There is so much confusion around the difference between price and value. Here is a simple example.
My hometown Columbus, Ohio birthed the Wendy’s fast food restaurant chain. Wendy’s offers what they describe as a “value” menu. A single cheeseburger can be purchased for as little as $.99, and so can many other items. Don’t get me wrong, Wendy’s offers some of the highest quality fast food available. But their “value” menu isn’t about value; it’s about being cheap.
Value doesn’t mean lowest price. Value is the total benefit, the total worth, of something being purchased. Price is only a component of value. Lowest price equals only one thing: the lack of value. If more value were being created, you would have to pay more to obtain it.
If your meal choice can be had for $.99, the last thing in the world you are entitled to expect is a high quality, high value, and delightful customer experience. Isn’t this concept equally true for your prospective clients who only perceive price as value?
In business-to-business sales, we are experiencing an epidemic. Sales organizations that don’t have a business model that is based on being the lowest-price are competing as if price is their value proposition. Their sales people mistakenly believe that they need to compete on price to be competitive. They believe that their competitors are winning on price. They’re asking their sales managers and sales leaders for the ability to discount to win new business. And they’re being allowed to do so, destroying margins and the ability to execute in the process.
But competing on price is the opposite of competing on the real value you create. It’s an admission that you aren’t competing on value, and it creates the perception that no value is really being created.
The sales force is being taught that it doesn’t have the ability to create enough value to differentiate its offering and win new business. The more they discount, the more they depend on the ability to win on price instead of value. And the more they depend on price the faster their real business model is destroyed.
If your business isn’t built around being the low price leader in every opportunity then you should not compete on price.
As purchasing departments have gained power within your buyer’s companies, they make greater and greater demands for price concessions from sales organizations. Sales organizations have responded by granting the price concessions in exchange for exclusivity or greater volume.
But with both lower margins and greater demands placed upon them, sales organizations have failed to produce the results that they’re capable of producing, were they to have a margin great enough to allow them to execute. So their customers, led by the purchasing department, have responded with service-level agreements to penalize the sales organization with already too low margins with penalties that result in even lower margins.
The real business outcomes that your customers need require real value creation. The reason these organizations can’t get the results they want, even though they bounce from sales organization to sales organization, is that they insist that price is value. Too many sales organizations behave in ways that feed into this belief, promising greater results at ever-lower prices. Does that sound familiar to you?
The sales organizations that are going to win are the sales organizations that are be able to sharpen their value creation and help the client understand that the greater outcomes they seek require greater investments.
You and your competitor are competing for an opportunity. Your offerings are similar, but your competitor’s prices are slightly lower. The buyer asks you to sharpen your pencil. You’re faced with a choice. You can sharpen your pencil, or you can sharpen your value creation.
By sharpening your pencil you enter into a price competition. This is exactly the same as the Cold War idea of mutually assured destruction. Sales organizations chasing the bottom ensure that everyone dies the same death. Pricing competitions are a war of attrition. Smart companies don’t engage in this war. Instead of fighting a battle where winning still means you die, they fight the battle in which winning means you survive–and thrive.
Value isn’t price. The answer to winning isn’t to find a way to lower your prices. The answer to competing and winning is finding a way to create so much differentiated and compelling value that your customers are willing to pay you more to obtain it.
Anthony Iannarino is an author, speaker, and entrepreneur. He has been named one of the top 25 most influential people in sales by both OpenView Partners and Top Sales World. Anthony writes for the magazines SUCCESS and ThinkSales, as well as daily at thesalesblog.com.
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