Our President gave him a good description of what his options were with regard to budget and scope and that we weren’t in the business of sharpening pencils.  She is a very classy person, much classier than me.  Here is my answer: who the hell died and made you king?  You have no idea who we are and what we do and you tell us that we have to “sharpen our pencil” to do business with you?  Here’s what I know: you have no choice in the matter.  We have been selected to be a vendor by people more senior than you.  You have so far been unprofessional and delayed the implementation of an important project for your firm.

The real story is much worse.  By your delaying, be it due to unprofessionalism or a false sense of importance,  you have moved your firm down our list of pending project starts.  If we have resources, you’ll get them but if we don’t, you’re going to have to wait in line until they become available—which I hope is a long time.

We have firms that we have great relationships with.  We even have great relationships with their procurement people.  When they have a need, we meet it.  We work weekends, we travel for long distances for long periods of time.  We get up early, we stay late.   The firms that use procurement people who think they are kings and try to push us around rarely end up on the list.

You see those guys aren’t kings, they are really jokers.  Our job is to figure out their game and play by our rules and not theirs.  When they play their games, if we do our jobs right, the only people they really hurt are other managers in their own firm.  When those people find out the damage the jokers are doing, if they get their just deserve, their next stop will be the circus—-where they become clowns.

This is a terrific response to the increasing downward pressure on drug prices and one that might actually work. Struggling to get listed on increasingly price sensitive health carrier drug formularies, pharmaceutical companies have had to rely on discounts for even tier one brand name drugs that offer lots of patient advantage. It’s a bit of a desperation move—you’re damned if you do with lower prices, and you’re damned if you don’t with lower sales. It has really been a no win situation for them.

This new tactic is creative and banks on the ability of the drug to dramatically shrink tumors within a relatively short period of time. One medical expert didn’t like the promotional aspects of the guarantee citing that what they really need is solid evidence. That’s not true. There is plenty of solid evidence that many drugs reduce medical costs and save lives. That hasn’t stopped the insurers from putting the pharmaceutical companies through the price buzz saw of procurement.

The guarantee is a way of making a promise of the results to physician, the insurer and especially the patient. It’s a way of showcasing the value that Roche believes the drug has. It’s a way for them to put some money behind the promise of value. And, it’s a way to blunt the discounting demands of the insurer. If they want lower prices, no problem—no guarantee. This sets the table for a better poker game at least.

It remains to be seen if this relatively new tactic will work—it will take some chutzpah for Roche to stick to their guns and their strategy. We wish them well.

From: “Keeps Cancer in Check or Your Money Back” in Bloomberg Businessweek, November 21, 2011

I can see the reader pounding his sales guys to find more business to quote on.  The opportunities they find are the ones they have no chance of winning–they are fulfilling the Rabbit position I talked about in my last blog. 

If something isn’t working, the trick is to figure out why and change the way things are being done.  In difficult economic times, salespeople have to get smarter at what they do, not do more of what hasn’t been working.  Trolling for RFP’s is easy–developing trusting relationships and value takes a lot more work—and has a lot better results if you know that’s what your customers want.

Yes, the big guys seem to have all the advantages. They use their scale and marquee to squeeze the little guy. Vendors are not as powerless as it may appear. In fact, vendors have a number of tricks and tactics available to fight back, protect their margins, and keep the business. Negotiating in these is customer situations is not be a surrender. Remember, the bigger they are, the bigger their appetite. They may be as desperate as you are.

In the face of relentless calls for concessions by increasingly powerful companies—insert name of your least favorite multinational corporation here—sales leaders have responded by mindless discounting, hoping to make up any losses through higher volume. Unfortunately, discounting is a fool’s response. Those who live and die by discounting don’t live very long. The name of the game today is maintaining margins. To do that, you’ve got to outplay the economic buyer.

Sales professionals labor under the assumption that all the power is on the other side. That’s because the inevitable response is price discounting. Discounting becomes an addiction that actually undermines the long-term health of the business. It decreases profits and erodes the quality of customer relationships. The sad fact is that this happens even in organizations that provide significant value to their customers. This value is overlooked, underestimated, or flat out ignored when, in fact, it is the key to breaking free of the conventional wisdom of discounting.

To the extent sales professionals believe they must trade margins for revenues, they undermine their success and train their customers to expect a price concession each and every negotiation.

Consider the position of the Advantaged Player—that salesperson is at the negotiating table with a customer. There are probably other players and the buyer spends a lot of time talking about how their prices are much lower than the Advantaged Player. In fact, there may be some yelling going on about how our Advantaged Player has to lower prices in order to close a deal. Does he have to? Nope—it’s all a poker game. In fact, the more yelling that occurs, the worse the hand—for the customer. The Advantaged Player has the winning hand. He doesn’t have to discount, he just has to play the game and close the deal.

Compare that to the position of the Rabbit—that is the salesperson who is added to the bid list to drive the price of the Advantaged Player down. The Rabbit has no chance of winning the business. They have no contacts with the real decision maker and no chance to sell value. The Rabbit has the losing hand and is better off just not playing the game, especially if the time needed to prepare a bid is more than two minutes. It’s just a flat waste of their time.

If you understand your position in the game, you can play the game better—walking away from the table if you have a losing hand but out-bluffing the customer if you have the winning hand. It’s not that hard and it’s a heck of a lot more fun.

Most salespeople hate dealing with pricing.  They know that, for the most part, prices are based on internal cost calculations that have little to do with either true costs or  the competitors in the market place.  They know that a lot of discounting is done and they want a piece of it.  What’s the bottom line?  They have absolutely no confidence in your prices.  None.  That makes them clear prey to customers who ask for lower prices.  Be they dealing with  procurement people or the economic buyer, salespeople who don’t have confidence in price and/or are afraid to support those prices because they know they aren’t “accurate”  are going to give excessive discounts each and every time.

Your job as a pricing manager is to not only price products, it’s to understand the environment within which those prices are executed with customers.  If you don’t do that, you are failing in your job.  If you have no view of that or just can’t control it, your executives are failing in their jobs.  That disconnect actually leads to more discounting because there is nothing to support the prices that you do create.  Bottom line: it’s a joke–a sad one.

It all starts with the basic question:  how do you feel about our prices.  It’s a question that needs to be asked and answered to begin to heal the widening chasm between strategic and tactical pricing–by the way, tactical pricing is all about salespeople.  It’s a chasm that rarely gets talked about in the conferences and the white papers but it perhaps the most important element of pricing because it is where the real value is either captured or gets left on the negotiating table for customers to enjoy.

How you feel about asking the question points to both the path you should be thinking about as as a pricing professional.  It points to the
solution that all of us in the firm should be talking about: improving both profits and revenue because, after all, those are the two most important things we work for.  And, if we can work more closely with sales to understand how they feel about pricing and why that’s important, we begin to work collaboratively with the two most important elements of the success or failure of the firm.

Cheers from Australia