Values Up or Prices Down

The Internet, enabled by cool applications, has brought the process of competitive bidding to an entirely new level. Reverse auctions, for example, have squeezed savings out of suppliers in every situation I am aware of. But it’s getting worse for suppliers.

Some companies are using bidding to gauge a supplier’s competitiveness. That may be clever and effective for component buyers, but it is tough on suppliers. Two-step bidding may not be new, but using the Internet changes it significantly.

I have written before about the need for companies to be the low-cost producers in the market spaces they choose to be in. (See: Eventually, It All Boils Down to Cost.) These new approaches make cost effectiveness even more important. Without cost effectiveness you won’t generate the cash to fund product or service differentiation or, when these aren’t enough, to compete against aggressive tactics like two-step reverse auctions.

The Internet also brings price competitiveness visibility to a new level through various online applications. Faced with better-informed customers and aggressive negotiation tactics, how does a supplier respond? Customers need to see, appreciate, and pay for your value. This is easier said than done.

It helps to remember that your customer is likely not the end consumer. Your customer is just a conduit for getting your product’s function into the end application. If your product or service makes no difference to this final user, you have a problem: Your product is a commodity. You are competing on price.

Describing your product in the value terms of your customer’s product can help you assess your own differentiation. There should be some distinct value, and it should have stickiness. Remember: Your customer is someone’s supplier, so it faces the same fundamental problem as you do. Can you increase your customers’ value and stickiness?

Supply chain professionals understand supplier value as it relates to your needs. They know they can squeeze weak value assertions and pay higher prices for solid ones. These same professionals can easily assess your value proposition’s strength against customers’ needs, and highlight areas of weakness for possible value creation investment.

As I see it, it’s either values up or prices down!

By Ken Bradley – Lytica Inc. Founder/Chairman/CTO

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