When I hear folks blame their poor margins on low-ball competitors, my heart sinks a little because I understand that low margins are sadly, self-inflicted. There is no law that says you have to take business that doesn’t make sense. And more importantly, not every job, project, or customer is right for you. The big question is how do you get the right customers to pay what you are worth? In other words, how do you negotiate value instead of price?
If I ask you what your value proposition is, and your answer begins with “We have the best…”, then I expect I am going to hear a lot of platitudes about quality and service – probably the same things most folks say about their company. If your response is about how you help the customer maximize their return on investment, then we might be talking about a true Value Proposition.
How do you determine what is valuable? There are customers that clearly express what is important to them only to have prospective suppliers offer something else. In talking with buyers, they often cite that the existence of an RFP (request for proposal) actually triggers lowball bidding. The assumption is that because more than one supplier will propose on the job that the customer is looking at price first. If your value proposition is high service instead of low price, then you have to learn to recognize when the customer isn’t buying what you are selling and when they are.
“You get what you pay for” is the rallying cry of those that feel cheated out of work by lowball competitors. Sometimes they are right – some low margin sellers deliver poor results. The question we need to ask is, “What did they do or say that convinced the customer this performance was acceptable given the price?” Upon analysis one of two things has happened. Either you were not able to prove why your solution and price were more valuable – or – the other bidder was able to prove why their offering was better for the customer. All things being equal, take the better price, right? If you strongly feel that you were the better choice, then you only have yourself to blame for not demonstrating a value proposition that proved it or finding a customer that cares about the things that make you cost more.
The real obstacle to having a winning value proposition is that it can’t look like everyone else! If we reviewed the sales pitches from a dozen integration companies, I suspect that the buyer would learn that EVERY company has the best people, never makes a mistake, and always finishes on time. When every company promises the same thing, there is no discernible value in it for the buyer. The seller with a winning value proposition will take the risk that their unique approach will win profitable business and accept the risk that some buyers won’t choose to pay more for that product.
In the final analysis, the reason many companies end up with low margin work is that they are addicted to revenue and are not willing to risk losing any project on price. These companies are leaving money on the table (not to mention losing money on some jobs), because they have a very low risk tolerance. Let’s look at a consumer example: Do you think that Starbucks understands that some folks won’t pay $4.00 for a cup of coffee? Of course they do. What they do understand is that the Starbucks value proposition increases what a cup of coffee is worth to some consumers. Starbucks is willing to forgo the folks that don’t value this customer experience. In fact, so many consumers prefer to pay four bucks instead of one that McDonald’s has introduced a new line of fancy coffee. They can’t beat Starbucks at their game, but they might lure some of coffee drinkers back with this new value proposition. In both cases, the value proposition is about the customer experience. In a blind bid on a cup of coffee, we’d all probably choose Dunkin Donuts because it’s coffee and it’s cheap – but it is probably the last place I’d like to spend time in drinking coffee.
Value propositions are both discoverable and invent-able. They can start with a marketing catch phrase or a strategic idea, but the best ideas come from your TARGET customers. Let’s presume your ideal customer is willing to let you make a decent profit in exchange for something. Find out what the something is and under what conditions the buyer would allow you to charge a fair price. You might want to build a value proposition around that.