Compete on Value, Quality and Impact, Not On Price

How effective is your pricing strategy?  If you find yourself constantly reducing costs, you may be sacrificing what you want most – to gain revenue.  Cheaper is not always better if you have value and your offering solves critical business issues for your clients.  Here’s Part 5 in our game changing series “Top 7 Signs That Your Company Needs to Change”:  You win business on price rather than value, quality and impact. 

Have you found yourself saying “Just tell me what company A is charging you and I’ll beat it!”? If you have plenty of work coming in, you may think you don’t have a problem. But, what does it says about the value of your offering if you are always willing to take smaller profits to get work, always competing to be the lowest bid, or always thinking you have to be cheap to win? How you frame your value message to your market impacts your growth and revenue.

The problem with winning work based solely on price means you are:  

• Exhausting existing resources to meet low profit margins and overcompensating on operational costs by taking on staff/overhead to cover the excessive volume of low margin projects.

• Commoditizing your offering. Free work may seem like a way to add value, but in reality you are giving your services away to get your foot in the door.

• Missing the opportunity to communicate your real value to the market.

The underlying problem with this pricing strategy is that it does not build exceptional companies.  In a recent blog “Pathways to Drive Exceptional Performance,” we cited a study in Harvard Business Review done by Michael Raynor and Mamtaz Ahmed from Deloitte who tackled the question: “How do we know what makes a company exceptional?” In their research, they studied 25,000 companies who traded on the U.S. stock exchange between 1966-2010 and measured the Return On Assets (ROA) that reflected stable and consistent performance.  The exceptional companies held these two rules:

A.  Better before cheaper – Companies who succeeded competed on their uniqueness before their price.

B.  Revenue before cost – These companies prioritized their efforts on gaining revenue before reducing their cost.

So here’s your bottom line…

• You need to step back and look at the value you provide based on what your clients need.  What business problems are your clients experiencing?  How can your offering help solve these problems? Who else is in your partner network can you introduce to help further solve their issues?

• Choose smart clients.  Build business relationships with clients that recognize your value and impact. If you respond to the RFQ and you don’t win only because of price, move on and create a new opportunity where the company is looking for quality and a bigger picture.

• Shape Your Work.  Examine the quality and impact of what you have to offer. Help clients see the value in paying a better price that would save them money in the long run. For example, if you were an astronaut, would you feel more secure if they told you “Yes, we got the cheapest price on the rocket!” or “We bought the highest quality rocket that will ensure your safety!”

Coming Next…Part 6 of game changing series “Top 7 Signs Your Company Needs to Change:” All the business development falls on a few. Ask yourself, who brings in the work? If your star in developing the business or landing the work were to leave, would your company fall apart? How is knowledge being transferred? What kind of accountability is present? What balance is there between operations vs. execution? How effectively are goals communicated and executed between senior leadership, the sales and marketing team, and operations?

Links to the rest of this game changing series “Top 7 Signs That Your Company Needs to Change” 

“Employee Retention: Why Good Employees Leave”

“Increasing Profitability: You Have Plenty of Work, But Profit is Low”

“Dealing With Resistance To Change:  What To Do When You Frequently Hear “But We’ve Always Done It That Way”

“You Find Yourself Very Alone:  Growing Your Business Partner Network for Impact and Value”

“Business Development Illusions If BD Falls On A Few”

“Reduce Business Stress If Management Anxiety Is High”