Before you slash prices, check out these strategies for keeping your best customers happy and loyal.
Contrary to popular belief, a big customer that buys a lot of product from you is not necessarily a good thing. Big companies have a habit of pigeonholing smaller firms into being suppliers of commodity products.
That way, they can play you off against your competition in order to push prices down. They don't care whether you make any money on the deal because they can just switch to another vendor should the price drop drive you out of the business.
The good news? There are five ways to defend yourself against this kind of pricing game.
Strategy #1: Differentiate Yourself. If your firm offers a needed product or service that no other company can provide, then it’s impossible for the big company to play you off against your competitors. To create that differentiation, you position your offering so that whatever is unique about it becomes a "must have" for that customer. I once lost a sale of a million-dollar publishing system because the competitor convinced the customer that they needed the ability to set type around the shape of a handprint, something that the customer had never done before and would never do in the future.
Strategy #2: Provide Expertise. If you or your firm can offer expertise that the customer needs in order to fulfill their goals, you can be strategic to them, even if you’re a commodity supplier. For example, a company that sells glue for manufacturing consumer electronics might have world-class expertise in volume manufacturing that, if shared with their customer, would make them more profitable. That expertise is then periodically "lent" to the customer in order to reduce their manufacturing costs, thereby making an ongoing relationship valuable to the customer.
Strategy #3: Create a High Replacement Cost. If it would cost the customer a prohibitive amount to replace your firm's products and services, they're far less likely to replace you with another competitor. What's important here is that you create the high replacement cost AFTER you've made the sale, because prior to the sale, the big customer (if they're at all self-aware) are likely to see the replacement cost as liability and thus be less likely to buy from you in the first place.
Strategy #4: Really Know the Account. If you can get yourself involved in the inner workings of the customer account and become part of their strategic planning, they'll begin to see you as a consultant rather than a mere supplier. For example, IBM sometimes assigns an employee as a general IT consultant inside Fortune 100 firms. In addition to being a sales representative, that employee is mandated to act as an independent IT resource acts as a clearing house for any problems that occur with IBM's offerings.
Strategy #5: Generate Reverse Credibility. This one is tricky, because credibility usually flows from the larger company to the smaller one. (e.g. "Our customer list includes GM and Oracle!") However, if a smaller firm has a market reputation that helps the larger firm create credibility in a new market, the larger firm will may see the relationship as strategic. Example: the Taiwanese computer manufacturer Acer used to publicly tout its' relationship with boutique studio FrogDesign in order to seem more "cool" in the consumer PC space.
(The above is very loosely based on a conversation with Sam Reese, CEO of the huge sales training firm Miller Heiman.)
READERS: All five of the above strategies are worthy of a column (or three) of their own. Any one of the five that you’d like me to write about first? (Leave a comment or send an email.)