You know who we are talking about. The Cost Crusaders are Strategic Procurement, Purchasing, Materials Management or Supply Chain depending upon the organization. While many of these professionals also focus on value there is a significant portion that are blinded simply by their desire for the lowest cost and they are relentless in this pursuit.
Within healthcare, cost reduction requests abound. The most common are:
- “You need to match or undercut your competitor’s price to get our business.”
- “We’re pressuring all of our suppliers for a lower price.”
The end result is many sales representatives offer a price discount because they feel procurement has the authority to say yes or no and they fear losing a customer. Here are some ways that marketing can help mitigate this pitfall.
Segmentation & Buyer Personas
Typically customers are segmented by market, account or buyers. To get an in-depth look at the different types of buyers, organizations must develop and use effectively “buyer personas.” This is essential and foundational. Sales representatives cannot negotiate effectively if they do not understand their counterpart in the negotiation process. This necessitates crafting and using a buyer persona that fits your counterpart. These are descriptive profiles of the people who buy, or might buy, products like the ones you sell. The persona goes beyond demographics to define psychographic criteria such as behaviors, motivations, priorities, business concerns, traits, success factors etc. They are crafted with skill and insight. The resulting persona aids the sales representative in understanding the buying process through the buyer’s eyes. An insightful persona allows sales representative to build a strategy that reaches the buyer on both a personal and professional level.
Define Types of Discount Seeking Clients
There are five (5) types of discount-seeking buyers:
- Sea of Red-ink Accounts: These are buyers at hospitals that are losing money and are in financial trouble. Some are struggling to stay afloat. While this may be the case, you don’t manage their facility and you didn’t create their financial problem.
- RFP Fanatics: You know the type. They don’t believe in the value your product, service or solution provides or in long-term business partnerships. Everything goes out to competitive bid with an RFP. In some cases this activity may comply with internal protocols or legal requirements. For most, however, it’s designed to pit one vendor against another and commoditize everyone’s offering.
- The Sky is Falling: This is the client that tells you that inpatient admissions have fallen or they are experiencing reduced Medicare payments and they have been mandated to get a price reduction from all of their vendors. They want you to believe that if you don’t provide them with a discount they will be forced to lay off staff and/or close their doors.
- Mandate: This is the client that tells you that he has been mandated by the C-Suite or his/her boss to get a price discount from every vendor. They hate to be the bearer of this bad news but their hands are tied. They then proceed to tell you how much of a discount they are expecting or they suggest a percent discount to you.
- Bargain Seeker: This is the client that is doing well financially but simply has to ask for a discount because it’s expected and it’s part of their professional DNA. They believe that if they don’t ask for a discount they won’t ever get one and they know that most suppliers will provide it readily to obtain or keep their business. They want a discount because they have been trained to ask for one.
Develop a Pricing Strategy
There has to be a pricing strategy to handle rational versus irrational pricing demands. Rational demands are when there is a justifiable explanation. For example, a customer may offer a volume commitment if you lower your per unit price. You may wish to share some of the savings with them as part of your strategic account management strategy.
Irrational demands have no sound basis other than the customer doesn’t want to pay list or standard price. Caving on price here not only destroys your gross margin but it doesn’t ensure you’ll retain the business. If buyers only purchase on price then whoever beats your price will take away your business. This quickly becomes a death spiral.
Create a pricing strategy that has some flexibility for all the right reasons.
Understand the Cost of Poor Negotiating
Many sales professionals that we meet don’t fully understand how much they are eroding gross margin when they offer a discount. Even fewer grasp how much more they need to sell as a result of aggressive discounting. Often the fault lies with corporate leaders. Educating the sales force on both of these points is foundational. It helps them become better professionals. They may still need to offer a discount but they need to understand fully the ramifications. To see the effects of price discounts on gross margins read one of our earlier blogs on this topic. Click here.
Develop Buyer Scenarios
Sales professionals are exposed to a myriad of different buyer scenarios. Two of the most common are:
- Contract Renewals: “In order to keep our business we need a 10% discount because that’s what your competitor is offering.”
- New Business: “ Your product may be slightly better but to get me to switch from your competitor you must beat their price.”
Give consideration to developing a Sales Playbook that details real-life scenarios, outlining how to handle each situation tactfully and professionally.
Train & Role Play
Most strategic procurement personnel are well trained and sophisticated negotiators that hone their negotiation skills daily with one or more vendors. Most sales professionals negotiate with Strategic Procurement a few times per month on average. They are usually not well trained in negotiation. As a result Strategic Procurement wins most of the negotiation battles with significant discounts. Sales leadership needs to train their sales force to be great negotiators.
Strategic Procurement is becoming a formidable force in every hospital/health system. Their executives are experienced and savvy negotiators armed with data to provide price transparency by manufacturer. They will continue to be aggressive in asking for price reductions because they know that most manufacturers and suppliers grant discounts indiscriminately. To counter their effectiveness and level the playing field, sales professionals must understand the structure and function of this key department, their buyer personas and their KPIs. Representatives must be armed with the tools and training to negotiate effectively.