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The Supplier's Dilemma – Finding the Right Price

As the pressure for cost out mounts, sales teams will keep finding themelves in a tight spot, wondering if they've got the price right.

You’re in the bid room, its late at night, and you’re strategising and agonising over what price to submit. Do you follow the ‘largest number you dare put in print’ approach? That, at least, should provide room to move in the negotiations. Or do you go with cost plus an acceptable margin – ie the lowest price you think you can afford – in order to get a spot at the table?

And after submitting your price, which in many cases only establishes a starting point, what levers will you pull in order to win the business? How much lower will you go and how will you make that work for your organisation?

Whether you’re the incumbent or the competitor will make a difference to your mindset.

The incumbent often starts from the price that they offer today and seeks to build a story from there. Common stories include: sign with us again for a discount of x%; we’ll give you more for today’s price; or upgrade now for an attractive price because you are an existing customer. A hungry competitor has the advantage of not needing to protect an existing revenue stream. They can use a tantalisingly low price to grab the attention of their prospective client.

Working out what price to submit requires that you understand your offer and how that stands in the market. You must weigh that alongside business profitability, appetite for risk, further opportunities with the target client, scale and commercial terms, to name a few of the other main factors. Putting the work into knowing the customer and the market is critical. Only then can you understand and clearly communicate how your offer will make a positive difference to their business.

Ask yourself these questions:

  • Why is the customer in the market? Are they disenchanted with the current service, missing out on new features, or do they just want to do a price check?  
  • What’s unique about your solution?  
  • Will that difference positively impact the customer’s bottom line?
  • Is your solution better than your competitors’?
  • Does that actually matter to the client? Features that they won’t use, or that push your price too high, may actually sink your bid.

In the telecommunications and IT industry there is always a cost to transition to new technology. The danger is that customers can burn much of the savings that they’ve been sold on a provider with limited ability to mobilise and deliver the new solution. How to factor the cost of transitioning into the equation, for either incumbent or incoming suppliers, is often one of the deciding factors when Voco’s clients are selecting or re-signing a provider.  

The push for lower costs from customers will continue to drive the pricing decision for suppliers. As the pressure for cost out mounts, sales teams will keep finding themelves in a tight spot, wondering if they’ve got the price right. Right enough to have the right conversation is where the sweet spot is.  Get to the table, work hard on developing trust and your knowledge of the customer’s business and you will find the right price.

To discuss the topic further, please get in touch with the author, Julia Dol, on 021 458 542.

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