When negotiating price with a B2B customer, how many times have you agreed to a low price because a competitor is doing it? We all have. You want to beat the competitor at his or her own game. After all, if they can discount, you can do discount better. We all know what happens then. If you lose the order, you get mad because you were undercut. But if you do win the order, your satisfaction is quickly undermined by the sneaking suspicion that what you have won is a Pyrrhic victory—a victory achieved at excessive cost. When you go back to your office and consult your costing sheets, you realize with a sick feeling that you’ve actually lost money on the order. Being a plucky gal, you tell yourself, "That’s okay, we’ll make it up next time the project goes out to bid."

The problem is, how many times have you ever successfully pulled off that we’ll-make-it-up-next-time strategy? We didn’t think so. Have you ever even met anyone who has pulled it off? It just doesn’t work.

Price competition is a fool’s game, because any fool can play it. In fact, weak competitors have an advantage in price competition, because they’ve got nothing else to leverage. New entrants to the market have to use low price too, because they haven’t yet proven their value to customers. Customers have discovered how to use price competition to their advantage. Customers qualify the low-priced vendors in order to get the high-value competitors to match the price. Customers who switch to you for price will be the first to leave when another low-price competitor comes along.

You may not always be aware that your company has been trapped. We got an urgent telephone call from the VP of sales of a well-known electronics company the other day. She wanted our advice on the best pricing strategy for a reverse auction in which the company was participating. A reverse or procurement auction is often used in industrial B2B procurements. It is a type of auction in which the roles of the buyer and seller are reversed with the primary objective to drive purchase prices downward. In a conventional auction, buyers compete to obtain a good or service. In a reverse auction, sellers compete to obtain business.

We had but one question for her: Was her company the preferred buyer? The answer was no. Get out of the auction, we advised her. It was a waste of time for her company. There was no possibility of her company winning the order. In this scenario, her company was a "rabbit." Its only role was to pressure the two preferred vendors to drop their prices.

We advised her to use the bid request as an opportunity to visit the company and talk to the engineering team or real decision maker about value. She could then focus on her understanding of the prospect’s business pain, how her company’s services would alleviate that pain, and how the prospect’s business would directly benefit from the value her services added.

If all you talk about with customer is price, there is no price that is going to be low enough. Price is important, but there are considerations that must come first. Start the conversation by talking about value. If the prospect does not value that value, then be happy to let your competitor have the honor of serving him.

Successful managers and salespeople know how they create value for customers and know how to change the discussion to value. Learn how to send an important signal to potential buyers. That signal is: We are confident in the value we provide and, therefore, the prices we charge.

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Article written for w2wlink.com.