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Why purchasers have difficulty accepting a higher price for a top-line advantage
Earlier this week, I attended a very interesting conference about sales and purchasing, organised by ISAM (Rotterdam). I learned from the reactions of purchasing managers that they are able to accept a more expensive offering, if that offering leads to clear cost reductions in their organization. TCO is indeed a concept that many purchasing managers are willing to listen to. However ...
However, it is very difficult for them to agree with an even more expensive offering that allows their company to obtain a substantial competitive advantage on their own market -- in other words, an offer that promises an advantage that is substantially higher than the price of the offering. In order to accept such an offer, the purchasing manager would have to sell his decision to his own management. If he would be good in selling propositions to management, he would be a member of the sales department, not the purchasing department. Moreover, in order to accept such an offering, the purchasing manager would have to understand the market position and the market of his own company, and that is not part of his duties.
There is a long way to go before value-based pricing will be accepted by the purchasing department.
As a supplier, you could argue that what works at the competition's premises, would have to be good for the new customer too. In that case, you do not speak about laboratory conditions any longer. But then, how to prove that what works at the competition will also perform equally well when used by a new customer? And, will your first customer confess the full advantage? Or worse, will your first customer be able to calculate the actual value?
Indead, as sales person, who is selling this kind of offers (higher price for a topline advantage), this was an eye-opener for me. Now I understand why negotiations I had in the past with purchasing departments was sometimes as if we spoke a different language. What I was selling to them did not fit in there standard way of evaluating a proposal.
Annick (Belgium)
Ah! The buyer's dilemma. If only the supplier could guarantee the advantage, and accept a price penalty if the product falls short of the promise when used in a customer's manufacturing line.
But for the supplier, it will be hard to prove that what works in a laboratory will also perform equally well when used in a real, and - to the seller - unknown process.