for a better prepared tender?

While price has a role to play, it is only the deciding factor when all else is equal. Your task as a tenderer is to ensure that all else is not equal, and that your tender represents the best value to the enterprise wanting something  done. Then  you have stacked the deck!

A friend of mine is a senior engineer in a very large building contractor, one of those who is changing the skyline of Sydney on an almost daily basis.

The stress is killing him.

There is the constant need to keep the work flow of projects moving, identifying, preparing and winning tenders, then there is the stress that really kicks in as the construction side of the business tries to extract profit out of a ‘successful’ tender.

Talking to him I was reminded of Albert Einstein’s quote that ‘If I had an hour to fix a life defining problem, I would spend the first fifty minutes defining the problem, the rest is just maths’

When preparing a tender, the filling of the form is the maths. You have to get it right, all questions answered with quality copywriting, no spelling or punctuation errors, professional layout, but still just maths.

The key to winning is not in the maths, that is just table stakes, it is in the manner in which the vision of the contractor is reflected in the documents, the manner in which the tender you submit reflects value in the eyes of the judges. Each judge in the process will have a different definition of ‘Value’. The accountants will focus on cost, the engineers on the durability, regulatory and engineering integrity, the architects in the manner in which the construction reflects the aesthetic and functional innovations contained in their design, and the stakeholders in the return on investment, which is a function of both price to build and price that the construction can generate from buyers and users.

When you spend an extra $1 on the build that generates an extra $2 on the market value, the extra investment is a great one.

So what makes for a winning tender, that is also commercially successful as the job is completed?

Seems to me that the best measure is the degree to which the tenderer comes back and offers some sort of inside running for the next big project because of your performance in the last one or two

Tendering against someone who has that sort of inside running is usually a waste of time and money.

In the case of public infrastructure tenders, where price is a more important factor, you also have to manage the added complication of the nature of the bureaucratic processes and the politics of  the day.

Just ask Acciona, the Spanish firm who contracted to build the Sydney light rail project, which has become another infrastructure debacle. They seem to have taken the arguably inadequate tender docs literally, failed to do their own due diligence, quoted a price and time line, then found themselves in a billion dollar slanging match with the government.

When was the last time you saw a really complicated project RFQ that reflected all the complications that evolved during the construction?

So, how to stack the deck in your favour?

Perhaps a better way of putting it is to answer the question: ‘How can I quote the highest reasonable price, and still win the tender?

Know more about the project than the principal.

Understand what is really being requested. Most tender documents are dry tick the box type things that have nothing of the ‘humanity’ to which most projects are setting out to make a contribution. Focus on the humanity, and vision, not just the yes/no questions.

Understand the ‘vision’ of the principal.

Better yet, shape the vision, so that you can shape the guidelines of the tender docs to best suit your distinctive capabilities

Have relationships with all the ‘functional Buyers’ in the process.

It is always the case that there are a variety of roles played inside a tender process. Engineering, regulatory affairs, financial, architectural, and project management all will have a differing perspective of the end result, and the best route to get there. There is also always someone with the final call, a right of veto. Understanding the nuances of these functional variations, and accommodating them in the manner in which you approach both the documentation and the informal conversations that occur is vital.

Anticipate and leverage ‘Buyers’ personal inclinations.

The ‘buyers’ in the process, in addition to the functional bias, will have personal and emotional views about the best tender. Some will be for you, some against you, some ambivalent, and sometimes there is one prepared to ‘coach’ you on the side when you are a their preferred candidate. Being sensitive to these views, and leveraging them is often of critical importance.

Identify information holes.

No RFQ is ever complete, so identifying the ‘information holes’ not only gives you added credibility, it also gives you the opportunity to get a jump on competitors

Articulate any obvious shortcomings you may have.

Rarely would a tenderer be an absolutely perfect fit for a job, there will always be compromises that can be used as objections by those who may have an alternative favoured candidate. The best way to deal with objections is to raise them yourself, and deal with them. Once dismissed in this way, they generally cease to be valid objections.

Be proud of price.

Remember the old cliché ‘Nobody ever got fired for buying IBM’? It still applies. Human beings are always concerned with their own best interests, which correlates strongly to making as few mistakes as possible. Most are wary of the cheapest price, there is always a catch, either in the fine print, exclusions, or poorer quality, so there is always room to justify a reasonable price that delivers value but not at the rock bottom.

Tenders are competitions.

As in any competitive situation, the more you know about your competition, the better able you are to address their strengths and capitalise on their relative weaknesses. A tender process is not all about you, and your response, it is also about your response relative to the others in the race.

