July/August 2010

Never, never be the lowest bidder

By Jim Pinto

When business is tough, some people feel price-cutting may be the best way to generate business. But, that is a loser's game, especially in the industrial automation business, which has a high level of applications knowledge and specialization.

When identical products are available from several sources-like pork-bellies, soybeans and scrap-iron-they are commodities. For these things, as well as for some commonly used items in industrial controls, it sometimes seems like discounting is a way of life. And the lowest bidder wins. Or loses?

Differentiate your product

Products and equipment are "differentiated" by the features, advantages, and benefits (FABS) competitors cannot offer. When a product becomes a commodity (no special FABS), the differentiation that remains is quality, delivery, and price. And losers (or lazy salespeople) fall back all too quickly on price as the determining factor to get the purchase order. Or, they respond with fear, uncertainty, and doubt, which is negative selling and should be avoided.

Quality is a tough sell-everyone says they have it. The savvy customer will review whether or not prospective suppliers operate an ISO 9000 program, or have a good track record from past shipment. Or, they may look for referrals from existing customers to verify a good track record. A demonstrable reputation for good quality is indeed a value differentiator, and that should be reflected in pricing.

Delivery implies availability within a specified time to satisfy the customer's need. Commodities tend to be offered from stock, but suppliers should recognize there is a carrying cost involved, which must be factored into the price.

Cheaper is not always better

It finally comes down to price. My favorite ice cream store near my home has a sign: "Somewhere else, you can find cheaper ice cream; if you need cheap ice cream, go there." Even though many people might think ice cream is a commodity, we must learn from the growth and success of Ben & Jerry's or Häagen-Dazs.

And what about coffee? It is available in many restaurants as a bottomless cup (free refills). Yet, Starbucks continues to grow, with no free refills and coffee priced as much as double or triple anywhere else. What is the catch? Starbucks offers all the things that go with a good cup of coffee-comfortable sofas to lounge around with friends, newspapers and plenty of good magazines to read, muffins or donuts to go with the coffee, and all the little niceties that make a difference.

Sell value

The industrial automation business is extremely broad based, with a tremendous range of applications, equipment, environments, and special requirements. Product and equipment applications knowledge has significant value and should not be discounted. Above all, sales people should strive never to be the lowest bidder. That often raises doubts, rather than success.

One would think pride would involve offering the highest value at a reasonable cost. It is curious some people boast about their products being the lowest cost. When buying food, do they buy the cheapest? When hiring people, do they hire the lowest paid? If they do, then good customers might choose not to do business with them.

I'm sure you have heard the story of the engineering consultant who was called to repair a machine that had stopped the factory and tightened a single screw within about five minutes to restart the whole place. When the bill was received for $2,000 the customer was outraged, "You spent just five minutes here, and we received a bill for $2,000!" The consultant smiled, "The tightening of the screw was free. $2,000 was for knowing which screw to tighten."

Always remember, you are selling value: Your knowledge, your experience in the business, your understanding of the problems that are involved, your ability to solve the problems that will inevitably come up, and your availability to help the customer when needed.

When you have quoted your best price, if the customer says it is expensive, do not make excuses. Your immediate response should be, "Yes, but it is the best! And you get my involvement when you buy my product."

As an instrumentation professional, always strive to provide the most value-the best specifications, the best performance, the best quality and reliability, the best delivery, the best applications assistance, the best after-sales support, the best-looking product literature, the most helpful documentation. And, do that at a price that is the best value for the customer-and for your company and yourself.

The next time someone demands a discount, do not discount yourself. Ask yourself whether you should really be doing business with that person or that company.

Never, never be the lowest bidder.


Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto's Points, at www.jimpinto.com/writings/points.html.