In the October 2007 edition of Better Business Focus, Steve Rowe explains how to fight back against the market pressures to commoditise your products and services.
He tells us that there are two types of customers:
- Type 1 who will only buy on price
- Type 2 who place a premium on the extra value you provide and are prepared to pay extra.
A point that Steve doesn’t make but in my experience is true is that type 2 value buyers pretend to be type 1 price buyers.
Why do they do that? Because they want your products at your commodity competitor’s prices so negotiations become a game of bluff.
Steve advises you to focus on the value of the relationship:
- the value you deliver in terms of cost reductions or extra revenue
- the service levels experienced during the relationship
- the cost (and risk) of changing suppliers.
The next step is to identify extra ways that you can help your supplier, perhaps by making referrals or helping to promote their business through yours.
Finally look at how you can help them strengthen their own competitive strategy by involving them in your innovation ideas or help them learn about their competitors.
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