One 0f the more important tasks of companies is to develop and sustain a competitive advantage. It often seems to me that when coming to business people forget their lives and walk into an imaginary world they have created. A world where they collect evidence to support their vision of the imaginary world. In this imaginary world there is only one crucial, critical and decisive consideration others are using to do business. They only (or primarily) consider cost (price).
This world is imaginary as if the only (or mostly) overwhelming consideration would be cost, the only existing products and services would have been the cheapest. Clearly this is not the case.
If cost becomes a prime consideration for buying it is not because the buyer only cares about cost, it is because the seller could not convince the buyer his offer caries any meaningful value more than the alternative to justify paying a meaningfully higher price and NOT because they care only about cost (price). It is a matter of the buyer ability to clearly provide evidence that the additional cost is easily justifiable.
If your customers are not willing to pay you more than competition, and if your conversion rate is not meaningfully higher than competition it is a clear indicator that your market offering is just about the same as your competition. You need to modify your proposal or else cost will remain the overwhelming consideration of your customers.
To make your proposal different you need to be able to demonstrate to your market that when they buy from you they gain tangible value no one else provides. And, in B to B, the only value that will justify buying more from you and paying you more than what the buyer is willing to pay to the competition is business value.
if your proposal can clearly demonstrate that when buying from you the overall business performance of the customer will improve, the customer will have a clear preference to your proposal, which will lead to a higher conversion rate as well as the willingness to pay more.
Your ability to provide such value depends on your distance from the customer’s money. To demonstrate this concept let’s review two scenarios:
- A glass subcontractor selling to a construction contractor. In this case, the construction contractor is selling to the owner/initiator of the construction and buying from many subcontractors. The biggest business challenge of the construction contractor is to complete the project on time and within budget. Even the best service by the glass subcontractor cannot guarantee this will happen, as the construction contractor as so many other activities that can go wrong. The glass subcontractor is very far from the money.
- However, the construction contractor itself, selling to the owner affects directly the business value of the owner. Any delay in delivering the project leads to direct financial damage to the customer. The distance to the money is very short.
The closer you are to the money the more likely it is, that it is possible to create a value proposition the can lead to shifting away from them price sensitive business mode. The farther away from the money you are, the more important it is that your business proposition shortens this distance. Without shortening this distance it’ll be hard to demonstrate sufficient value to your market, and to shift away from the day-to-day price war.