Posted: May 30, 2012
The price of green eggs and ham
Think strategically, not emotionallyTodd Ordal
I’m sitting in the United Club waiting for a flight to San Francisco. It’s jammed. Talking loudly behind me on a mobile phone is a guy so goofy that I can’t help but think of Dr. Seuss.
In the past 10 minutes, I learned he’s a sales manager. A competitor stole some accounts, and the guy he’s talking to is obviously a salesman whom this negatively affected. Sam, the Sales Manager, is giving him a buck-up speech, repeatedly telling him he knows many of the competitors’ big customers and that they’ll go hard after those accounts, even if they have to lose money. (Dr. Seuss famously wrote “Green Eggs and Ham” with only 50 words. I believe that Sam the Sales Manager might’ve used fewer in his conversation, but continually, as if they’d become more relevant by repetition.)
This conversation is wrong on many levels. In addition to talking about confidential information in a public setting—he used names of companies and people— he’s wasting his and his subordinate’s time, using extremely foul language, painting his competitor as an idiot and admitting to obtaining his competitor’s customer list in an underhanded way. If I’d listened another 10 minutes, I might’ve heard him admit to killing Jimmy Hoffa!
However, as boorish and unethical as this guy is, the one strategic sin that caught my ear was the price war that he’s starting for emotional reasons. Not so smart. Price wars destroy value for everyone involved.
Pricing must support your strategy. If you’re confident you’re the low-cost provider, you might strategically use pricing to grow your business as Walmart has. Its supply chain management is unequaled. Amazon is another company that strategically used price to gain share and volume. Its distribution model is much less costly than the old brick-and-mortar model.
You’ll not likely catch premium brands offering “everyday low prices” or selling products at cost to drive volume. It would be inconsistent with their strategy.
Loudmouth Sam is not thinking strategically; he’s thinking emotionally and probably worried about his commission. His company is trying to execute a differentiation strategy, and he’s turned the product into a commodity. It’ll be difficult to recover from this when he moves on to his next gig.
So, what strategic questions should Sam ask himself and his salesperson?
• What does it mean that this competitor so easily stole our business?
• Is our pricing reflective of the value we provide?
• What additional services or features could we offer to enhance our value?
• What services or features might we eliminate to reduce our cost?
• Why should our target customers buy from us versus our competitor?
When pricing and sales behavior are divorced from strategy, silly behavior results, whether on a boat or with a goat.
Todd Ordal is President of Applied Strategy LLC. Todd helps CEOs achieve better financial results, become more effective leaders and sleep easier at night. He speaks, writes, consults and advises on issues of strategy and leadership. Todd is a former CEO and has led teams as large as 7,000. Follow Todd on Twitter here. You can also find Todd at http://www.appliedstrategy.info, 303-527-0417 or firstname.lastname@example.org