Sunday, August 8, 2010

Why You Should Never Lose on Price. And How to Make Me Right.

AYSO Region 423's Referee Administrator counsels new soccer refs with the following advice: "If you never call a hand ball, you will be right 95% of the time."

With that in mind, I'll start this blog post by saying that you should NEVER lose a new business pitch on price. If you think you did, you are fooling yourself. If the prospect says you did, then they are lying (though maybe for good reason. Call it a white lie.)

In my role, I have access to reviewing many lost proposals and access to many others who also have access to reviewing lots of lost proposals. When we are told that "we lost on price" and contact that lost prospect, we almost always get a different reason. I have yet to hear a CMO contradict this statement.

Then why did the prospect say it was price? This is the business equivalent of "It's not you; it's me." I'm no relationship expert, but I can tell you this: When you hear this phrase, it IS you.

OK, then, how do you not lose on price?

1) Ask about price. Ask what % of the decision will be based on price. This should not be your first question, of course. But if they are creating a weighted XLS, ask what % each attribute will be weighted. If they are not creating an XLS, then ask how they will compare bids and what will be the key determining factor(s).
2) Ask about competition. Are you competing against low-cost providers? Are you competing against hungry competitors who are low-balling currently? Or are the other competitors selling on value, too?
3) Ask about the other buying factors. How important are these? "If we are, perhaps, a little higher on price, but we can show you that we knock the ball out of the park when it comes to __________, will we win this?" Watch them carefully when you ask this question.
4) Ask them why are they bidding the project out. Was (is) there an incumbent? How did they find your name? Often you can find out the price question here. If they are leaving due to lack of service, you should be good. If they are leaving since they feel they are being overcharged for "a commodity," your red flag should go up.
5) Do your research on the prospect. Do they tend to buy from low-cost providers? Contact their other suppliers and ask what they care about. Ask if they pay their bills on time or argue over every nickel and dime. What you are hunting for here is not price, it's value factors. What does this prospect value most?
6) Ask them who is making the final decision. Is this a buyer who cares only about cost? Unlikely. While a CFO (for example) might care more about cost than the end-user, if she/he bought only on price, then the company would no longer be in business. Sure, when provided with 3 like options, the CFO might gravitate to price, but if you cannot show that you are not a like option, then you deserve to lose, regardless of price.
7) Deliver the proposal in person. My #1 pet peeve. If you e-mailed the proposal, you did not lose on price. You lost on customer service. You also lost an opportunity to be there when they saw the price. If their eyes became pie plates, then you would have a chance to see why they were expecting a lower price. Perhaps you added a lot of features/services that they didn't want or need? Who knows? (Answer: not you.) Here I advise people to set the proposal delivery meeting during the scope meeting. If they refuse to set a date or say, "Just e-mail it over and we'll call you." then you know they do not value customer service ... or are looking for a stalking horse. If prospects won't set a date for discussing the proposal, then you should reconsider sending them one. See Yogi Berra quote below.

So you asked and...

They wouldn't tell you. Did they tell you about other attributes they value? Are their other suppliers delivering value vs. cost? Research around it.

Price is their #1 concern. Ask yourself: Is your company's differentiator one of price? Or do you want to have a short-term, unprofitable relationship for alternative reasons? If so, full speed ahead. You've met a good match. If not, then, run. Sure, I've gamed my NEVER here, but if you can't compete, don't. Why create a proposal when you know you will lose? As Yogi Berra said, "Swing at the strikes."

Whenever possible (and I know in many cases you cannot), take a lesson from car dealerships and tell them the price up front … before the pitch. It's the first place they'll look anyway, so why not peel off the bandaid? Then you can spend the rest of the time piling on value until the price is overcome. We're 2% higher than the other bid? Fine, I'm going to show you 5% more value. Only 2%? Usually we're higher than that. Then explain why.

I tell prospects that if they get five bids, we'll probably be the second highest. That is, at the top of the three palatable bids. Or, if I know they are top-feeding, I let them know we'll be in the middle. "You are considering some solid firms, we'll be right in the middle of that pack price-wise." And then I pause to see their reaction. At least now they know not to expect us to be the low-cost option and we can focus on value.

In short, if you are proposing and do not know how much the prospect cares about price, then you need to do a better job with your pre-proposal efforts. Or you'll deserve to lose. And, when you do, they will say it was price. And you will believe them.

Note: Only once in the past 2 years have I come to the conclusion that the buyer did, in fact, buy solely on price. I saw the buyer's weighted spreadsheet and price was 60% of the score. Fair enough... but the winning bidder was rated lowest in every other category vs. four options. In one category they were even rated "substandard." I would have loved to be in the room when this decision was being made. "They're the worst of all and in this one case, they can't provide what we need, but they are the cheapest." I pity the end-users. Actually, I pity all their employees and all their customers.


  1. Thanks for tweeting this. I couldn't remember where I had read about "Small Giants" or even the name of the book, but after landing on your blog, it all came back to me.

  2. I like your no-BS approach, Stuart, and always have. In today's newly cutthroat environment though, how often is price not the top of the conversation? Even when clients regret it, they still believe they can find the bargain firm that will be low price, high value. Especially with Big 4 creating unrealistic expectations on the price bell curve. Your thoughts?

  3. Thanks for reading, Raissa and for the nice comment.

    I am not saying that price is not part of the conversation or even not at the top. When you buy a car, you look at the sticker price. How can you not? And if you have narrowed it down to two or three cars, and any would be fine, then a big disparity in price (sticker, rebate, financing, free options*) will push you to the lower cost one. So the goal of the car salesperson (and dealership and brand) is to find the customer's soft spot and make sure he/she realizes that only this one car meets it.

    Also, yes, some (many?) accounting firms are buying market share right now - especially from clients who see accounting firm offerings as commodities. The time is right for that, so it's a good strategy. And with the increasing reliance on look-alike technologies/systems and delivery via e-mail/portals, why would clients not make the move? They can get much the same services from every firm, they believe. And, sadly, often do. And they can learn this more easily than ever before. This is a huge shift from the target-rich, information-inaccessible environment firms were enjoying until recently.

    What I am saying (in the post) is that fighting a price war is a losing- and incorrect -strategy. And the spoils of a price war will not go to the victor. Not even in the short term since they will get a disproportionate majority of the high-maintenance, low value clients.

    But you hit the nail on the head. Low price AND high value. When they need to choose one, however, which will they choose? Most will choose value. Those that don't have chosen wrong and are, I believe, in the vast minority. And when they move for price, they are really moving for a perception of lack of value.

    You would not buy a cheaper briefcase only because it's cheaper. (There is one at the dollar store.) If you could not afford any more, then you are stuck. If you can afford more, but decide not to, then you have not been convinced of the value the extra cost will bring. Which is what I am saying.

    Yes, it's a knife fight out there for accounting firms. But value is the gun in this (politically incorrect) analogy. And never bring a knife to a gun fight.

    *free options feels like a pricing strategy, but offered right, it's a value one. Find out what else they need and offer the first stage for free? ... Just an idea.