Price Pressure | External Forces

End the practice of awarding business on the basis of price tag alone. W. EDWARDS DEMING,
14 Points for Management (1950)
Price pressure comes in all shapes and sizes, and from both internal and external forces.

Let's tackle the latter first. What is external price pressure?

It’s when a customer asks you to:
  1. Confirm you gave them the very best price (are you sure?)
  2. Bring the price down just a little bit (then a little bit more)
  3. Cold-quote items without discussion or contact (they say, “don’t call,” or won’t return your calls)
  4. Re-price a part for an extended fulfillment period (often two or three years)
  5. Reduce a part or service price by a specific percentage, starting on a specific date (next month, next quarter, next year)
  6. Provide an itemized quote for a routine product or service
  7. Continue producing some parts at agreed upon prices and volumes, and discontinue producing other parts (usually the ones that actually earn you a profit)
  8. Match or beat a low-ball quote from a known competitor
  9. Match or beat a low-ball quote from an unknown competitor
  10. Submit all your bids through an online auction process
  11. Update a bid for a long-standing order as part of their new, competitive buying process
  12. Reveal your real costs, so they can determine how competitive your pricing is
  13. Hold the line on pricing, but wants you to deliver more products/services in a shorter timeframe
  14. Bid again in the future, and reminds you all contracts are awarded to the lowest bidder (no exceptions)
  15. Match or beat prices listed on a price sheet they found somewhere online

Naming the problem is a crucial step toward solving the problem. That's the value of this price pressure list.

Deming, in his 14 Points for Management, is unequivocal. As buyers and decision makers, we need to end the practice of awarding business on price tag alone. Instead, we should "minimize total cost in the long run. Move toward a single supplier for any one item, based on a long-term relationship of loyalty and trust."

Our list captures some but certainly not all external price pressures. This prompts the question: Is Deming's perspective still valid, or is he simply describing a business climate that's now defunct?

It also prompts another question: What external price pressures are you facing, but which are missing from this list?

While you're wrestling with those issues, you may want practical methods for countering price pressure forces. You'll find some in our white paper and embedded throughout our ongoing price pressure dialogue.

UPDATE
Check out our two new tipsheets: Price Pressure | External Forces and Price Pressure | Internal Forces.

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Price Pressure | Self-Inflicted Wounds

3 comments:

Robert M. Chapman said...

Barbara,these two short pages ought to be on every small business owner's desk. Internal and external forces happen everyday and are often not recognized.
Bob C

Barbara Spencer Hawk said...

Glad they hit the mark, Bob.

Have you ever bumped into a price pressure tripwire and simply ignored it or only recognized it after the fact? I know I have.

Perhaps these two articles would make useful tipsheets? Meanwhile, feel free to forward them. Just click the gray M in the box under the post.

Barbara Spencer Hawk said...

The two pages Bob is referring to are:

Price Pressure | Internal Forces
Price Pressure | External Forces

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