Attention to detail.

It is so obvious that it should not be in this list, but nevertheless, is often overlooked. Spelling and grammatical mistakes abound, as do simple editing errors, inadequately or unanswered questions, and an absence of simple but elegant and memorable graphic design. Make sure you do not repeat these mistakes of your competitors.

 

When you lose, as is inevitable from time to time, make sure you invest the time and effort in understanding why you lost, learn the lessons so the next time you are a step ahead.

Photo: industry.nsw.gov.au

 

 

When is the best time to sell?

When is the best time to sell?

Jul 6, 2018 | Customers, Sales

Clearly the best time to sell is when the customer is ready to buy.

The challenge is that you have to know your customers well to be able to create some sort of relationship that evolves as they become more ready to buy, they are looking for some information you can provide, make an offer that is compelling, and so on.

Getting the ‘time to buy’ wrong is a common, basic and often terminal mistake.

A while ago (before the current Royal Commission was announced) I wandered into the local branch of my bank. I wanted to make a simple procedural inquiry, and make a cash withdrawal larger than the ATM would allow. The teller was pleasant and helpful, but at the end of the transaction, launched into a spiel about insurance, urging me to undertake a review of my insurance with one of their ‘experts’, guaranteeing to save me money.

Almost everyone buys insurance, usually multiple types, so it is a fair bet that something is coming up for renewal.

However, when I walked in, I was not  thinking about insurance, and felt no need for a review, despite being depressed at the cost every time I renew a policy.

Dead money, unless circumstances are against you and you need to claim, and then you still need to extract the money from the insurer. At the best of times insurance is a reluctant, even grudge, purchase. We all hate it, and prefer not to think about the almost always dead money represented by the premiums.

The young teller was very persistent, immune to a simple ‘no thanks’ so I had to be rude, and just walk away.  However, it was not her fault, there is  no doubt in my mind that someone disconnected with customers had decided that tellers were the ideal lead generators for insurance sales, and had schooled tellers in the pitch, then applied a KPI to them:

‘Sales pitches delivered, and number of reviews initiated’ . Pity the KPI is almost certain to annoy a substantial number of existing and possibly formerly loyal customers, and often make the person delivering it very uncomfortable. Hardly a great selling environment.

The best time to sell is when someone is ready to buy, delivering a ‘hard sell’ to them at any other time is a good way to ensure they will  not come back to you when they are ready to buy.

Header screenshot from the movie ‘Glengarry Glen Ross’

10 considerations to make better pricing decisions

10 considerations to make better pricing decisions

Jul 2, 2018 | Sales, Small business

Setting the price is always challenging, the decision often left to the last thing.

Wrong.

Your pricing strategy should be a part of your overall strategy as decisions in other places have a huge impact on the best way to maximise your return from your  price.

Cost should have no say.

Customers do  not care about what it cost you to produce the product they are buying, they only care about the value they receive from the purchase. Understanding the value delivery is the real key, and everything else should flow from it.

What the market says should only be an influence.

If your product is the same as everyone else’s, in a homogenised mass market, where there is no source of differentiation, you cannot win. At best you will get a share in line with the number of direct competitors, at worst, chase the price down to the floor and everyone goes broke. This is a market you should not be in.

Differentiation.

Without some sort of differentiation that adds value to customers, you will be forever  in a price war. There is always a source of some differentiation, somewhere, if you look hard enough.  Something that adds value to  a segment of the market, so find that source of differentiation, understand the value it adds, and price for that. This may mean that many, perhaps even most in some circumstances, will reject you as being ‘too expensive’, which is fine, let your less focused competitors go broke alone.

Ensure the pricing model scales.

Pricing  models vary along with the business model in place. From a strategic perspective, when you choose a pricing model, it is very hard to adjust later to suit a different business model. For example if you start selling on line and take a 50% gross margin, that may look good until a distributor comes along and wants to sell your product through his system, but requires a further 50% margin to do so. There is not enough in it for you both.

Less distribution is sometimes more profit.

Uncontrolled distribution leads to conflicts in the pricing requirements of the different  business models, and can lead to a race to the bottom which no one  wins

The classic case is Australian FMCG retail. The two retail gorillas account for 70% of FMCG sales, so have a lot of power in the pricing discussions. They are largely unconcerned about your margins, only concerned with theirs, and especially theirs  compared to the alternative gorilla. When you go with them, you are trading volume for margin. At the same price point you can sell much less product at higher delivered margins through  more limited channels and have more in your pocket at the end.

