Tuesday, August 12, 2008

Price is Relative

I really do not like to be in the situation that Jill Konrath talked about recently. Buying or Selling on price alone takes the truth out of the equation.

What truth? How about Value? Return On Investment? Timely delivery of goods and services?

When you need a dentist, do you want the cheapest or the best dentist for your problem?

See money is not the only issue. Read more from Jill:

Selling to Big Companies Blog

Dealing with Reverse Auctions

If you've never heard of reverse auctions, you're lucky. When I first learned about them, I shuddered. Essentially, the buyer commoditizes a product or service, then lets vendors bid online for their business.

The whole goal is to drive down price. Quality, value, service - irrelevant!

Misercountingmoney Imagine this scenario:

"Vendor B has just bid $50,000 for this project. Does anyone want to go lower? Aah, yes. Vendor J is willing to cut its price down to $48,500. Here we have it $48,500, going once. Going twice.

We have another bid. Vendor B clearly doesn't want to lose this opportunity. They're willing to do the work for only $47,000. And now we have another bid.

"Vendor C is still in the game. They're offering $42,500. They must really want to get their foot in the door of our company because we know there's no profit in that ridiculously low amount."

That's how it goes. It's all online and it's down, down, down. I've seen it used for consulting contracts, software, hard goods and more.

One of my friends, who'd been working as a consultant to an account for over ten years, lost her contract to someone who was willing to work for 1/3 less. Of course, the winner was less skilled and the company needed to spend countless hours to get this person up to speed, but procurement didn't care.

You know what my mother would say about that? She'd call the reverse auctioneer "penny wise & pound foolish." She's right.

Beggingbusiness Another person I know lost several big contracts at a major retailer because his pricing wasn't the cheapest. Never mind that the additional strategic value he brought to the relationship had contributed significantly to the department's growth in the previous few years.

You can see how much I love these reverse auctions. They totally diminish the value you bring to the organization. They make you feel like a worthless piece of you know what who is lucky to be doing business with the big company.

What drives me craziest is that the Hero gets promoted for saving the company so much money today. But this person never has to deal with the multitude of negative consequences and higher costs resulting from this short-sighted decision.

Dave Stein, author of How Winners Sell, has an excellent post on his blog on what GE's Chief Information Officer says about reverse auctions. Plus, he offers some links that you'll find helpful.

Also, if you've been involved with these reverse auctions, please share the strategies you've used to combat this madness.

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