A recent review showed that Poundland can be up to 50 per cent more expensive per unit compared to other shops through the clever use of marketing and differing pack sizes. Poundland know exactly how to price for the proposition they are offering and who they are offering it to.
Neil Radley, former Managing Director of Barclaycard Western Europe, who is now Non-Executive Director on Invapay’s board explains.
Knowing the value of your proposition and who the buyer is are two of the hardest things the owner of an SME can ever learn. So many businesses have failed because they have failed to understand the sales dynamic. In the business to consumer market the feedback is rapid but in the business to business market there can be many distorting factors which don’t necessarily mean the product is poor.
In a B2B environment the dynamic is exacerbated because the lifecycle of sales is very different (longer) and the imbalance between size of buyers and sellers is often so vastly different.
Typically, a small business looks at its product and works out how much it costs to produce. The immediate reaction is then to add a margin to cover overheads and then another bit more for profit to get to price.
Invariably the SME wants its product to be as cheap as possible in the belief it will be easier to sell. Wrong! Understanding the interaction between product value, its pricing and the buyer is critical in the BtB selling cycle.
Always start by pricing for value and forget the cost of the product (if cost is higher than value then you’re on to a loser anyway!). Spend time working out the value to the buyer. If your product addresses a £10m problem then a £1m price tag to save 50 per cent of the problem is a no brainer maths equation for the buyer. Forget that the product cost £100 to develop in the workshop at the back of the office.
Once you have your product proposition remember that product buying decisions correlate closely to the status of an employee in a large corporate. Instead of ‘You get what you pay for’ it’s ‘You get who you price for.’ All corporates have approval hierarchies and naturally, the higher the spend the more senior the employee.
Pricing your goods at £100 gets you to someone whose budget is commensurate. Given its proportion of their budget they will likely take as much time as the CEO takes to make the £1m buying decision. The difference is that the £100 decision still needs to get ratified up the chain which adds complexity, layers and ultimately, time.
It never ceases to amaze me at the size of transaction that a corporate procurement department will get involved in, that’s if you are lucky enough to be on the preferred supplier list in the first place. By and large they will go through the same process as if you were IBM. Can we see your statutory accounts? What are your forward trading prospects and do you have enough cash? Who are your Directors? The contracts that come out of the back end read like War and Peace.
Actually, by getting your products endorsed by the CEO makes this process easier. The head of procurement is always more amenable when the CEO is endorsing a product! However, I can’t count the number of times I’ve heard the sales team in an SME bemoan the fact they can’t get access to the C-Suite executives.
Don’t be apologetic, ‘Sell The Dream’. How many times has a sales pitch started or ended with the immortal line ‘It only costs…’. I despair of that sales pitch. Be bold and support your £1m price tag. Tell the buying CEO that the £1m spend will save the buyer £5m of problem. Put it like that and the CEO turns to their procurement chief and says ‘Why aren’t we buying this product?’
Paint the picture of where the buyer will be once the product is bought and being used. Even the most mundain products can sell a vision. Selling that new office chair becomes selling an ‘ergonomically designed productivity enhancer’.
The one, sure fired way of doing so is to price it for the CEO to decide. Of course, the £1m chair is unlikely to get far….but you never know!
Coin on chart by Shutterstock