In her book On Death and Dying, Elisabeth Kubler-Ross addresses outlines the five-stage process through which people deal with life tragedies:
1. Denial
2. Anger
3. Bargaining
4. Depression
5. Acceptance
On a slightly less depressing note, I’ve been noticing similar stages of grieving within big companies as they deal with the recession, specifically in terms of how they’re buying:
1. Freeze buying
2. Squeeze vendors
3. Look for trade offs
4. Buy for value
This isn’t scientific; it just represents some observations I’ve had in the last six months. I think one of the key findings of Kubler-Ross was that those who grieve can move back and forth between stages during the course of their journey towards acceptance. The same thing is happening to businesses—you see them move forward and backwards between the various stages, but I’m starting to see them move slowly through the cycle (even though we still seem to be a ways a way from stage 4).
Currently, the conversations I’ve been having are regarding Trade-Offs. Big companies are working through the trade-offs between what they are willing to pay and accept in performance with what they can receive in function and value. The trade-offs that I am seeing are…
- More speed for less long-term ROI. Large companies are looking for faster returns and are willing to trade out the scale of return for speed. It used to be that we calculated ROI with big projections over 18 to 60 months. Now, companies are willing to accept very small ROI improvements as long as they can have them in 60 – 180 days.
- Less work for a higher price. Headcount cuts have left organizations without execution resources. They need complete process delivery in areas that they used to manage with internal resources. If the offset can be demonstrated that no additional work will be expected of the remaining staff in your prospect, you can hold onto your price.
- Lower price for lower value. Sure, the first expectation is that you just cut your price and deliver the same service or product. However, that approach won’t get most of the companies that are following that strategy all the way to the cost levels they’re looking for. The vendors push back and the market won’t sustain because those making the rock-bottom prices are not delivering on the big value promise. Credible vendors are able to win the deals with the clear trade-off of lower price, lower value.
- Higher Price for higher precision. Buying only exactly what they need for the problem that they have. Lots of companies worked hard to demonstrate value-add to their clients over the past decade. Much of the time we added things because our competitors added them and our clients requested them- even if the client didn’t place much real value on that feature. Sometimes we created our own additions to stay at the edge of our industry, even though clients were impressed but didn’t have a need. The trade-off that big companies are asking for is precision – strip out all of the things I don’t need, don’t use or am not willing to pay you for and give me the precise solution I am willing to pay for as a way for me to reduce my overall expense. Through this approach, your ability to price to precision gives you greater incremental price for the smaller amount of utility.
These trade-offs, I believe, will precede the return to value buying. What do you think the trade-offs are in the marketplace and what are big clients asking you to do after they ask you to reduce your prices?
