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Stop Helping Clients Chase the Bottom

A business owner sells a product. A new salesperson shows up and teaches the business owner that by changing some of the component parts of his product that he can create that product at a lower cost. This makes his product and business more profitable.

Later, another salesperson shows up and teaches the business owner that buy choosing another cheaper component part (in addition to the one he’s already installed in his product) that he can manufacture his product at an even lower price and capture even more profit.

This whole “cheaper” thing is really starting to pay off. The business owner follows this path. He continues to try to find lower-priced components with which to manufacture his product. But over time, his product has changed. The product is not as high quality as it was when he originally created it. The perception of value has changed. Now it’s cheaper.

Slowly at first, then faster, the business owner loses market share to competitors with a product that costs more but is of significantly higher quality. The competitor’s product is perceived as being more valuable–and it’s not the lowest price.

As fewer and fewer people are willing to buy the business owners product, he begins to lower his price in an attempt to compete with product’s that cost more. He tries desperately to widen the perception of value. Now with the perception of value destroyed, he competes on price. In doing so, he is less and less profitable.

You are hurting your customer by helping them find a lower price if it hurts their long-term business prospects. Your job as a sales person (and good business partner) is to help your clients create more value. If you can help them produce greater value at the same or lower price, that’s a good thing. It’s helping them obtain a lower price in a way that doesn’t hamper their ability to deliver value to their customers. But if what you sell them reduces the value that they create for their clients, then you are harming them by winning the business on price and allowing your client to underinvest in the real outcome they need.

By helping your clients chase the bottom on price you may be helping them destroy the value they create.

Question

What part do you play in your client’s value chain?

How do you help your clients deliver value to their customers?

When is it wrong to help your client obtain a lower price?

When is cheaper better? Is the cheapest product ever the best product in its category?

Comments

comments

  • Linda Fredrick

    Great post! My field isn’t sales or manufacturing but of course this affects me as a consumer. I think people are tiring of spending money on substandard products. Yesterday I was conversing with a friend regarding the quality of appliances and why the product life span seems to go down consistently. My thoughts were that the trend was due to a lesser pride in craftsmanship, coupled with manufacturers buying in to the disposable society frame of mind. I hadn’t taken into account the possibility of an unintentional slow slide into mediocrity.

  • Alessia

    Amen to that. It’s a lesson that is broader than just manufacturing.

  • Kaptain Mirza

    Chinese products have created this pseudo-value of cheaper products which has created a pacified category of people who ‘assume’ good looking cheaper products will manage to get along. Pure commercialism.

    Great article.

    A.1-Keeping the price bar the same, the offerings can be lowered or increased but NO negotiations on prices.

    A.2-Showcasing the best, creating a perception of finesse and expertise is imperative to command the price control.

    A-4-Cheaper is better in FMCG like Pepsi, Coke and junk food.



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