Selling Value Not Price

July 2011
Gary Owen Christian Horn

What Influences Purchasing Decisions ?

Design
Brand Relationship

Response To Problems
Employee Acceptance Budget

Availability Service Previous Use

Performance Instructed To Use

Price

Recommendation

Fit For Purpose

Contract

There Are Many Many Influencers. Understanding How Each affects a customer is the Key to Selling Value !
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What do people buy ?

Price ?..........
What Would Our World Look Like If Price Was The Main Factor In Every Purchasing Decision The Lowest Price Tools Would Be On Every Machine , The Lowest Priced Wear Parts Lowest Priced Everything

Is Price The Only Factor ????.. We all know it is not !

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When Does Price Become Critical ?

When the value propositions of products can not be split When we fail to identify and sell our value to our customers When we have failed to understand the customer needs Fit For Use Delivery Time Availability Brand Design Fit For Use Delivery Time Availability Brand Design Price

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What Can We Overcome Price With

With Our Main Competitors We Have To Work Hard To Demonstrate Value

Fit For Use Delivery Time Availability Brand Design Lower Price

Fit For Use Delivery Time Availability Brand Design Higher Value

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What Do Most Customers Want ?

Our Products Our Deliveries Our Technical Service Our Innovations Our Investment in new technology Our Expertise at solving problems

ALL AT THEIR PRICE !

If Our Customers Control Our Prices And Our Margins Who is running our business ????
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Customer Tactics
The customer has been trained in how to buy , just as you have been trained how to sell , it is a game. You should have your game plan , the customer will have his game plan. The customer will only generally engage in a price discussion if he has a genuine interest in your product or service ( If a product or service was of no interest to the customer , why would he be interested in the price ?) When the customer starts to talk about price he is giving a buying signal How many of you know how much an Ipad costs ? The people who know, and also know where to get the best deal, are those who have an interest in buying one ! ( need has been established)

Price is generally the point the customer sees as the only negotiable IF we do not portray our value in other ways Also remember we educate our customers every time we sell to them , they learn where the boundaries are and where to push

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How Can We Create And Leverage Value

It starts with the customer !

If we do not fully understand the customers needs we can not create value

Value will vary from customer to customer the only by using FIND questions will you understand the value (Facts,Issues,Needs,Drivers) Value can also shift in a customer what is valued today may not be valued tomorrow , you need to listen and adjust

Value may be perceived through some or combinations of purchasing influencers

Attentive Listening And Confirming The Position With The Customer Is Vital !
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Understanding Value Example

You are in a discussion with a customer , he offers you the opportunity to test against a competitor
Do you
A Order the inserts , test and report back to the customer with the results B Probe deeper with the customer to understand why you are being offered the opportunity ?

In probing deeper with the customer you uncover that he is unhappy with the performance of the product and needs to achieve an additional 10 minutes of running time to balance operations
Do you
A - Order the inserts and promise you will do your best to achieve the additional 10 minutes ? B Probe deeper with the customer to understand the cost impact to his business of the unbalanced operations

Follow the sales process to uncover the real customer needs

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Understanding Value Example

The customer goes on to explain that the imbalance is causing difficulty with indexing time and the imbalance is costing 12 hours per month at 40 Euro per hour and that his boss has told him it is his number one priority
Do You
A Order the test tools and tell the customer that you will do your best for him B- Recap the whole situation clarifying and getting confirmation of the situation ? , Then ask the customer the following , If I can give you a cost effective solution for this and eliminate the downtime will you change to Kennametal products ? If the customer answers NO then we have missed something and should probe deeper , If the customer answers Yes .. But.. This would indicate you have missed something and should probe and re calibrate with the customer. Once you have cleared up and minor points order the tools and test , When you have tested , present you results emphasising the savings made relevant to the stated and agreed problem from the customer !

When We Understand Where The Customers Pain Really Is ,In most cases price will not play a prominent role in the scenario
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Customer Tactics

In the previous scenario , always remember the customer has been trained to buy , he will know your tactics , sometimes when you probe for deeper information , the customer may say he doesnt have the information , or he doesnt know the hourly rate .. Or He doesnt have the information to hand Why ?
Because in his buying training , he was taught the tactics of the salesman he knows you will ask for this information to strengthen your case for a higher price ! If the customer can not provide the information immediately , you should politely request the information until you get what you need , otherwise decline the offer you may find this brings a positive response and also the information you requested.

