I attended a talk today which at first glance could appear to be another dull business strategy discussion with a few hundred PowerPoint slides thrown in for good measure. However it was well worth my while, and got me thinking about the role of price versus quality in my own sector.
The company in question was dealing in volume, low priced goods across many different consumer areas.
Firstly, they got to the crux of the matter very quickly – price is often irrelevant, value is the key word. Value is the price versus what you get in return, for example, if something is very cheap but you get nothing from it then it is poor value and the same works the other way. Therefore, quickly achieving the customer’s perception of value is the important factor, not the price which we always end up focusing on in negotiation situations.
At first look, I used to think price was the main factor. I knew about value, and reputation and product superiority and relationships and everything I could read in a book but it just didn’t buy. I knew my customers bought on price, well wasn’t that what they were always complaining about?
How things have changed – only the other day I had a debate with a new graduate into sales about the role of price in the selling equasion, and more importantly its impact on the success of a deal. He, like myself back then, adamantly argued that price dominated all decisions and was the reason for his poor sales performance to date. With hind sight, experience, and losing one too many deals to the competition, I was able to argue from the other side and suddenly his view seemed so immature and shortsighted.
Of course we don’t actually buy on price. But the reason why we done but on price is too subtle and convoluted for sales books to explain, and the sales books sell themselves to us on the premise that they will show you how to overcome the price challenge, and what you end up with is a deflated sales pitch that in fact hits no sweet spots with the customer. The analogy that most helped me to recognise that I was a prime example of a customer who didn’t buy on price, was the car analogy.
Take this situation, it’s my first company car, I can choose from a wide range of pretty good cars – better than I’d ever driven before. I have the option of the cheaper company fleet that throws in all the sensible MOTs and services, but I reject that. I then have the option of a mid range, good value, new car to buy that makes complete economic sense…but I also reject that too. I instead buy the second most expensive car out of the range I settled on, for no other reason than that I JUST WANTED IT. Now, you could analyse the reasons behind that, but this simple process made me realise that every day we make value conscious decisions where price is almost irrelevant. If a surveyor approached you in the street and asked you what steered your decision about what brand of toilet cleaner you buy, or where you would purchase your air travel from, you might tell them price. Because we consciously think that price is the most important factor, but subconsciously we disregard it in many instances and it is usually the 3rd or 4th consideration after convenience, brand attachment and reputation.
On a more strategic level, it is completely irrelevant that your solution might be 10% cheaper to a CFO but if the more expensive competition is meeting with him weekly and playing golf with him regularly, then it’s pretty much irrelevant. Sales in all sectors is a much more complex binding together of perception, personal beliefs and value. However that’s reassuring if you’re not always the cheapest vendor in your market place, at least you have some different tactics to try out.