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You Can Win This Price War

Are you working hard to hold the line on your prices?

MHEDA members are at war! It is a price war. This is no overstatement of a disturbing reality. The battlefield is in the customer’s mind, but the customer is not the enemy; nor is the competition. The enemy is a short-term, tunnel-vision thought process that causes customers to make irrational and price-only buying decisions.

We live in a consuming world where “value” has become a euphemism for “cheap.” Advertisers tout “value pricing.” This is code for cheap prices. Big-box superstores and online retailers brag about their everyday low prices. Desperate restaurateurs offer two-for-one specials. Does that make you feel like you overpaid for your last meal there? Price-shopping consumers have value-stripped the airline industry down to a commodity business. Do you ever wonder how much the person sitting next to you on the plane paid for his or her ticket? Are things better for the material handling world? No.

One lift truck dealer called me because he was going to lose a multi-truck sale over $50 per truck. He pleaded for ideas on how to justify a $50 difference between his truck and the competition’s truck. I gave him some eleventh-hour suggestions, and he salvaged the sale. It left me thinking: “If a customer is willing to walk for $50 per truck, what has this industry become?”

At stake are your future and the future of this industry. I do not know any company in MHEDA that is a non-profit organization; why sell like it? You can prevail in this war. You can operate as a for-profit organization if you do a better job of handling price resistance. You can negotiate good deals for your company. You can win the war with this adversary. How?

Prepare and Plan
There are many legitimate reasons to lose a piece of business: wrong product, product availability, delivery or maybe your price is wrong. The one inexcusable reason to lose a piece of business is that the customer out-prepared you for the price negotiation. If the buyer did a better job of preparing than you did, shame on you. If you reduce your price because the buyer out-negotiates you, you have learned a valuable but painful lesson.

Study. Plan your negotiating strategy. Research the buyer’s needs and pressure points (those conditions that deflect price). How will you take early, positive control of the conversation and guide it down a path of value, not price? What is unique about your products and your company that explains the difference in prices between you and brand X? What will you do if price becomes an issue?

Help the Buyer Think Differently
Price-thinking buyers need to be educated. They must learn the downside of making short-term business decisions. What are the consequences of going “cheap” on a project? Ask questions like: “If you were to review this decision a year from now, on what criteria would you judge the effectiveness of a solution?” Price will rarely be the issue. “What does a successful outcome look like to you?” Shift the focus to the finished product, not the buying process. “What do you want to remember most about this decision and the solution you choose?” Everyone wants a smooth transition to a new solution.

Tap into the buyer’s legitimate fears and concerns. Fear displaces greed every time. Ask, “What concerns you most about moving forward?” “What pitfalls are you trying to avoid with this decision?” “What is your biggest red flag on this project?”

Buyers who recognize their fears make prudent buying decisions. Give the buyer something to consider: “Which offers a greater risk at this point, paying a little more than you anticipated or not getting what you need to do the job you want to do?”

Change the Conversation
Why should price dominate the conversation? Is price the only thing that the buyer cares about? Does the buyer need the cheapest solution or the best solution? Does the buyer want a short-term fix or a long-term solution? This is where your preparation comes into play. You want to direct the buyer down the path of value, not price. Price shoppers value-strip products and attempt to reduce them to their core-commodity status. Once exposed, the naked product is tough to defend.

Customers buy more than a generic space to store goods or move inventory from point A to point B. How well inventory is managed and maneuvered is where your value-added comes into play. If your trucks consume less energy, operate more quietly, require less maintenance and have a higher resale value, that’s value added! Talk about that—a lot.

Develop a Discount Discipline
Be stingy with your discounts. Are you working as hard to hold the line on your prices as the buyer is to whittle your margins? Under what conditions will you change your price? If your company’s financials mirror the average return of the S&P 500, every bottom-line dollar you retain through prudent discounting is like adding $16 to your top line. So if you retain an additional $10,000 bottom-line dollars because of your discount discipline, it is like adding $160,000 to your top line. That is significant!