Customers Have Been Trained To Buy Your Are Trained To Sell !

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Example 2

When were you last in this situation

Customer calls you in the late afternoon , he has been let down by a supplier and needs a product from you to help him through ! During this conversation , when was price mentioned ? What was important to the customer ?

The chances are he said Get me the goods here is an order number !

The customers most important need was delivery ! Price was not even mentioned !

The Customers Pain Was Delivery For The Morning Price Was Not An Issue !
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What Tools Can We Use To Present Value

Our Common Tools Are

Tool Reporter 3P Both Of These Tools Will Only Help If They Have Customer Sign Off !

Other Tools
Customers Tracking Data Customer Reports Meeting Notes

Only Validated Reports Will Help You With Your Customer !

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What Else Can We Use ?

Quarterly Reviews With Top Customers

Ensure We Are Addressing Needs Embed ourselves as part of their business Build awareness of our activities Agree Savings Achieved Keep To Support Price Challenges Always Keep Close To What Is Important To The Customer

Use Some Of Our Reporting Tools

On Time Delivery Year On Year Spend There are many others.. Seek the one that fits the value your customer recognises.

Present Value The Value That Is Important To Your Customer !

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Plan your Customer Visit thoroughly

You must know more than our customer, before you go into a negotiation !
This requires thorough preparation and understanding of
Customers economic situation Competitive situation Pain points of our customer ( What Does The Customer Value) DOCUMENTED Savings We Have Achieved Know your value added for this particular customer, as well as competitor's performance and what their value proposition is at this particular customer Untouched potential at this customer ( Should you have to concede ask for this business) Price negotiations are not everybody's favorite topic so prepare yourself and dont let yourself feel uncomfortable the Customer will notice this ! Price Negotiations are also uncomfortable fro the customer Again dont be surprised if the customer show you the recent cost development of certain raw material you cant win that discussion better move on to the rational of value and productivity.

Plan The Meeting In Depth If You Are Well Prepared You Will Have A Greater Chance Of Success !

Negotiating
When do you start to negotiate ?
Only when there is a clear need identified and stated by the customer If you are in a genuine negotiation scenario the customer wants you there, he wants the product or the service from you why else would he be talking to you ? The customer would not call you in if he did not have a need. When negotiating never make an offer without asking for something in return , how you behave in a negotiation will set the customers behaviour pattern for future meetings. Negotiating on price the customers favourite place he has the order number you require.. He knows from his training you are hungry for the order.. Never Ever go to a negotiation meeting without fully preparing yourself , going through in your mind all the possible scenarios prior to the meeting and ensure you will be comfortable to answer all questions

Remember- You are at the table the customer has a need !

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Negotiating
Take A Little Time To Think When Asked Questions
Customer says we have your quote but we are not happy with the price ! Your competitor can do this for 10% less ! Ask yourself this question !.. If the competition are 10% less why is he talking to you ? , why did he not just order straight from the competitor ? Does this imply the customer wants to buy from you ? How would you respond ? Always confirm the concern with the customer Ask about the other aspects of the quote , delivery , design , (Remember , he wants your solution or he would not be talking to you !) Always ask If I could do something with the price , what other opportunities are available If the customer refuses to give something refuse to concede on price If the customer does concede something also concede a little , the more you concede initially the more a customer will demand

The Customer Will Be Trying To Get The Best Price For His Company It Is Your Job To Get The2008 Kennametal Inc. l All rights reserved. l Proprietary and Confidential!l 16 Best Price For Kennametal

Negotiating Tactics

Always try to use all argumentation to maintain price Always stick to your plan Be prepared to ask for time out to phone your boss If the customer demands are significantly higher than your plan be prepared to walk away Remember Where ever this negotiation finishes , will be the starting point next time the customer asks . If you agree an additional 10% today The customer will start at 10% next time and will continue to erode your margins

Always Promote Your Value If You can not promote Value You Will lose on Price !
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Negotiation Principles

