This is an important column, maybe the most important ever I've published. It contains the key to keeping your company profitable and free from debilitating price wars.  Incredibly valuable advice, so read it carefully.  You might want to bookmark it, too.

Before I get started, though, a word of warning.  Much of what's written about "selling value" is horse manure.  Most of the time, what's touted as "selling value" is simply a strategy to provide more product for the same price.  (E.g. "Buy Sudso!  It's a better value!")

Selling more product for the same price isn't selling value.  It's discounting, which is the opposite of selling value.

For example, if your framistat comes with a doohickie and the price is the same as your competitor's framistat (but the competitor charges money for the doohickie), all you're doing is discounting the doohickie down to zero dollars.  You're still competing on price! That's not selling value.

The trick to selling value is to keep your price high even in the face of a lower-cost competitor–and without giving away more product.  Here's exactly how it's done:

1. Identify What's Different

In order to justify paying a higher price for your offering, your customer will need to see either you, your offering and/or your company as different (and, specifically, better) than the competition.  There are six basic types of "differentiators":

  • Feature: A characteristic or capability that your offering has and other products lack.
  • Brand: An emotion uniquely tied to your company or offering.
  • Convenience: Your offering is easier for the prospect to purchase and support than the competitor's.
  • Quality: Your offering is higher of quality (lasts longer, works better, etc.) than the competitor's product.
  • Commitment:  You're personally more committed to the customer relationship than the competition.
  • Integration: Your offering works better with products that the prospect has purchased in the past.

The more differentiators that you can identify and articulate, the easier it is to defend a higher price.

2. Create a Financial Case

Now that you know what's different about your offering, tie each differentiator to one or more of the following five types of financial benefits:

  • Increased revenues: How will your offering help the prospect improve their revenue? How much more product could they sell? How much are those extra sales worth to them?
  • Decreased costs: How will your offering help reduce the prospect's costs? How much will they save in labor costs? How much will they save in overhead?
  • Improved quality (of their own product): How will your offering help improve the quality of the prospect's offering? How much will they save in reworks, scrap, overtime, corrective action costs, and so forth?
  • Faster delivery (of their own product): How will your offering improve the prospect's ability to deliver their own offering? How much will they save in canceled orders, expediting costs, air freight charges, and so forth?
  • Lower risk: How will your offering reduce their exposure? How much will they save in penalties, legal fees, and litigation?

The bigger the financial impact of the problem and solution, the less relevant your price becomes.  And tying those benefits to your differentiators gradually pushes the other choices (specifically, the lower-priced competitors) entirely off the table.

3. Get Consensus on Financial Impact

Work with the prospect to get agreement on specific negative financial impacts of the problem that your offering solves.  Make sure the decision makers agree with the cost analysis.  The bigger the negative impact, the better.

Then work with the prospect to define all the ways that the problem that your solution addresses impacts their revenue and profit. Include direct costs, lost opportunity costs, personnel costs–whatever applies.

For example, if you can service your product at the customer's site within one hour and the low-cost competitors can only get provide within 24 hours, determine how much it would cost the customer to be without support for 23 hours.

Approaching a sales situation in this way gradually forces the competition out of the picture because it builds a financial case around what's unique about you and your product.  As you build the financial case, the prospect becomes convinced that only your product makes financial sense.

Needless to say, there's a lot more I could write about this, and I will ... in future columns.  So stay tuned.

The above insights come to you courtesy of a conversation with Robert Nadeau, managing principal of the Industry Performance Group.  Wicked smart guy.