Expert's Panel

A collection of timely and important topics posed to our panel of experts.

How do you deal with the constant pressure to reduce prices?

 (ep10104)
1. Let me tell you a story about two companies, Thermco which is now part of Silicon Valley Group and Solibasic which is now part of nothing. Basically they were the last two guys standing in a war that took place from the early 60's to the middle 70's. These two companies and their competitors sent their salesmen out to discount and they took the prices ever lower. Eventually they were both dead-one was bought up out of bankruptcy and the other just disappeared. There are many other such stories throughout the 70's, 80's and 90's. You can't let yourself get caught in a price war. In this market, if there is no differentiation between what you and your competitors do, you better fix that problem because price cannot be the only way you compete.
2. If price competition looks like the way it is going to go, you better look in your kit bag and see what new businesses there are for you to get into. If you can't add value in a differentiated product that your customer is willing to pay for, it is time to move on. Performance, throughput and reliability are areas for differentiation.
3. If the price pressure is coming primarily from the customer, keep in mind that negotiation and all of its tactics have become a way of life in the U.S. and Europe also, not just in Asia. Individual personnel you are dealing with in the customer's environment have likely been through a negotiation course in the last 18 months. You need to get into the game with them, but change the tradeoffs away from price to other areas. Novellus during the late 80's and early 90's did very well, yet would never negotiate the price. They would, however, trade off many other things that they had in their quiver. Things that had high perceived value to the customer, but low cost to them. The message I'm giving is that just because the customer is pushing on price doesn't mean you have to bend.
4. One very important thing with pricing, when you are dealing with an individual sale-it is a long process sale-you have lots of contacts inside the company. Hopefully your sales team has established a network of information that will feed back some feeling as to whether the pressure and negotiation taking place are about real issues. Is the price pressure primarily a negotiation ploy, or is it a significant concern?
5. The Quest Team's new course, "Combating Aggressive Supply Chain Management" directly addresses this issue and has some excellent strategies and tactics that were derived through a study of actual situations suppliers are facing.