Negotiations are an effective way to increase our Customer relationship in a positive way but only if we create a Win-Win situation for both parties. 1. Learn our Customers Business Make sure our product and service offering create value for our customer. This means you must learn the customers business and how they can save money with our products. Only then we can set price levels and price structures based on value. Make sure you understand the metrics of your negotiation partner before the meeting. Prepare accordingly ! A Purchasing agent will want to hear something different than the Technician. Value = Benefit Cost Look at value as our customers do. Compare the economic and non-economic benefit to the cost of realizing that benefit. Ultimately the customer will look at value not on price, so increase the customers benefit without scarifying the price. Take an optimistic approach. Good negotiation starts with mind set. If you are afraid or your body language shows uncertainty it will most likely fail. Make sure you are in the right mood. Be assertive without arrogance and balance your behavior for an constructive, friendly and honest atmosphere. Our prices and potentially our price adjustment might be called high, this will depend on the comparison. However, dont be afraid of a statement like that. It is the VALUE what need to be compared. Once you are in the value discussion for sure we will be able to bring our points across.

2.

3.

4.

Pricing is the Mirror of the Value we as Kennametal deliver !

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Negotiation Principles
5.

Make sure Pricing is not the only point you want to talk about. Frame it with other positive messages, but announce the price adjustment right away. Dont put it at the last point of your agenda. With that approach you have a fall back position to switch the topic and revisit this later when everybody has calmed down.
This is a Price Adjustment not a Price Increase Just from the different word you push the conversation to the value and not on the Price solely. Just think about the rational new products deliver higher productivity. Therefore from a production cost perspective a price adjustment is not felt at all. Never feel Sorry The price adjustment is the return for the value we have proven. So prepare your case with the tools you have on hand. Use Tool Performance Reports, the result of 3P or CAP plans and any other activity report which document what you have done and could do in the future for the customer. Guaranteed Cost Saving programs are an alternative too. Those programs need to be well prepared! Dont call your Manager early in the process. Some difficult customer may request to have your Sales Manager in the meeting. It is your responsibility to handle the full range of business. Price adjustments are part of that. So you need to take the full ownership. Prepare very well, act according to our core values und dont delegate to your boss without a solid business case. Negotiations with Managers open other challenges and depreciate your personal value. Once you have reduced a price, you will really have a hard time to bring this back. You are setting now the track for the future.

6.

7.

8.

9.

Stick with Your Value !

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Negotiation and The Fairy Tale of Price and Volume

Sometimes you may hear an argument like: Well, if you reduce your price by 5% you will get 30% more volume Let us illustrate the relationship between price and volume:
Assume our EBIT (Earnings before Interest and Tax ~ Profit) is at the current discount structure 10% CNMG120408 KC9145 per Piece Let's sell 100 Pieces: List Price 8,96 896,00 Todays Discount 30% -2,69 -269,00 Net Price to Customer 6,27 627,00 EBIT ~ Profit 10% 0,63 63,00
Now the customer is offering a trade: If we give him 5% additional Discount we will get 30% more Volume (Pieces) CNMG120408 KC9145 per Piece List Price 8,96 Todays Discount 30% -2,69 Net Price to Customer 6,27 Additional Discount 5% -0,31 Special Deal Price 5,96 Increases Quantity to 130 Pieces: 1.164,80 -349,70 815,10 -40,30 774,80

Not a good Deal !

The Profit Ratio Changes - as we still have the same Cost, but get less paid for it: EBIT ~ Profit 5% 0,32 41,60

In the case of a real tough negation here some more techniques: a. First Offer Never agree quickly to the first offer. Bad feelings will result because people will think they could have done better. Always negotiate.

b.

Trading Off Never give anything away. Always ask for something in return. Find alternatives and present different options.

Trades between Price and Volume most of the time lead to Price Concessions !
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Self Motivation

How to motivate yourself for a Price Negotiation ?

In certain cases you might need to motivate yourself why we as a company implement the price adjustment. Draw a comparison between your personal life and the situation of the company. Just like our company is valuing your work, you should expect your customers to value your work through a price adjustment. We as a company have delivered to our customers the value for the money and we need to keep the balance so we ask for money for the value we provide. On top of this we keep driving for more Increased Productivity ! Our customers now have the opportunity and time to explore even more new products and technology. We are there to help them find the right value solution. To Summarize: Any positive price adjustment is helping YOU to achieve your sales targets. Any negative price change will deteriorate your result in terms of sales and price.

If You Really Believe You Deserve This Price Adjustment You Will Achieve It !
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