| We've all had to deal with price increases
in one form or another. Similarly, many of us have been faced with a belligerent customer
who not only is unwilling to accept your price increase, but also threatens to switch to
your number one competitor. When this happens, we're often left with the feeling that our
career is on the brink of imploding. But, don't panic! Take a deep breath and relax! It's
not as bad as you may initially think.
In talking with a variety of salespeople, professional
buyers, and purchasing departments over the years, the reality is that when a customer is
presented with a price increase, they will only change to a competitor about 10% of the
time.
The reason is simple: the cost of switching to a new
supplier is too great. When a customer threatens to make the move, rarely have they taken
the time to think through what they're really saying. Their goal is to get the weak-kneed
salesperson to cave in and give them a discount, and many of them are successful in
securing on-the-spot price reductions just because of the forcefulness of their veiled
warning of switching.
When you are presented with the threat of a customer moving
to another supplier because of a price increase, focus in on the cost of the conversion
instead of allowing yourself to panic. Remember, the process is never as easy as they
think it's going to be. Start by looking at what they will have to go through to set up
and to start receiving from a new vendor. Now, take this and multiply it by four. The
reality is that the customer is not just setting up a new vendor, but also phasing out an
old one in addition to dealing with the wide-range of conversion issues that will
inevitably arise.
To better help you understand the risk involved in actually
making the change, think for a moment about the hassle you go through when you try to
alter a flight on the same airline or your cell phone plan even if you stay with the same
carrier. Similarly, consider what is necessary to adjust your automobile insurance or to
reschedule medical tests. With each of these same examples, think of the added work you
would go through if you were not just changing plans, but also changing companies. Because
of the significant amount required, you would probably think twice about making a switch.
Now put yourself in the shoes of a business and think for a
moment about the work that would be required for them to change to another supplier. It's
easy for a business customer to say they're going to drop you and go with someone else,
but keep in mind that at that point, it's only talk. Threatening you is not costing them
anything. Carrying it out actually will. The decision to switch is not just about the
absolute cost. On nearly every occasion, it takes time to make a switch, thus carrying an
added element of risk.
The next time you are warned of a potential switch from a
customer, be proactive and prepared. Do your homework. Research what it would take for
them to actually make the change to a new vendor. After you've discovered the cost of the
conversion, figure out how long it would take for your customer to get a payback, let
alone a return on their investment. In most cases, it will be hard for a customer to
realize any type of a return just from switching because of a price variance.
Even if the customer could achieve a return on investment,
could they guarantee the other company's pricing structure wouldn't change? Could the
other supplier guarantee the same level of service you and your company provide? Could the
other company provide the same level of sales leadership that you bring to them?
The vast majority of the time, the threat of a belligerent
customer to change suppliers because of price increase dies quickly when they truly stop
to consider the cost of making the switch. Once the customer realizes that there is more
time, effort, and money at stake than they have considered, the change will definitely be
less appealing. By doing your homework ahead of time, you can avert a problem situation by
showing the customer it is not worth it. |
