Competing against a Customer s Competition


Competing against a Customer's Competition

Vendors compete against each other. Their customers pay their Box Three managers to manage this competition, playing one vendor off against another to get the best—that is, the lowest—price. Competition, whether among vendors or others, is based on comparison. When vendors compete for Box Three, they compare themselves against their competition product by product, feature and benefit by feature and benefit. When all the distinctions without a difference cancel out, vendors compare their performance to their price. In this way, they force debate on the relative merits—or, in other words, they force competition on themselves. The winners make the sale but, in the process, trade away their margins.

It is not uncommon for the margin loss to exceed 50 percent. In one typical case, a sales representative "sold" a $3 million order for computers to a retailer at a 54.75 percent discount that, the customer was told, would "elevate your awareness of the benefit of doing business with us by increasing your overall profitability." The discount was composed of a 46 percent price break plus free cooperative advertising funds, prepaid freight, the services of a team of marketing and sales representatives, together with a product trainer, and a rebate program. As the representative said who made the sale, "The customer practically sold himself."

The transcendent objective of Consultative Selling is to maintain premium margins. To do this, consultants must create a new concept of competition; that is, they must sponsor a different set of comparisons, none of which is with "other vendors." In addressing Box Two, consultants can position two types of comparison for their customers to evaluate:

  1. For profit center managers who run customer business lines, consultants can create a comparison between a manager's current sales and share of market and the consultant's norms. When the consultants' norms are superior, they can propose to add value to the customer by helping to increase volume or margins.

  2. For cost center managers who run customer business functions, consultants can create a comparison between a manager's current operating performance and the consultant's norms. When the consultants' norms are superior, they can propose to add value to the customer by helping to reduce or avoid costs.

In both cases, the consultative sellers are challenging the customer to compare their current competitive advantage with a proposed superior advantage. Is a competitor taking greater advantage of a market opportunity than you are? If so, I can help you come closer to equality or leadership. Are unnecessarily costly operations taking needless advantage of your profits and preventing you from being a lower cost producer? If so, I can help you come closer to equality or leadership.

When customers focus on comparing what it is costing them now, in both direct costs and opportunity costs, to be competitive with what it could cost them if they were partnered with the consultant, their concentration is on their own competitive position and not the consultant's. Other vendors are driven from their field of vision. They are out of sight and out of mind because the questions the customers ask themselves have nothing to do with "the best price." They are, instead, preoccupied with questioning the deal at hand. Is it credible—can I believe the numbers? Is it sufficient—will it make enough of a difference? Can it be done—can the proposed people and systems and strategies do the job? Is it realistic—can I reasonably expect to get the predicted rate of return on my investment within the promised time frame?

What if they ask, "Are there other suppliers who could do the same thing or do it more cheaply or better or faster?" They already know the answer: "Perhaps." They also know that because time is money, they will risk opportunity cost if they want to find out. They will be far more concerned with evaluating today's opportunity today—the bird in the hand—and not speculating about tomorrow. All they can ever be sure about is today. Today's opportunity taken tomorrow is already operating at a competitive disadvantage.




Consultative Selling(c) The Hanan Formula for High-Margin Sales at High Levels
Consultative Selling: The Hanan Formula for High-Margin Sales at High Levels
ISBN: 081447215X
EAN: 2147483647
Year: 2003
Pages: 105
Authors: Mack Hanan

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