I have had a  number of farmers as clients over the years, selling produce to the gorillas, investing significant capital to deliver the volumes but having nothing left over at the end. Mostly they also sell through alternative channels, from farmers markets to a few independent retailers, and these are always more profitable than the gorillas. It is a choice you need to make and my advice is always to treat the gorilla as a way of covering a bit more overhead, but when you get to the point of needing their volumes to pay the bills, you are in real trouble.

Simple trading terms.

Trading terms are just another way of packaging discounts, and should be as simple as possible.

The simpler and more consistent they are the better, as complicated terms have a habit of creating heavy and usually unseen transaction costs in your business. The other risk is that you end up using the terms to give favorable net prices to someone over another, and when buyers move, they take the terms books with them, so look out.

Again, the experience of FMCG retail is instructive. Aldi has ‘net net’ terms, the price is the price, whereas the gorillas insist in complicating terms and that delivers them added margins, and you the transaction costs. It is much cheaper to do business with Aldi, as there are fewer transaction and overhead costs, but you still play by their rules, which do not include your proprietary brands.

One of the most insidious terms component is payment terms. It is hard to resist the temptation to extend under pressure, but in the long run always better to do so. The shorter the time taken for customers to pay you the money they owe you the better, and long terms become more damaging as interest rates rise.

Demand creation.

When there is demand for your product, you can make more rewarding pricing decisions, than  when you are just competing in a commodity market. Therefore it is better to spend your money creating demand than funding discounts.

Going hand in hand with demand creation is the notion of what market you want to play in. Mass markets have price expectations and so do luxury ones, although they may sell less volume. This is associated with the business model and the strategic choices you make about the markets you will play in, and the way you play. Niches always deliver better margins, question is how much is left at the end as the volumes will be lower and product costs usually higher.

Customer value.

When the customer wants and needs your product and cannot get it or any substitute anywhere else, you have monopoly pricing power, something businesses love and regulators hate.  The classic economics 101 supply/demand pricing model, ignores two basic tenets: First, there is always a substitute somewhere, in some way, even if it is going without. Second, human behaviour is never just rational, and economic theory assumes both rationality and perfect knowledge. Value delivered should always be seen from the perspective of the customer, and different customers will assess the value delivered differently.

However, understanding the drivers of value that your ideal customers will have delivered by your product enables you to price at the point of maximum satisfaction for them, and margin for you.

Anchoring.

It is always better to start high, as you can if necessary come back a bit. By contrast, starting low and then trying to increase prices is enormously difficult. There is a process called ‘Anchoring’ in psychology that applies directly to the manner in which you set prices. Whatever is the first price identified becomes the anchor around which the rest of the conversation is ‘anchored’. Anchoring low means you will end up low, anchoring high usually means you end up higher than you would have otherwise.

Iteration. 

Finally, testing differing pricing options should be in most cases an ongoing, iterative process. We now have tools that will deliver real time feedback in many, particularly consumer, markets, so you can adjust prices for an optimised outcome as you gather experience and market intelligence. On line, ‘dynamic pricing’ driven by machine learning and masses of personalised data will become the norm in the very near future. In some areas, it is already here, and I can only see that increasing relentlessly, so you had better be ready.

None of this is easy, but setting the best price for your market that reflects your best interests  is crucial to sustained success. Call me when some deep experience is required.

Cartoon credit: Scott Adams and Dilbert. Nailed it!

 

8 drivers of empathy that deliver sales success.

8 drivers of empathy that deliver sales success.

Nov 15, 2017 | Change, Sales

Selling is not for everyone, it is a hard gig that requires that you are able to understand and deal with rejection. All the most successful sales people recognise that the process is not about them, but is all about the prospect.

Even the most likely prospect who will buy, may not be ready to buy right now, so timing and follow up are key components of success. However, the best indicator of success at sales has always been the ability to build empathy, and employ subtle persuasion, by whatever means you can, on top of a solid sales foundation. When the planets align, empathy can lead to engagement that sometimes leads to the transaction.

Having the ability to put yourself in the shoes of your prospect and see things through their eyes is the route to empathy.  It is a skill not many have naturally, but can be learnt.