Just because the buyer raises a price objection does not mean you must lower your price. That is only one way to respond to price objections. Just because a buyer does not have the budget does not mean your price is too high; their budget is too low. When a desperate competitor offers fire-sale prices, why copy their strategy? You cannot be an industry leader when you are a price follower.

Material Handling Equipment Distributors Association
Tom Reilly Meet the Author
Tom Reilly is a sales coach, author and speaker located in Chesterfield, Missouri, and on the Web at www.TomReillyTraining.com. This article is drawn from his latest book, Crush Price Objections (McGraw-Hill, 2010).

3 comments

  1. As soon as dealerships stop looking at themselves as a commodity is when the customers will get the point that price pays for the real “values” they need.

    A company that gives away one of their services usually means they are selling or renting an inferior product. This is a product that will break down in the busiest of times or not last very long. Call the service department for help, what, no one available to service it? Wait two to three days for the mechanic to show up? The mechanic finally shows up and spends multiple hours on a repair that should take only one hour to complete? That is if his under stocked van has the most basic of parts!!! Who pays for that cost overage and lost time? Refer to the customer that saved a few dollars on the initial transaction.

    I guess the customer didn’t realize that when he bought the deal at a “so-called great price” that he was expected to subsidize the on the job training program of the technician working in his building all day. Here’s hoping that the unit was fixed correctly as seeing OSHA investigate an accident is a real bad thing. Not only in the human toll but higher insurance rates not to mention the lack of productivity.

    This example isn’t about scare tactics, it about educating your customer that you get what you pay for. A “good customer” doesn’t stay in business to give his services away and neither should the dealer that keeps his business running. Remember, we are the professionals; our expertise comes with a price.

  2. There is another source to be considered when looking at the downward price pressure put on lift trucks by the customer [the ITA].

    What is needed now in this industry is a change in the marketing dynamic by the OEM’s, not a county by county market share tracking system. A much more aggressive strategy must be used to get the products out to the end users. National advertising, multiple dealers in the same territory, OEM supplied financial support and more comprehensive design enhancements are needed to bring the industry in line with customer requirements.

    By precisely tracking sales in geographic regions, both foreign and domestic, the ITA has given OEM’s a perfect tool for micromanaging the market and causing unusually intense competition amongst themselves. In the material handling industry, the top three or four OEM’s battle for market share and the dubious distinction of being #1. They have applied great pressure on their product line distributors to make sales. This has forced their distributors to make price concessions to the end-users. They have to operate on very thin margins and cannot afford to hire skilled people. Industry image has suffered. At its root is the all-consuming search for market share, fueled by ITA.

    Since capital investment in the MHE industry is relatively low, OEM’s are expanding capacities partly through internal accruals and partly via senior debt. Management has to be more concerned with creditor relations and factoring their accruals than they are with developing products which push the design envelope. Even the most profitable of the OEM’s at the moment (NACCO Ind) has relied more on its diversified holdings than on its lift truck manufacturing.

    Until the principal players begin seriously working to advance the technology of the products they build, investors will find it difficult to justify putting money into the industry. They have to define technology advances as a strategic objective and work toward it. Money must be spent on real product enhancements rather than those little things which might appeal to buyers.

    Finally, industry suppliers are themselves restricted because the OEM’s spend more time finding ways to cut costs than they do building a supplier network that provides the best quality at the best cost. They are not taking advantage of global supplier options. The resultant shortage in key suppliers actually reduces the OEM’s bargaining position and drives costs up.

    Brand distributors are caught between two pressures under the current business model. With the ITA giving accurate assessments of each distributor territory, the pressure on them from OEM’s to increase market share is enormous. In order to meet the pressure for market share, distributors sell their brands on the basis of price rather than quality product. This undermines the image of the brand and creates profit pressure on both the distributors and the OEM’s. The ultimate result is to take expensive capital equipment and reduce it to a commodity level in the eyes of the buyers. One brand is the same as another and the only important selling point is the comparative selling price.

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