One of the questions that invariably comes up when I have worked with companies on multiple competitive opportunities – “do we always need to be super aggressive in our pricing in order to win”? The reality is no. Aggressively pricing every opportunity does not need to be the norm. There needs to be a strategic balance between engaging in aggressive pricing and emphasizing value differentiation to protect profit margins. Here are four techniques that companies can employ.
1. Strategic Aggressive Pricing
Aggressive pricing can be a double-edged sword. While it can help companies improve their win probability (especially when there is little differentiation in non-price evaluation factors), there is concern that overuse can erode profit margins. The key is knowing how to strategically employ aggressive pricing. Here are a couple of scenarios when it makes sense:
• Cost Leadership: Consider aggressive pricing if your company possesses a clear cost advantage that does not compromise your profit margins. This could stem from technological innovations, operational efficiencies, or economies of scale. For instance, if your company has developed a proprietary technology that significantly reduces production costs and you can afford to lower your prices without sacrificing profitability, use this advantage to undercut competitors.
• Market Entry Strategy: Look to use aggressive pricing when entering a new market segment or aiming to quickly expand market share. This approach should be temporary and part of a broader strategy that includes a clear plan for gradually increasing prices to sustainable levels once market penetration is achieved. Consider offering aggressivepricing with a new customer with the understanding that exceptional service delivery will justify future price adjustments.
2. Emphasizing Value Differentiation
Differentiation is crucial where products or services can be distinguished based on quality, innovation, or additional features:
• Communicate Unique Benefits: Articulate what sets your offering apart from competitors. This might include higher service levels, advanced features or benefits, or customizations that directly address unique public sector needs. Developing a narrative that highlights these differences can shift the focus from price to value, making price comparisons less direct and more about the overall return on investment. The strategy can be particularly effective when the evaluation model is less prescriptive and requires more customized solutioning.
• Quantify Value Propositions: Beyond stating benefits, quantify the value your offering brings to customers. Use data, case studies, and testimonials to illustrate how your solution offers long-term savings, efficiency improvements, or other critical outcomes. For example, if a solution offers advanced data analytics capabilities not available from competitors, detail how this can translate into actionable insights for public sector customers, leading to cost savings or enhanced service delivery over time.
3. Selective Discounting and Value-Added Services
In response to competitive threats, consider tactical discounting or adding services rather than across-the-board price cuts:
• Targeted Discounts: Offer discounts or incentives that are strategic and targeted, such as volume or “one-time” discounts. This approach helps maintain the perceived value of your offering while providing flexibility to respond to specific competitive pressures. For instance, offering a discount on the first year of a multi-year service contract (or discounting the transition phase) can be an effective way to secure a new customer.
• Bundling and Added Services: Bundle products or services to create packages that offer more value than standalone items. This not only makes direct price comparisons more difficult but also enhances the perceived value of your offering. Additionally, including value-added services—such as free training, extended warranties, or enhanced support—can make your proposal more attractive without altering your base pricing structure.
4. Develop Strong Customer Relationships and Focus on Total Cost of Ownership (TCO)
Building strong relationships and focusing on TCO can offset the need for constant aggressive pricing:
• Strengthening Customer Relationships: Develop and maintain strong relationships with public sector customers through consistent performance, reliability, and open communication. When customers trust your ability to deliver value, they are less likely to switch to a competitor based on price alone. Regular engagement, understanding customer challenges, and adapting to their evolving needs can solidify this trust and loyalty.
• Highlighting TCO: Shift the conversation from upfront costs to the total cost of ownership. Educate customers on how choosing a slightly higher-priced but more robust or efficient solution can lead to significant savings over the life of the contract. This approach requires detailed analysis and documentation to demonstrate the long-term benefits and savings of your solution, addressing aspects such as maintenance costs, operational efficiencies, and scalability.
Companies need to price aggressively when it is advantageous, while primarily focusing on differentiating their offerings based on value. This strategic approach ensures that companies can remain competitive in bidding processes without compromising their long-term profitability and sustainability. It is about making informed decisions that align with their strengths, market position, and the specific dynamics of each procurement opportunity. Contact us to learn more!
