Is That Your Rock-Bottom Price?

by Diane Sanchez, Stephen E. Heiman and Tad Tuleja

Recently, Miller Heiman received a request for proposal (an RFP) from a large communications firm that was anxious to increase its business with major customers and was inviting proposal bids from leading sales consultants. As is the case with many RFPs, this one included a list of weighted criteria on which the submitted proposals would be assessed. Among the criteria was budget--a factor which, the RFP indicated, would figure in as 20 percent of the assessment.

Nothing said flat-out, "We're going to look more favorably on low-bid proposals", but the implication of that 25 percent was clear. No doubt the communications firm, a solid, respected player in its industry, wanted a high-quality sales enhancement program, but as the numbers showed, the cost of the program was also a major consideration. As a result, it was clear to us--as it must have been clear to competing vendors--that we were being invited to play the blind bid game.

Traditionally, companies respond to such invitations by adopting one of two strategies: they play lowball or they emphasize price performance.

In lowball, you try to guess the lowest bid another vendor might offer, and then undercut it--even if this means discounting yourself out of a profit. The idea is that, in a world of cutthroat competition, business you get by cutting your own throat is preferable to no business at all--especially if you use it as a loss leader that you expect to recoup down the line. The problems with this type of self-sacrifice are that it's unsustainable, it tells the buyer that you come cheap, and it implies that the quality of your goods is also cheap.

When you emphasize price performance rather than price per se, you try to convince the buyer that what you're offering is so superior in terms of features and benefits that it more than justifies the inflated sticker you've slapped on it. This may be fine if your product or service really is dramatically superior to your competitor's. But in most cases today, that isn't so, and even when it is so, you can't rely on the customer to make that assessment, because people buy expectations, not products.

Because of the hazards inherent in these traditional responses, Miller Heiman shies away completely from the blind-bidding game. Instead, we conduct our business at a totally different level--a level where price, while a factor, is never the decisive factor, because we've worked with our clients in advance to forestall bidding wars and to position ourselves as the provider of priceless solutions. We don't try to drum up business by offering cheaper programs, because we think a "cheap" program would be the equivalent of a three-wheeled Cadillac. It might look like a Cadillac, but it wouldn't perform like one.

So, in the scenario we've just outlined, the mere fact that we were being asked to play the bidding game made our decision relatively easy. We decided not to send in a bid. Instead, we wrote directly to the communication company's CEO, expressing Miller Heiman's interest in addressing its sales development problems and suggesting a top-level meeting between our companies' executives, where we could discuss those problems in detail and determine Miller Heiman's ability to provide solutions.

This admittedly unorthodox response illustrates a number of critical principles.

First, it illustrates the importance of understanding your customer's expectations before you try to pitch your world-class product. As we explained in the letter to the CEO, we felt it would be a waste of his time and ours for us to present a solution to an undefined problem. We needed the customer to sketch out his own solution image before we could spell out how we would color it in. All of this tracked our commitment to customized solutions and our lifelong professional dedication to creating win-win relationships.

A second principal that our letter tried to put into play was our company's commitment to developing "Ideal Customers." We seek business only with companies that are as dedicated as we are to win-win relationships, and to "full organizational commitment" to carrying them out. In approaching the CEO directly, we were saying, in effect, "We're not interested in selling you. We're interested in improving the quality of your business." If this direct appeal elicited a negative response, so be it. We would then know that the communications firm was not our kind of customer.

The third principal is that--contrary to conventional wisdom--price doesn't matter.

All right, that's a little overstated. Of course price matters. In most sales situations, it matters a great deal more than 25 percent. But (1) it never matters as much as the bidding wars suggest, and (2) you have much more control over the impact of price than you might imagine. In fact, you can almost make price go away.

Price becomes a decisive factor only in those scenarios where buyers have nothing else to look at--when they are at a loss for rational reasons to decide, and look at price as a last-ditch way to differentiate one product from another. What most buyers want from a solution is either to improve or fix a process. It's effectiveness, not simple cost, that primarily drives their choices. If your solution most effectively solves the customer's problem, price will seldom turn the tide toward your competitors.

But that's the case only when the buyer perceives a distinction, believes in it, and accepts it as important. If there's no clear difference between your solution and a competitor's, then the buyer will, quite rationally, force a distinction. And if price is the only thing you're competing on, someone can always sneak in under your low bid.

The lesson for a selling organization is clear. If you are to escape the box--and the boxing-in--of price, you must offer your customers something other than a low bid to help them distinguish you positively from your competition. Otherwise, they'll be in the position of a coffee drinker who is offered two identical cups of Starbucks special house blend, one at $1.25 and one at $2.00. Yes, in that case, only idiots would pay two bucks.

Adapted from Selling Machine by Diane Sanchez, Stephen E. Heiman and Tad Tuleja © 1997 by Miller Heiman, inc. All rights reserved by permission of Random House, Inc.

Miller Heiman, Inc., is a Reno, Nevada-based Corporation that helps businesses develop sales processes. You can phone Miller Heiman at (800) 526-6400 or visit our micro site for more information about our products and services.