Setting rates and negotiating price are among the most important factors in running a business. Any business.
After all it’s what keeps the company alive, pays your staff’s wages and ultimately puts food on the table. It’s a simple balance – too high and prospects will walk away, too low and the business will never break even.
If only it really was that simple.
Every client wants to know they are getting a good deal. Or more importantly, good value. During the global recession, price negotiations became more intense as SMEs fought to reduce overheads. Even after the recession, this habitual trend continued. Price negotiations have become more challenging as prospects seek lower rates.
Should workspace operators comply?
The answer according to Frank Cottle, Chairman of Alliance Business Centers, is to switch the focus to value rather than price:
“All business service providers must deliver good value for their client’s money. That’s the simple answer,” said Frank. “The more challenging issue is the creation of the value itself. To do that, every Serviced Office Operator must assess their individual market position against the needs of a prospect.”
Given the fast-developing nature of technology and a burgeoning ‘work anywhere’ culture, not to mention the enormous range of industries to which the business centre industry appeals, those needs are incredibly diverse.
But as Frank concurs, there’s no point chasing a sale if your space doesn’t fit the prospect’s needs – where’s the value in that?
“We always say that the ‘prospect is as smart as your mother’,” said Frank, “So you can never fool them. All you can do is keep your own costs under control (which is half the battle in delivering a value product) and provide what the client wants for a fair price.”
And if that doesn’t work, resort to Plan B.
“If prospects won’t pay then it’s time to fire the sales person, or fire the customer,” he added.
Know your prospect
Ray Lindenberg, President of Workspace Association of New York (WANY), tells a compelling story on the issue of price vs value – and how operators worked together to survive during a critical time of need.
“After the Lehman Brothers financial collapse in New York that played havoc with our economy, our dozens of friendly-competitor member-Operators in New York, who are part of WANY, launched a concerted effort to protect our price points and encourage all rivals in our market to sell based on value,” he said. “We all weathered the storm pretty well.”
Ray explained, via the BCA blog, that the group shared experiences and best practices, and worked together to avoid the “dreaded ‘Downward Price Death Spiral’ that has sunk many a business and industry throughout history”.
As Ray advises, one of the principle recommendations to prevent unnecessary discounting is knowledge. Know your strengths, know your competitors, know your prospect and above all, understand their needs. Then offer a solution that fits their needs at a fair price. Get this right, and your prospects won’t necessarily go for the cheapest proposal.
“When we hung tough and refrained from deep discounting, the market saw in us a strength, and valued the confidence that we demonstrated,” said Ray. “Pricing often speaks to value and confidence.”
Discounting is a short-term win that might get new clients through the door, but at what cost? And for how long – until the deal expires? Furthermore, once established and long-term clients learn of those introductory discounts, you risk losing their loyalty.
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“Better to retain fair pricing based on value, than to lower pricing,” added Ray. “Take it from us New Yorkers who were at Ground Zero of the Great Recession five years ago and wisely were hesitant to drop prices. We came out the other end the better for it.”
The recession has been and gone, and every business learned valuable (and at times, harsh) lessons from it. Simplicity is the calling card of the flexible workspace industry. Shouldn’t the industry learn from its own model and adopt a straightforward policy that’s driven by value, not price? Perhaps there is a simple answer, after all.
What are your centre’s key strengths? How does your centre create value? Let us know.Share this article