Customers have already researched your product or service and have identified at least two or three alternative vendors whom they consider just as good as you. They know exactly what they want and how much they're willing to pay for it. At that point, the only thing left to compete on is price.
R. Sam Bowers

RTO Magazine will publish a series by R. Sam Bowers, shown here at the recent Rent One conference in St. Louis, Missouri, beginning with the march, 2006 issue. Biography: R. Sam Bowers, Jr. is President and Founder of the Service Sales Institute. Bowers has also been President and COO of multiple divisions of a company he helped grow from $7 million to over $465 million, and an Economics Professor. He has spoken to thousands of CEOs, numerous associations, and conducted hundreds of strategic planning and positioning meetings for corporations.

Imagine a world where you have to line up at the door, take a number and actually pay for the privilege of trying to open an account with a potential customer. That probably hasn't happened yet, but many companies, especially the huge retailers, may be headed in that direction.

Now imagine a world where, before you can close a deal with customers, they ask you to open your books, go over each line item, and take out any and all costs not directly related to doing business with them. After doing so, they will tell you how much they're willing to pay for your product or service.

That world, says TEC (The Executive Committee) speaker Sam Bowers, is already here. And like it or not, you had better get used to doing business a lot differently than you have in the past.

Bowers recently spent a day with rent to own professionals during the 2006 Rent One conference in St. Louis, Missouri. While much of what he has to say is difficult for an old "relationship selling" horse to hear, he logically argues that when customers have the ability to choose similar products from several rent to own companies, price is the only remaining motivating factor.

RTO Magazine will publish a series by Boweer beginning with the March issue. Whether you agree or not, Bowers will challenge you to re-examine long held beliefs and justify your own existence. Following are excertpts from an interview with R. Sam Bowers.

Q: What is it about your position that provokes such extreme reactions?

Bowers: Much of what I have to say goes against the grain of what most of us have been taught to believe about selling. Any time you challenge the status quo, you're going to get some pushback.

Q: So, what is this message that's causing such a ruckus?

Bowers: Here's my basic premise: I believe that new technologies and, in particular, the Internet, have radically and fundamentally changed the way companies buy and sell products. As a result, we have moved from a world where goods and services are sold to a world where they are bought. This shift requires a totally different approach to managing the sales function.

Q: How so?

Bowers: For starters, companies have to stop selling and let the customer buy.

Q: What do you mean by that?

Bowers: Selling is an "old economy" activity. It involves spending a lot of time, money and resources trying to find customers and then convince them how special and different you are. It relies on the old approach that says if you add enough value, customers not only won't ask you to lower price, they will gladly pay a premium for your products and services.

When customers are buying (as opposed to being sold to), you don't have to hunt them down because they have already found you. They've already researched your product or service -- either through the Internet or their engineering or purchasing departments -- and have identified at least two or three alternative vendors whom they consider just as good as you. They know exactly what they want and how much they're willing to pay for it. At that point, the only thing left to compete on is price. Your job becomes finding out what the customer wants, how much they want, what they're willing to pay for it and how much of that you can give them and still make money on the deal.

Q: Can't you still convince these customers that you offer a unique, value-added solution?

Bowers: No, the customer who finds you first has already taken you off the value-added shelf and put you on the commodity shelf. And once you're on the commodity shelf, you can't go back. When customers know who you are and what you do, and they have one or more vendors they consider just as good as you, you're no longer unique and special. The primary issue becomes meeting the customer's specs at the lowest price. That's a very different world than the one most of us grew up in.

Q: What's driving this shift from selling to buying?

Bowers: Two factors: easy access to knowledge; and relentless pressure to cut costs and operate more efficiently.

Q: Tell us more about that.

Bowers: In a traditional selling relationship, the salesperson is in charge because he/she has all the knowledge. When you have the knowledge, you can effectively position yourself as a value-added solution and charge a premium for it. However, over time the customer begins to understand what you do and how you do it, and you gradually become a commodity. This process is inevitable and irreversible. Once you become a commodity in the eyes of your customers, you can never reclaim the value-added position.

