Part - III

(To read Part II, click on the �Previous Article� link, on the left)

There are no winners in price-based competition. The account returning the lowest profit margins will be the one that consumes the most resources and makes it difficult to obtain higher-caliber clients. They will never be a good reference unless the company strategy is to continue to sell on price and brand itself as a �cheap� service. I would have done just about anything to land my first independent client and a year after I did, I couldn�t wait to get rid of them. I made no money on the account because I priced it too low for the level of service I was delivering, and had created an expectation of impeccable service in catering to their every need when they were my only client. And because I had obtained the account by selling myself on price, they left my service as soon as price became an issue. The only referrals I got from them were other price shoppers, who had been given the impression that they could get the same level of service for that low price. The same was true of the client that called the company I worked for the �Wal-Mart of medical transcription services.� They were getting unbelievable value, especially in light of what they were paying per line, but it seemed there was nothing we could do that would satisfy them, and they were unusable as a reference. The pleasure of a low price was obliterated by the unhappiness with what was delivered.

Companies don�t win from a price-based sales strategy. When my children were in gymnastics, there was a sign on the wall at the gym that said: �Practice doesn�t make perfect, perfect practice makes perfect.� Likewise, the purpose of a medical transcription business is not to obtain contracts, it�s to obtain contracts that generate profit. A service may be able to bring in business all day at prices of 6 cpl, but if the price can�t support the costs and the company goes out of business � what�s the point? Warren Buffett, well-known investor and Chairman of Berkshire-Hathaway, said, �That which is not worth doing is not worth doing well.� While a business is spending time performing on unprofitable contracts, it expends resources that would be better utilized in obtaining profitable contracts. Sometimes, �I�m sorry, we can�t do it for that price,� is the best answer � not every contract is a good contract. If a service is confident in its ability to deliver the contract terms as stated, there is no reason to underbid the contract. Nordstroms has built its reputation � and it�s ability to charge premium prices � on slavish attention to customer service. The customer is always right and any item is always accepted when returned.

Optimal pricing strategies balance customer demand with a company�s internal financial constraints, finding a point at which the service provider can maximize profits and still give customers the high value they seek. Profitability is built by capturing more value, not necessary by making more sales. Product value drives the pricing strategy. In any industry, low prices equate to low product value. In the medical transcription industry, monitoring a competitor�s pricing isn�t always the best way to approach pricing strategy. Again, with ambiguous methods of calculating pricing, competing on what you believe the competition is charging could kill your own company�s profitability. If your sole sales strategy is price, you will find yourself continually in a position of having to lower your price because your competitors will lower theirs. Rather than constantly looking over your shoulder (competitively speaking) and adjusting pricing based on what you believe the competition is doing, set a price based on cost, profitability and value and then dedicate your company�s resources to delivering absolute unquestionable value; the quality of references and referrals will improve along with profitability.

Continued�

(To read Part IV, click on the �Next� link below)


Julianne Weight
CEO
AlphaBest LLC