Paul tackles a common challenge salespeople face — How to compete with low-cost providers. Paul also taps into the implications of discounting.
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How can I compete against low-cost providers?
(Transcribed from podcast)
A few weeks ago, I was in a presentation, and during the break, a salesperson said, “I’ve got one of my long-standing customers who is now starting to question price.”
He continued, “I have this one competitor who is offering cheap prices, across the board, to try to buy the business.”
I know this is a common challenge that salespeople are facing. Let’s unpack this challenge a little bit. If you have a low-cost provider that is out there promising cheap prices, it really can screw up the market. Your existing customers that are familiar with your value added, see a lower price and compare that price to what they’re currently paying. That creates what we call an equity gap. They start to question the fairness of what you’re charging them for the value they receive. As they’re questioning it, they’re starting to become more open to this other alternative. This creates an equity gap that can frustrate customers. It certainly frustrates salespeople.
How can I compete against low-cost providers?
The first thing to do is take a look at this competitor. Do a basic SWOT analysis; try to understand them; try to figure out where they are vulnerable, or where they are weak. When you analyze cheaper competitors, you’re usually able to find one or two things that are a weakness that also can draw attention to a strength that you have. For example, I remember a group we did some work with a couple years ago. They were selling in industrial distribution, and they had a company that was promising cheap prices. After they analyzed this particular competitor, they noticed that thee salespeople were not very knowledgeable. In fact, they didn’t bring any real value. Now, when they’re going out there competing against this low-cost provider, they’re asking questions that call attention to this competitor’s weakness.
For example, when the customer says to them “I can get this cheaper over at XYZ Distributor,” they say, “I know there’s a difference in the price, but what about the experience of their sales team? Are they able to come in and solve problems? Are they able to bring some experience to help you become more profitable?” They’re calling attention to that competitor’s weakness.
When you’re dealing with a low-cost provider that gives stupid-low prices, use a framing technique—we call it the boomerang or casting a little bit of doubt. I’ll give you an example. A couple of years ago, I was interested in getting Lasik eye surgery, and I went to go meet with a reputable doctor. We talked about it; he asked a lot of questions, and he explained the whole process and even shared with me the kind of equipment he’s using. And then he gave me his price. The price at the time was about $5,000. I explained, “That’s quite an investment. I’m going to do a little more research.” I remember seeing billboards, and I heard a radio ad for this other doctor who was offering Lasik eye surgery. It was right by my house, so I decided to stop in. Now, it was a completely different experience going to the other doctor. As soon as I got in there, it felt like they were pulling out all the old used-car techniques. They were trying to schedule me in to get the surgery before I even had discussed with the doctor what I wanted to accomplish. Finally, I said, “Before I get surgery, I want to talk to the doctor.” I talked to him, and he asked me a couple of questions, but then he said, “I just had a cancellation next week. If you can agree today to the surgery, I’ll do both of your eyes for $500.” When he said, I’ll do both of your eyes, I thought, what was he going to do, just one of them originally? He was going to do it for $500. That, right then and there, made me think. I questioned, “What am I really getting from $5,000 to $500? A big, big difference.” I remember calling the other doctor. I said, “Just to let you know, there’s another guy out there that’s offering $500 Lasik surgery. What’s the difference?” He responded by saying, “Do you really want to go cheap on something like your eyes? I mean, $500 versus $5,000? Doesn’t that scare you a little bit?” And I acknowledged, “Yeah, it certainly does.”
That’s a boomerang technique. And you can do something similar.
If you have one of your customers saying, “We can get this cheaper somewhere else. We’ve got this low-cost provider here,” question it with, “I know what we charge for this. I know we charge a fair price.” “Do you really want to go cheap here?” “Are you concerned at all about their ability to deliver?” “With the price that low, doesn’t that concern you at all?”
Asking those types of questions can cast a little bit of doubt, and also, you can use that as an opportunity to reinforce some of the strengths of what you offer. Again, ask questions that call attention to the weakness of that low-cost provider. Use that boomerang technique.
The other thing you’ve got to remember, pricing builds perceived value. In the absence of all other information—price is one of the greatest indicators of quality and performance. When the customer says, “Your price is a lot higher,” use that as an opportunity to explain some of the value—what they’re really getting. Keep in mind, at some level, the customer is looking at your solution; they’re looking at a much cheaper alternative, thinking, I pay more but I’m going to get more. We can tap into that a little bit.
Speaking of pricing—building in perceived value—I was listening to a great podcast episode on Guy Raz’s How I Built This, and he had the founder of Tempurpedic, the mattress company, on there. I forgot the exact story and how it all happened, but, I know they were trying to get their memory foam mattresses into one of those Brookstone-type stores. They weren’t selling all that well once they got the mattresses in there. But, then, they ended up raising the price on the mattresses. Once they raised the price, they started selling more. As consumers, we associate price with quality, which means we also associate cheap prices with lousy quality to some extent.
When you’ve got these low-cost providers, there’s one other thing you have to remember—there’s an integrity element to this scenario. If you have a low-cost provider that comes in and all of a sudden you match their price—come down to their level—your customer starts to question your integrity. They’re thinking to themselves, “If you can match their price now, why weren’t you doing this all along?” You start to lose a little bit of credibility. By discounting in this type of scenario, you’re starting to lose a little bit of trust, which, I think, is a lot worse than losing an order. Explain to the customer, “Here’s what we can do.” “Here’s how we’re different than that competitor.” Maybe cast a little bit of doubt, but at the end of the day, you’ve got to tell the customer, “We’re already giving you our best price, and our best value along with that.” I wouldn’t discount, especially to go after a low-cost provider. You might end up losing more than just an order; you might lose some of their trust. Keep that in mind when you’re out there selling against low-cost providers.
Just a quick tactical review:
Number one – ask questions that call attention to that low-cost provider’s weaknesses.
Number two – use the boomerang technique. If the pricing is shockingly different, then go ahead and call attention to that and say, “I understand there’s a difference in our price, but doesn’t that scare you at all? If they’re coming in that low, I’d be a little concerned about their ability to deliver.” It’s okay to cast a little bit of doubt there. At the same time, you want to remind the customer of the value you bring that is different.
Number three – keep in mind that pricing does build perceived value. If you decide to match that price and get down and dirty with that low-cost competitor, you could end up losing more than just an order. You could end up losing some of the trust that you’re building up.
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