In the old economy, the shift from value-added to commodity status could take months or even years. Today, thanks to information technologies and improved purchasing practices, it happens very quickly. In many cases it happens before you even come in contact with the customers. At the same time, global competition is forcing companies to operate leaner and meaner than ever, and one of the best ways to cut costs and boost productivity is to buy more effectively. Going forward, companies that can buy better than others will have a major competitive advantage.

Q: How should companies go about selling in that kind of environment?

Bowers: First and foremost, stop selling and start negotiating. By that I mean stop defending price and start defending profit. When you get a request for a proposal or someone asks you to submit a bid or price quote, don't send in an expensive salesperson to try to convince the prospect how unique and special you are. All that does is drive up your selling costs and make it harder to compete on price. Instead, send in a trained negotiator who is prepared to walk away if you can't make money on the deal.

In addition, stop giving customers things they don't want, don't need and aren't willing to pay for in the hopes that they won't ask you to lower price. Instead, start taking items off the table until you can lower your price to the point where the customer is willing to pay and you can still make money. Don't ever take a deal at a loss thinking that the customer will allow you to raise price once you demonstrate how special you are. It won't happen!

Q: What else should companies do?

Bowers: Get rid of gross margin as a measure of a transaction profit. Instead, look at net profit for each and every transaction and use that figure as one of your key negotiating tools. In order to do that, you must become very good at cost accounting.

Strive to make your fixed costs more variable, especially as they relate to direct sales techniques as a method of marketing. Look at the cost of cold calls, travel, entertainment, collateral and other expenses used to locate customers who are buying. Reallocate these very expensive dollars to marketing -- whether it is via the Internet, advertising, direct mail, etc. -- to make sure you get on prospects' "short" list. In a world where customers are buying, direct selling calls are the most inefficient way to market.

Become a world-class buyer. Do the same thing to your vendors that your customers are doing to you. Ask to see their books and demand that they take out all costs not associated with doing business with you. However, do not attempt this strategy unless you have another equally good vendor waiting to get your business.

Finally, focus on building branding and name awareness through more cost-efficient marketing techniques so that you get you on more short lists.

Q: What's a short list?

Bowers: In most cases, today's customers aren't willing to pay for quality in excess of spec. Instead, they want "good-enough" quality, meaning that it meets their specs, at the lowest price. Your marketing efforts should focus on getting on a prospect's short list -- the handful of vendors they will consider doing business with -- so that you at least have a chance to compete for the deal.

Q: What if you do all this and customers still ask you to lower price?

Bowers: Customers will keep demanding lower prices no matter what you do. That's simply the world we live in. The key to success lies in being prepared to lower price before your customers ask you to do so. That way, when customers demand lower prices, you can move with them and still make money.

Q: How do you do that?

Bowers: By continually innovating to lower your cost structure. In the old economy, innovation allowed you to raise prices and charge a premium until your competitors caught up. In today's markets, innovation allows you to lower prices when customers demand it. More important, it enables you to lower your cost structure ahead of competitors, thereby gaining a significant competitive advantage. If you don't have the resources to constantly innovate, become a fast follower. Today's customers don't care who got there first, only who has the necessary quality at the lowest price.

Q: You make it sound like customers are in total control.

Bowers: Not true. The buyer sets the price, but you control how you manage your business and how you respond to the market. Continual cost-cutting through productivity improvements allows you to keep up with -- and hopefully stay ahead of -- pricing pressures. More important, they put you in a strong negotiating position in regards to your customers. When customers demand lower price, don't automatically give in. Instead, use your ability to lower price to negotiate something in return.

For example, when a customer asks you to lower price, respond with, "We can give you that price, but we need a commitment to X volume level over the next two years." Or, "We can meet that price if you pay cash up front." Your negotiating position will vary according to the customer and the size of the deal. But when asked to lower price, always ask for something of value in return.