In the world of enterprise selling, business opportunities have certainly been sparse in recent times. But some verticals and geographies are on the rebound with new deals emerging. And, driven by hunger, there’s no shortage of vendors lining up to feed. Desperation, though, is a harsh task-master and many selling organizations are cutting prices and abandoning logical pricing strategies in the interest of winning. Winning at any cost. Emotion crushing reason. Need pushing sense aside.
I’m reminded of the Thomas Jefferson quote – “In matters of style, swim with the current. In matters of principle, stand like a rock”. I’ll paraphrase it, though, for the whirlpool that is COVID – “In matters of pricing, stand like a rock”. Even in normal times, of course, selling organizations strategically utilize flexibility in pricing on major pursuits. The keyword is “strategically”. For flexibility is a planned component of their pricing strategies, tactically employed in pursuits.
Now, though, pricing strategies are often abandoned with prices cut and margins surrendered. Fear, paranoia and this uncertain time drive these distasteful actions. And their negative consequences echo through selling organizations. For credibly pursuing large deals at any time involves significant investments. But the organizational pains are intensified now. Consider a selling organization’s people, the human assets whose time is always valuable, but even more so now with COVID cutbacks. When scarce people are assigned to major pursuits, their talents are often unavailable to other efforts, exacerbating the problems. Yes, enterprise opportunity investments are huge in normal times but the pain is much more magnified now. For the healthy revenues that typically offset pursuit costs simply don’t exist. Opportunity qualification, therefore, has never been more critical. As is being true to your pricing strategy. Let the competition lower their standards. In matters of pricing, stand like a rock.
The consequences of cutting price to “buy the business” are long-lasting. Stable customers can often make purchases to stockpile your products, killing your future revenues at robust margins. And elasticity of demand aside, lowering prices can establish client expectations that can be difficult to change. Devalued brands very often stay devalued. And in the “be careful what you wish for” category, bidding low often results in tepid victories that burden your organization with untenable contracts. Years of painful margins can cripple organizations even more than business cycle downturns. And if you join the nasty price wars with your competitors, beware of the race to the bottom. You just might win.
Outside of stringent opportunity qualification in these uncertain times, what can you do to increase your chances of winning business without giving away the store? Never ignore the power of creativity. Consider alternative payment terms or bundling offerings. How about other products/services to be delivered at the same time or in the future? Of course, having a detailed understanding of an account’s pains is a prerequisite. How about co-bidding with partners to create unique advantages for accounts in need? Or adding consulting services to a proposal to differentiate your offering utilizing a core competency?
Winning through creativity. It can be done. Consider the powerful story of the Xerox 914 Copier, introduced in 1959. It was predicted to change the very future of printing but even with its startling technology that produced clean copies on plain paper for the first time ever, obstacles loomed. Even with the efforts of Xerox’s amazing sales force, prospects found paying $30,000 for 700 lb. machines more than troubling and initial sales were slow. But Xerox creativity concocted a pricing strategy that overwhelmed the price objection. They simply stopped selling 914’s. Stopped selling them and started leasing them. This pricing strategy change produced historic success. Fortune would later say “the 914 is the most successful American product in history measured by ROI”. Tons of new clients signed up for the reasonably-priced monthly $95 lease, which included 2,000 free copies, And Xerox revenues skyrocketed. But the true growth accelerator of the creative pricing strategy was the 4-cent per copy charge above the monthly allowance. For Xerox understood their prospects’ pains and made a calculated bet on human nature. They bet that people would quickly abandon the mess of carbons and coated paper for the cleanliness of plain bond paper. And they were right. Customers eclipsed their monthly 2,000 copy allowances and kept on copying. In fact, the average customer copied more than ten times those allowances, with each additional copy generating that 4-cent charge. Ka-ching!
In two years, the creative pricing strategy tripled Xerox revenues as customers somehow found room for 10,000 of those 700 lb. machines. Joe Wilson, Xerox VP of Sales, called the pricing change “the best decision we ever made”. And revenue growth continued at a compound annual rate of over 40%, as Xerox generated $1 billion in 1968.
So, in this difficult time, make sure you understand your prospects intimately. Be aware of the changes they’ve undoubtedly experienced in this new world. Then, copy Xerox and put creativity to work. And never forget Mr. Jefferson’s guidance.
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