Where have all the price driven buyers gone? Products commoditize, Customers don’t

Umesh Sharma

November 12, 2019

Does your sales organization believe that price is the sole determinant in buying decision of your customers? If so, you are most likely seeing low growth or declining profit margins or both. If not, it is a matter of time before you start to see your business performance going down.

Some time ago when I was conducting a training program on strategic marketing, a senior sales manager of the client company asked me “Umesh, tell me why should I waste two days of my work in this training when 80% of my customers are price driven buyers?”. Thankfully on my promise that he would see the value the value of my training before the end of two days, he agreed to stay on during the training. Herein lies the challenge of many B2B manufacturing organizations. Their sales teams are so much under price pressure from their competitors that they do not know much else than reduce prices to maintain their customers.

The challenge of customers driving prices down or the sales force unable to see right customer signals?

In my professional career of 25 years and consulting career of 4 years, I have repeatedly found that many sales people in B2B companies believe that most, if not all, of their customers are price buyers. By price buyers, I mean buyers who make their purchasing decisions solely on price. How many times do we hear sales people complain about reduced prices being offered by competition and hence seeking to offer reduced prices to obtain orders from customers? How many times do we find that sales people are living with a constant threat of losing large customers due to their inability to match prices?

This problem highlights a very common challenge for companies in B2B markets. Just imagine if you continued to follow competition in terms of pricing, what would it mean to your margins.

I dealt with a variety of markets including some “undifferentiated” markets in my career but rarely did I find a situation where majority of the customers were price buyers. On digging deeper, I found that fundamentally, many sales people misinterpret the signals from the customers and as a consequence over-estimate the number of price buyers that they have.

Let us understand what are the causes of this widespread phenomenon and what can we do about it.

Myth 1: Purchasers have multiple readily available options

Purchasers in B2B organizations are under pressure to reduce raw material costs, while at the same time, ensuring continuous and timely supply of good quality raw materials. For a buyer, this is like being between a rock and a hard place. This pressure is often reflected by them in a demand for better prices.

Reality: Most purchasers have requirements, other than price, which are extremely important to their purchasing decision.

What is required in such situations by the sales team is to uncover how difficult it is for the customer to be a REAL price buyer. To be a real price buyer, the customer must have following conditions in place:

If customers do not meet these conditions, they cannot be price buyers.

Remember, all those customers who ask you to match the price of an alternate supplier, are not price buyers. Such behaviour is a clear indication of a preference to do business with you. You must find the reason for such a preference.

Myth 2: Sellers think they are selling commodities

Many sales people believe that their customers value only price. They believe that there is nothing that can differentiate them from competition as the products being sold by them and by competitors are same in performance or features.

Reality: Even if your product is undifferentiated, you can create a differentiation by offering some service of intangible to your customer that is valued by them.

It is important that sellers should view such situations as those in which they have UNDIFFERENTIATED PRODUCTS. which is just one part of the TOTAL OFFERING. This means there are still possibilities to differentiate either on services levels (supply reliability, tech support level etc.) or on intangibles (reputation, relationship etc.).

Myth 3: There is no value in Customer Segmentation

Sellers may have inadequate information or not a suitable model for carrying out a meaningful customer segmentation. In many B2B organizations you find segmentation based on end industry or based on geographies. While such segmentation may serve operational effectiveness, often it fails to provide a segmentation which will help you serve your customers more effectively. Even worse is the fact that many organizations do not even see any value in doing customer segmentation. Quite frequently, the real reason in such cases is that the selling organization either does not have adequate information about customer needs and values or does not have a suitable model for distinguishing different buying behaviours and specific customer needs.

Reality: A customer segmentation based on real Customer values can help you position your offering with differentiation.

Sellers need to be able to recognize the differences in needs and buying behaviours of their customers. These differences will allow for a meaningful customer segmentation. For example, let us see some generic customer segmentation based on needs and behaviours:

Security of Supply: These customers want uninterrupted supply of approved quality products at all times from a committed supplier
Optimizers: These customers are always looking at solutions involving improving efficiencies or reducing total cost of production
Innovators: These customers are looking for early access to new products or they have a need to develop new products
Price buyer: Lowest price from three (or more) pre-qualified suppliers

Myth 4: There are no distinct customer value propositions

There are no distinct and clearly defined value propositions for the customers based on the segment to which they belong.

Reality: Distinct customer offerings based on customer values can help you not only differentiate yourself but also get you enhanced margins

The marketing team from the selling organization needs to provide the sales force with a clearly defined value proposition and a package of offering for each customer segment. The real test of a meaningful segmentation is in assessing whether the offering of one segment is different from that of another customer segment. If not, the customer segmentation needs to be revisited. For example, let us consider value proposition for the generic segments discussed above:

Security of Supply: Guaranteed continuous supply from an approved, reliable and committed supplier
Optimizers: Projects to reduce cost and improve efficiency in a structured and measurable manner from a loyal supplier
Innovators: Projects to introduce and develop new products from a responsive and creative supplier
Price Buyer: Lowest price and available product

Myth 5: Customers only want one offer, the one with the lowest price

Sellers go to customers with only one offer, either because the marketers have not given them any alternatives, or they are not empowered or equipped to develop their own alternatives. Therefore, they make only one offer to the customer which effectively then becomes a “take it or leave it” offer.

Reality: Customers need and value CHOICES.

If they don’t get the choices from you, they will seek them from other suppliers. The core of any buying process is the trade-off that the customer should be able to make to get more of what they need or value in return for something which is less valuable for them. Marketers should provide a range of offerings designed for the specific needs of the customer segment. (Which if these offers best meets your needs?)

Here are recommendations for B2B manufacturing organizations to improve their customer retention and their margin quality:

Train your sales and marketing to go beneath the superficial level of mere price discussion to truly understand customer needs and values
Create your customer segmentation, not based on products or industries, but based on customer needs and values
Create distinct value proposition and offering for each customer segment. If your offering is not distinct for your segments, revisit your segmentation.
Offer choices to customers based on what they may value and what you are willing to trade.

If you implement the above recommendations, your sales force would wonder “Where have all the price buyers gone?”

Finally, I would like to end this blog by saying

“PRODUCTS COMMODITIZE, CUSTOMERS DON’T.”

If you like this post or have a comment, please do so below. I would like to hear from you.

I will soon be back with another topic relevant for B2B companies. Thank you for reading and bye until the next post.