Is Successful Selling All About Lowest Price?
Next Level Purchasing, Inc. Charles Dominick, C.P.M., SPSM
Next Level Purchasing, Inc.

In most of my public speaking appearances, I speak to groups
of corporate purchasers. However, I recently had the
enriching opportunity of speaking to a group of sales
professionals.

I asked them to tell me about the experiences they've had
with purchasing groups that have frustrated them the most.
I got some interesting responses!

One phrase that was repeated often was, "It's all about
price!" These sellers felt that many purchasers do not seek
the supplier that will best serve their organization, but
instead always seek the cheapest supplier.

I assured them that this was not the case in most
progressive purchasing and supply management departments.
However, that is not to say that their perspective did not
have merit. It does.

I summed up why they had the experiences that they had in
this blurb: "It all comes down to what can be quantified in
financial terms. When price is the only thing that appears
to be quantifiable then, yes, it does all come down to
price. However, when paying a higher price can yield a
quantifiable return (e.g., minimizations of other costs), a
well-trained purchaser will make the decision that has the
most favorable net impact on the bottom line."

There are many other aspects of doing business that affect
the bottom line. Are you, as a seller, considering them in
the same way that your potential customers are?

If not, consider evaluating how these costs of doing
business with you differ from the costs a customer may incur
when doing business with a competing supplier:

- The cost of acquiring a product or service
- The cost of using a product or service
- The cost of supporting a product or service
- The cost of maintaining a product or service
- The cost of disposing of a product or service
- The cost of poor performance

Just to illustrate the detailed analysis that a corporate
buyer may do, I'll provide the steps that he or she would
follow to take into account the estimated cost of a seller's
poor performance. This approach is most commonly used by
large corporations who are doing business with two or more
competing suppliers and wish to consolidate their supply base.

Here's their 6-step process…

1. They define "events" that constitute poor service, poor
delivery, and poor quality. For example, a poor quality
event may be receiving an incorrect invoice.

2. For each event, they determine its average cost to their
organization. For example, an incorrect invoice may
require their accounts payable and purchasing staff to
dedicate 3 man-hours at a rate of $30 per hour to resolve
the problem. Thus, the average cost is $90. They apply
the same average event cost to all suppliers.

3. For each event, they determine the percentage rate of
occurrence using historical information. For example, if
10 of the last 1,000 invoices that a supplier provided
were inaccurate, the percentage rate of occurrence for
that supplier is 1%. They express the rate of occurrence
in a decimal format (e.g., 0.01). Each supplier will have
a different rate.

4. For each event, they determine the number of opportunities
for the event to occur. If suppliers will invoice them
weekly over a two-year deal, there will be 104
opportunities for an event. The number of opportunities
will be the same for each supplier.

5. To estimate the cost of poor performance for each event,
they multiply these three things together: the number of
opportunities, the rate of occurrence, and the average
cost per occurrence. Cost of poor performance per event
will differ by supplier.

6. For each supplier, they add the cost of poor performance
per event for all events to the corresponding supplier's
price. The supplier with the lowest total cost after
factoring in the cost of poor performance will generally
be the ideal choice, considering price and performance.

So, you can see, it is not all about price in all situations.

Knowing how the buyer will evaluate your proposal is a big
advantage in successfully selling to large companies. Helping
the buyer understand how your company minimizes the total
cost of doing business is the key to getting your proposal
evaluated favorably by today's sharp purchasing professionals.



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This article was written by Charles Dominick, C.P.M., SPSM.
Mr. Dominick is the president of Next Level Purchasing, Inc.,
a company dedicating to helping purchasing professionals have
successful careers. Next Level Purchasing can be found on the
Web at http://www.NextLevelPurchasing.com


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