Price v's Value

I’ve been intrigued by a recent discussion I’ve been following on the Sales Playbook! group on LinkedIn.  (It’s a closed group, so you need to be a member in order to see the full discussion.)  For those of you who are members, the title is “Doesn’t price matter a little bit?”  For the rest of you, this is the scenario:

“I totally understand that it's not about being the lowest price and you get what you pay for and all that. I think it is also true that there is a point where cost outweighs the value or quality.

Case in point, I just got a quote back and found out that my price was literally 5 times more than my competition. I don't know how I am going to justify the additional costs.

Thoughts anybody?”

At the time of writing, there are 45 responses (one of them mine).  What is particularly fascinating is that the majority of opinions offered have ONLY addressed the question as presented above.  It appears that they haven’t even bothered to click on the poster’s profile to get a little background information.

As a result, the vast majority of responses encourage the initiator of the discussion to check that the customer is not comparing apples with oranges and to ensure that he sells the value of his higher price.  Basically, he is being encouraged to continue pursuing this ‘opportunity’.

Those of us who have bothered to check (hey, it’s my blog, of course I’m going to blow my own trumpet) saw clearly that the guy works in the insurance industry.  He even mentions this directly in his own comments later on.

Now I’m not sure how the insurance industry works in the US (it’s a US-centric group) but here in the UK insurance companies are always using differential pricing.  As far as I can tell insurance companies have a very clear idea of who they want as customers and, perhaps more importantly, who they do not want as customers.  Insurance is, after all, risk mitigation and some people or companies are higher risk than others.

The easiest way to segment your customers in that market is by price.  Offer a good price to the low risk companies you want as customers and offer what might be politely described as a ‘go away’ price to those you do not want.  Hopefully, the high price will put them off but if it doesn’t then you have made a load of money to cover the additional risk.

To my way of thinking the question regarding justifying the higher price is superfluous.  Price v’s value is clearly NOT the issue here.  Put simply, your company doesn’t want this business.  Just walk away and find someone they do want as a customer rather than waste your time on this one.

Sure, if you have a 20% difference in price, work as hard as you can to win the business but five times the price!  C’mon, surely it’s not rocket science to see what’s going on or is my world view more warped than I thought?

Thoughts, anybody?