subject: Pricing Strategies For Demanding Customers [print this page] A major manufacturer was facing some serious challenges, exacerbated by the recession. Whenever one of their customers need to re-order, they'd get quotes from several vendors, relentlessly grind each of them on price, and buy from the cheapest, with no loyalty whatsoever. Does that sound familiar?
Buyers needed the product, but had become "Mercenaries" because they failed to see any differentiation between all the competitors. In this case, there are we saw two viable approaches:
1. Getting out of the commoditized bracket by changing the playing field, or
2. Maintaining profitability with subtle, ethical changes in pricing strategies that enabled the customer to feel they're getting the best value.
We did both, and dropped a standard 40% discount to less than 5%.
How did we do that? The office forms business was in an industry that had been highly commoditized for years. There were a number of big competitors, plus every small local printer in the game as well. And while computers had largely replaced the old proliferation of multi-part carbonless or carbon forms, a lot of businesses still relied on them in key areas.
Typically a buyer provided samples to several different printers, asked them to quote, and chose the least expensive. While working with one of the major manufacturers, we took a different approach. Instead, we asked to see completed copies of the form, and traced the route that each took through the organization.
In almost every case, we either found that the form was larger than it needed to be for the amount of information being entered (i.e. it had 15 lines but usually only 1-2 were used), OR, that it had an extra copy that was required at some point, but no longer got used or filed, and was simply being discarded.
Taking a value-add approach to understanding the customer's business needs allowed us to change the playing field by quoting on a smaller form or one with less copies. The product was less expensive to manufacture, hence we could still be the "cheapest" bid without resorting to huge discounts or "cheapening" the product - in fact, using this pricing strategy, discounts dropped to almost nil.
We changed the 'we've always done it this way' thinking to one where we priced ethically, but did not deep-discount. And by taking an interest in the customer's business, we differentiated from the "do ya want a quote?" guys that were looking simply for hit-and-run business.
That helped us keep the business in future years; once the initial set-up costs were paid for, we were able to lower the price further in future years without discounting. The competition tried to go back to the old bidding structure against us, but had to incur the re-design costs and thus found it even more difficult to be the low-cost provider without increasing their discount rate. This pricing strategy was a win for us and a win for the customer.