When you are the prospect, the subject of someone else’s efforts to herd you towards that sales transaction, consider the things you might expect from the sales hopeful:

  • They treat your time with great respect
  • They recognise that the risks of change outweigh the maintenance of the status quo by a large amount therefore there must be some compelling reason to make a switch.
  • They assume that your expertise is valuable, and that you have no obligation to answer question after question aimed at understanding your business. They do their homework before bothering you.
  • They understand that there is a buying process in place in your organisation, and that it will be followed in almost all circumstances.
  • They understand that the purchase decision for anything new, or that requires change will go through a number of tests and barriers. It is their job to supply you with all the information and arguments you might need in their absence, to carry the decision internally. Obtaining buy in from others in the organisation for a change, is a challenging task, and even if you are well on board with the change, you will probably need their help to bring others in the organisation, sometimes more removed from the consequences of the decision, and sometimes directly impacted, to the same conclusion.
  • They understand that your actions will be driven by your best interests, in all its forms, not theirs
  • They understand your purchase patterns, as well as the process, and do not set out to disrupt them, rather work with them, which usually means the process takes longer than they would like on the odd occasion you decide to make the change.
  • They understand that the incumbent supplier is unlikely to just stand around and let their business be taken by an alternative supplier, so they are ready for the debate.

 

If they did all these things, would you be persuaded?

When you need help with any of this stuff, let me know.

Illustration credit; shchambers.com

The essential template for profitable management of key, Strategically important customers.

The essential template for profitable management of key, Strategically important customers.

Nov 6, 2017 | Customers, Sales, Strategy

One of the current marketing buzzwords is ‘ABM,’ or Account Based Marketing. It is heralded as the panacea for all B2B sales challenges, generally with the caveat that you buy their software.

What utter Bollocks.

Allocating resources against important, and potentially important customers is about the oldest strategy in sales. I am pretty sure that Cato the grain merchant took Decimus, the biggest baker in Rome to that hot little restaurant in the forum for lunch and a few vinos in 200BC.

Certainly, the whole storyline of that great series ‘Madmen’ is focussed on the acquisition, holding onto and squeezing money out of an ‘Account’. In the early nineties, as a newly minted consultant, I successfully marketed a sales training program I called ‘SKAM’ or Strategic Key Account Management’.

The acronym always got at least a wry grin, and depending on circumstances, I would sometimes substitute ‘Planning’ for ‘Management’

So, to ABM.

The only thing that is new about it is that there is now a slew of software vendors promising to automate and make easy the age-old tasks of sales. There is no doubt that the software can deliver significant productivity benefits, but those benefits are absolutely dependent on doing the basics well, having a solid foundation of sales and marketing disciplines, and that has not changed. After all, if you automate a crap process, all you do is get buried in more crap quicker.

So, to the template.

Define ‘Strategically important’

Pretty obviously the first step is to define just what strategically important means in your context. To many it is those top customers, the 20% that generate the 80% of sales revenue and even more importantly, margin. It is worth remembering however, that each of those top customers were at some point, just a prospect, or a small and therefore easy to ignore customer, that grew. Really smart businesses define clearly a profile of their next group of strategically important customers, and allocate the resources to ensure that they grow to the potential they appear to have.

Have a clear strategy.

This goes hand in hand with the previous point. Without a clear strategy, the result of making often challenging choices about which markets, which types of customers, geographic locations, industry segments, technology base and many others, you will not be in a position to create a definition of what ‘strategically important’ means in your context. The default is almost always the biggest, but as noted, current size is a lagging indicator.

Articulate your value proposition.

Again, this is utterly dependent on the first two steps being done well, as what may be valuable to one customer, will not be to another, and you do  not want to waste precious resources trying to talk to and sell to people who do not care, or have no need for what you can offer.

Create a prioritised prospect hit list.

This is a list of potential customers who fit the general profiles from the first three points. There are many ways to do this, and no one right way, but almost universally it will involve the collection and analysis of publicly available data, from which some conclusions can be drawn.

Progressively execute on, and renew the hit list. 

This is where the rubber hits the sales road, and where most marketing and sales automation cuts in, and often creates significant complication before the benefits can be seen. it is also often the first point of call for many, a huge mistake made by those seduced by the siren song of automation.

Selling is a process based on psychology and understanding the prospective customer in as much detail as possible. We all like to buy, but generally hate to be sold to. Therefore selling is about gaining the attention, and progressively, trust, that you have a solution to the problem the prospect faces, that delivers value, however value is defined in the circumstances that apply to the sale and ongoing relationship.

Rinse and repeat.

As noted, sales is a process, and the more you treat it like a process, a set of steps to be followed that enable feedback loops, learning and improvement at every stage the better.

When you find you need some wisdom gained from extensive experience to be applied, a bespoke program to be developed, or just have some of the gobbledygook and jargon explained, call me.