Handling price pressures
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Handling price pressures

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Challenging times ...

Challenging times

In tough economic conditions most clients expect more
for less As their customers put them under pressure
they in turn bring pressure to bear on their providers.

The rise in the power, scope and skill of procurement has also exposed new areas to price pressure.

Sharpen your skills
It is worth sharpening our price handling skills and
reminding ourselves of the steps we can take to reduce
or manage price resistance.

The three main things to get to grips with are:
1. The principles of price
2. The process of price handling
3. The presentation of price

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  • 1. Handling price pressures A Mercuri International White Paper competitors. The downside of heavy discounting cannot be overstressed: In July 1994 Wills launched Horizon 30s in Victoria Australia, in direct competition with Philip Morris' In tough economic conditions most clients expect more Peter Jackson brand. Wills priced their new packs at 52 for less As their customers put them under pressure cents less than Peter Jackson. Philip Morris retaliated by they in turn bring pressure to bear on their providers. The discounting prices in South Australia, (Wills' stronghold). rise in the power, scope and skill of procurement has also At its height, the discounting war was costing the tobacco exposed new areas to price pressure. companies an estimated $8 million per week. As a result, profits and share prices of both companies dropped. Sharpen your skills Challenging times It is worth sharpening our price handling skills and reminding ourselves of the steps we can take to reduce or manage price resistance. The three main things to get to grips with are: 1. The principles of price 2. The process of price handling 3. The presentation of price However cheap you go it is likely someone will be willing to go cheaper. As John Ruskin put it in the Nineteenth Century: “There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man's lawful prey.” When you look around most offices there is usually little evidence that price is the main driver. Just look at the car The Principles of Price park, what the buyer is wearing, the coffee in the coffee machine, the quality of machine tools or computers. Few Few companies set out to be the cheapest in the market buyers buy solely on price (even fewer buyers admit they or to use price as their main differentiator. There are do!). The exceptions are in one-off consumer purchases exceptions but they tend to be in mass markets like supermarkets, newspapers and fast foods and most price e.g. price comparison sites for buying a fridge and very transactional deals on products perceived to be a wars are intended as short sharp shocks to hit weaker www.mercuri.net For more information contact: Richard Higham Tel: +44 1932 844855 or Richard-higham@mercuri.co.uk
  • 2. Winning growing and keeping clients commodity. In hard times the trigger point does move. This is the point at which the raw transaction price becomes more important than the value of the longer relationship. It is quite acceptable to respond to a price challenge with “Is price your only criteria?” If the answer is yes you probably shouldn’t be there! Page 2 (4) From principle to practice But clearly, appreciating the principles alone is not enough. We need to have robust processes. The processes might include:    Differentiation: How do we demonstrate that we are genuinely different from all those (cheaper) competitors Timing: Do we aim to deal with price early or late? Analysing components: What are our variables? How much can we move? What is the relationship between their cost to us and their value to the client? Building business cases: What is the best way of demonstrating how our offer brings value to the customer? Be confident in your pricing. Understand it and support it. You may feel yours is the highest price in the market but is it really? Don’t allow yourself to go into price  discussions saying to yourself “Yes you’re right – our prices are too high”. One way to analyse your pricing strategy is to use the grid below. Assess your quality and price levels. The low quality (left hand column) is unlikely to be an option. If you assess your quality as medium Thirdly we need to work on the way we present price. then it will be hard to defend high price levels. If your This is partly about structures such as the sandwich, the quality levels are high then beware of underpricing. LCD and the equivalent. Partly it is about language – avoiding negative phrases such as “I’m afraid it costs a lot” and using neutral language such as “figure”, “rate” or even positive language. Part of it is about behaviour – showing confidence but not arrogance, dealing with challenges calmly and cooperatively not with anxiety and aggression. Handling price challenges is not easy, especially in a demanding economic climate but if we can master the principles, refine the processes and improve the presentation of price our businesses will prosper rather than perish; our people will fly where others fall Richard Higham Global Practice Leader Financial & Professional Services Mercuri International www.mercuri.net For more information contact: Richard Higham Tel: +44 1932 844855 richard-higham@mercuri.co.uk