I’ve been digging into the specifics of my post Will Your Customers Leave You If You Raise Prices: 8 1/2 Questions to Ask Yourself.
Last week we looked at question number 1: How do you know they have even started the process of finding an alternative source? Here’s question number 2:
2. How much will it cost the customer to switch suppliers?
Customers can be quick to speak, especially when they hear something they may not necessarily want to hear. My experience has been that as quick as they can speak is usually indirectly proportional to how slow they can think.
I don’t mean this negatively. Rather, I see it as a positive for both the salesperson and the customer. More than likely when all is said and done, the the customer will see it is beneficial to stay with you as their vendor.
Initially, though, when a salesperson shares with a customer that prices will be going up, it’s easy for the customer to speak from a gut reaction and say they will switch to a different supplier or vendor.
In reality, it’s highly unlikely they will actually do it. Why? Because it is difficult to do.
You, the salesperson need to be ready for this type of discussion to occur at anytime.
When I mean “ready,” I don’t mean being ready to argue with the customer or buyer about the switch. Rather, I mean ready in your own mind in knowing what the real cost of switching could be.
If you understand how expensive switching suppliers can be, you’ll be less likely to panic should the buyer bring up the subject. Many buyers enjoy playing this strategy because they’ve had very positive results from it in the past. They’ve found by just mentioning how they might switch suppliers, they can often receive significant price discounts.
Prepare yourself for this type of discussion by first reviewing to see if there is even another supplier that can meet all of the criteria you’ve been meeting for the customer. As you review other suppliers, challenge yourself to find those areas where you have an advantage. Here are some ideas:
These are supply-chain items, but equally important is the value-added support you offer. This includes things like the expertise you and others in your company provide the customer. Another intangible would be the security the customer has in knowing they can turn to you for answers at anytime.
Build as long of a list as possible. The longer the list you have, the more confidence you’ll have and the stronger your sales motivation will be.
The second issue to look at is if the supplier the customer may consider is even prepared to service them. For many large companies, the work involved in setting up a new supplier can be quite significant. It can be a cost the buyer may be overlooking when threatening to switch.
A third issue to consider is the administrative implication of the buyer dealing with a new supplier. If the customer is only going to be sourcing a few items from this new supplier, then it can mean having to generate additional purchase orders. In this era of trying to reduce the number of suppliers a company relies upon, adding a new one can raise an entirely new set of issues.
A fourth issue to assess is how would your cost structure on other items you supply the customer be impacted if they’re not buying as much from you? Due to tiered or quantity pricing breaks, removing even a single item from an order can result in everything else being billed at a higher price.
A fifth issue is the price the new supplier says they will offer. Many times a new supplier looking to break into a customer will offer a discount — but only for as long as it takes them to get the business. For the buyer, a lower price they expect to get long-term can suddenly become a short-term savings that goes away. They’ve gone through all the hassle of switching, only to be back at square one and not saving as much money as they were hoping.
The sixth issue is the additional workload on the buyer and their department. Purchasing departments in many companies are the most stretched groups of people, due to the amount of work for which they are responsible. I’ve watched many buyers put off for months making a change based solely on being buried with far more pressing matters.
I’ve listed six different items. I know not all of them will apply to each situation, which is fine. Over the coming weeks, I’ll continue providing you a buffet of options from which you can pick. Some you will like; some you’ll pass on.
All I ask is that before you pass on any particular suggestion, give it some thought. You may just surprise yourself as to what you see in the idea. You may find yourself taking the idea, putting a slight twist on it and coming up with a perfect solution you can use.
Will your customer really switch vendors? More often than not, they won’t. It likely will cost them too much.
Copyright 2011, Mark Hunter “The Sales Hunter.” Sales Motivation Blog.