by Paul Hunt – President
Alex felt like he had been punched in the gut – he had just learned that his team had lost the Mega Bank bid, the second multimillion-dollar contract they had lost in the past quarter.
What happened? After being told on the last bid that his pricing was too high, Alex went below his floor price for Mega Bank. And yet, he had the leading industry technology, so he thought he should be able to charge a premium, rather than have to discount. Something was not working, and Alex needed to figure out what it was -fast!
His normal procedure after losing a bid was to send his sales representative to the customer to find out why. The message that invariably came back? “Your price was too high.” Alex began to lose faith in his process, and thought he should do things differently.
The first thing Alex must realize is that he is probably not getting accurate information on why he is losing bids. By sending his sales force to interview the customer on why they lost the business, he is setting up the conditions for hearing that price is the problem. In fact, a sales force effectiveness firm did a statistical analysis of hundreds of lost bids, and found that salespeople were told that price was the reason for 70% of lost bids. The firm then conducted detailed interviews with the lost accounts.
Astonishingly, it discovered that only 30% of those bids were actually lost because of price. That means price is being erroneously cited as the cause of lost business more than half the time! By telling sales representatives they lost due to price, the customer sets the stage for a more competitive price the next time this supplier submits a bid.
For Alex, mistakenly believing price was the cause for the lost accounts has two huge implications. First, he probably believes price is much more important than it actually is; and second, his competition is likely outmanoeuvering him on selling value.
Over the years, I have seen this plotline play itself out across many different industries. One IT hardware company, for example, had the fastest technology and sold at a premium price. It started to lose bids, and was hearing that its pricing was too high. It increased its discounts, but was still losing business.
Finally, the business engaged a third party to interview the lost accounts, and made an alarming discovery. Not only was the company priced below the competition on its most recent lost opportunity, but on the most important criterion -speed -it was rated third out of four bidders. Speed was the company’s calling card. How could this happen? It turns out the competition had reframed speed in a way that made them look superior. It was a faulty measurement, but it worked -the competition had won on perceived quality, not price.
In a similar example, a pharmaceutical company lost a major bid on a provincial drug plan. The sales team was shocked, as they had built a great relationship with the purchasing department, and had priced aggressively to ensure they met the customer’s needs. A senior manager in the company took the initiative to meet with the customer. She discovered it was the nursing team, and not the purchasing department, that was driving the purchase decision. The competitor had identified this, and had developed a unique proposal that creatively addressed the needs of the nursing team.
In both of these situations, it would have been typical to conclude that price was the reason for losing the business. But instead of falling into that trap, these companies got to the real cause and gained valuable insights.
Alex had a hunch that sending in the salesperson who had lost the bid was not working, so he conducted an in-depth interview with the lost customer himself. Seeing that Alex was willing to devote the time to do this interview, the customer was more forthcoming. Alex learned that the competitor had sent its global customer operations manager to meet with the account, and had developed a customized service plan that persuaded the customer to move its business.
Price was not the factor; perceived quality was the driving force behind that decision. Alex took this information and refocused his service-delivery model. Rather than relying on surveys that indicated his company had the best service quality, he got his service team out in the field, meeting with customers and solving their problems. The result was fewer price objections and more winning bids.
Paul Hunt is president of Pricing Solutions Ltd. His pricing column appears monthly in the Financial Post. He can be reached at firstname.lastname@example.org
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