Customers who differentiate bids primarily on price may fail to clearly understand these three elements:
- Price. What you charge them for your products and/or services.
- Cost. The total that goes out of their pocket, including “hidden costs” such as lost production because of poor planning or work methods.
- Value. What you save them because of your superior products and/or services.
Callbacks, “time bombs,” and total cost of ownership are all concepts a savvy customer considers. But not all customers are savvy. Some focus on price because that’s pretty much all they understand about the project; therein lies your opportunity.
Some customers commoditize all competitors and ignore the value aspect completely. Instead of looking at the work that is actually required and the qualifications a firm has to do it, a price-focused buyer may slap a label on a package (e.g., “outage testing program”) and just buy the cheapest one available.
Here’s an example of how that happens; maybe you can relate to this in your own experience.
The president of an electrical testing firm, let’s call him Bill, got a call from a long-term client. The client decided not to use Bill’s firm this year. The customer’s reason came down to price. “Not only that, they said they can be out of here in two days instead of the three you always take.”
Bill was stunned at the competitor’s price. Knowing what it took to conduct these tests and knowing that two days meant some serious short-cutting, Bill smelled a “win the client back” opportunity.
Before concluding the call, Bill asked his former client if they could review the results together after the testing was done and then again before the next scheduled outage. The client agreed.
A week after the outage, the client met with Bill and raved about the great service they got at such a low price. “Sorry, Bill, but it looks like we just found a better firm.”
During the review, Bill noticed several important tests weren’t even done. He pointed this out to the client, who replied that those apparently weren’t necessary. Bill concluded the meeting by dramatically writing his home number on his business card and handing it to his former client. “I hope nothing goes wrong, but my professional judgment tells me it will. Please call me at any hour if you need anything.”
Eight months later, that call came. The plant was down. There were several cable failures, all of which would have been predicted (and thus prevented) had the complete schedule of testing been completed. In the interim, Bill had been checking out his competitor. He discovered its crews were not properly qualified and trained, nor did they have a calibration program for their test equipment.
Bill got his old client back, but this was a very expensive lesson for his client.
When Bill told this story at an industry conference, many of his peers congratulated him for getting that client back. Bill’s response was that he should not have lost that client in the first place. He said he failed to educate the client (both his direct contact and that person’s managers one and two levels up) on what Bill’s firm was doing for them and why all of it was necessary.
Educating your clients is best done as an ongoing process. It’s not something you should wait to do only after a lowball bidder comes along and not only steals your existing business but also hurts your clients. You understand your business and why what you do matters. Don’t expect your clients to understand that without significant help from you. Develop a plan for educating and retaining key clientele, and you can prevent the kind of pain that Bill and his client went through.