“I don’t understand,” Reggie shook his head. “We have this brand new customer on the line, hasn’t placed an order yet. Could be a great customer for us. They said if we beat their current vendor’s price, the business was ours. My salesperson just called, said we lost the contract.”
“Well, did you beat the price?” I asked.
“We beat their price by 10 percent, we even got last look, so I know the price was right,” Reggie explained. “Maybe they lied to us.”
“Let’s assume your prospect was telling the truth, and the price on the contract was 10 percent less. What else about the deal cost more than the 10 percent in the price?”
“What do you mean, the price is the price?” Reggie was showing frustration.
“Sometimes, the price doesn’t matter, it’s all in the terms.”
“Our terms were normal, net 30 like everybody else.”
“What about switching costs?” I asked. “Remember our old cellphone contracts. You used to be able to switch carriers, but you would lose your telephone number. You may have a cheaper phone plan, but the cost to update and distribute your new phone number kept you from switching. Look at the contract you just lost and think about the switching costs for your customer. That may be where you find the 10 percent. Sometimes price doesn’t matter.”
Tom,
This also sounds like a negotiating issue. What did the seller get for lowering their price by 10%? A simple promise of the sale? When a client/customer is looking for price reduction, there’s an opportunity to discuss the differences in service/quality. How much of a commodity is the product set? the accompanying warranty? the level of customer service? Is the buyer willing to ‘buy less’? The idea of switching costs savings is a good one as it ‘maintains’ the price of the product.