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“Commodity”: a good for which there is a demand, but which is supplied without qualitative differentiation across a market.
In 1984 Scientific American published an article about “Bargaining” based on work done by Edward T. Hall for the US Department of State. It introduces the notion of a “Pivot-Price”.
Hall uses a Middle Eastern market as a backdrop to illustrate the phenomenon that – “whether for a squash in a bazaar or a hydroelectric dam” it is important to be keenly aware of the central number around which the good or service is actually selling in the market at any given time.
Much like a trader must know the latest bid/ask value of a stock he specializes in, salespeople need to be specialists in the “markets” for the key products or services they sell, dispassionate of their own personal opinions of up or down, before entering into a sales process or a negotiation. We call these key prices “hot-buttons” because they represent the numbers for standardized products which may be very familiar to the buyer or are easily accessible to the prospect from on-line or other sources like a competitor. Caution: the buyer is probability more knowledgeable about the “total pricing equation”, the net price after discounts, rebates, etc., than you are as the seller. This is especially true for smaller vendors selling to larger customers.
Markets are becoming more efficient by the day. With the advent of the on-line marketplace and the rise of standardized goods and certified practices, even complex or proprietary goods or services that are bought on a regular basis have well defined and efficient markets. If the product you are selling is common enough in the marketplace it tends to become what we call “commoditized”.
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This means that the quality of the specific product or standardized service level is taken as a given; and if you fail to deliver the case for a GFS Investment, then the only thing that will define you and your company is price. You are effectively relegated to little more than a number, and once that is established it is irreversible. To generate superior margin you must know the GFS process and take your customers and prospects through the Investment step in a GFS way.
Hall goes on to point out that substantial errors in unqualified pricing can lead to serious consequences. Too high – the customer doubts your knowledge of the market or your opinion of them as a buyer and rejects you and your offer. Too low – the buyer will buy of course, but you’ve set a “discount expectation” in the mind of the buyer that will haunt you in future negotiations. The key GFS word here is “unqualified”.
Again, failing to establish the investment value (for detail see “Investment” in your book) condemns you to “price prison” meaning you’ll sell at the latest (read cheapest) price in the market and often below it, especially when concluding new business.
But Hall’s work suggests the following silver lining. Sellers who are both market savvy and systematic in the GFS process will command a consistent premium to the competition because every market has premium price if the seller has made the effort to establish its value. This requires organizational discipline and a commitment to the GFS process
Guidelines about GFS pricing:
1) Know your prospects/customers “hot button” items – know the markets for these items including the latest discounts and rebates being offered.
2) Stay current on what competitors are quoting/offering on “hot-button” items. Best to have a staff member who is responsible for keeping tabs on the competition including new products that may threaten an established line.
3) Practice the GFS process until it is second nature. Never allow your customer to get to price first. Remember Investment follows Authority and precedes Presentation; stay in the GFS process throughout.