It doesn’t take much for someone selling software services to worry about the competition, especially the kind that has lower prices.
It’s enough to hear from one prospective customer “I like you guys, but your prices are way too high.”
While keeping an eye on the competition, taking it into account when setting prices and even adjusting individual project prices based on it is a sensible approach, there is one important aspect you always need to keep in mind: quality.
There are multiple layers to unpack here.
Let’s take the topic of “experience with technology X” as an example.
You might have in your team 20 team members that have at least 2 years of experience with it, some of them more than 10 years. You can create different team configurations, depending on the needs of the client. You have done many projects with this technology stack and have had to solve various architecture challenges.
A prospective customer might be asking for a project team with technology X and get a quote from a competitor that has 2 team members, who worked on 2 small projects before.
Will the quality they will deliver be the same as yours? Certainly not.
Is there justification for a difference in prices? Certainly yes.
Will the customer see that automatically? Probably not. You have to present the facts in detail, to show what you have, what you can do.
And you have to do this even if you don’t know anything about the competition on the project.
Promised vs delivered quality
There is always a difference between what the sales team promises and what the project team will deliver. This happens for many reasons.
Sometimes, the lack of internal communication and alignment between them is the main cause.
A high complexity of the project can lead to shortcuts in understanding.
Another common issue is projects sold with insufficient details on functional or non-functional requirements.
You might be selling software services for a team where most of these issues have been solved over time. Any evaluation of the project and budget done by a customer should take into account the risks associated and the potential gap between the promise and what is delivered. If you know that this gap is small (or non-existent)l for your team, you need to use this in your sales process.
There is also the possibility that you will over-deliver. Depending on the context, it might be a sensible approach to try and under-promise on some aspects, to leave some room for future pleasant surprises for your customer. This will create trust and give a better negotiating position on the next project.
Objective vs subjective quality
People are different. In a negotiation, people on different sides of the table might look at the same reality and see it in different shades of color.
Some attributes of quality are about the delivery process. One good example of such attributes is “dedicated resources on each project”.
From the vendor perspective, there are different ways to organize this. On the scale of “value for the customer”, from minimum to maximum, the levels can be:
- Never, all team members work on multiple projects at the same time
- Some time, some projects might have dedicated resources
- Only large projects have dedicated team members
- Most team members are allocated 100% on 1 project at a time
- All team members are allocated 100% on 1 project at a time
Depending on the time of projects, their complexity, duration, type of collaboration, one of these levels might be good enough.
But the end result for the customer and their evaluation of quality will be subjective. If this is one of their requests in their initial project description, it is important to make sure that both parties use the same definition of what quality means from this perspective.
WHAT THIS MEANS FOR YOU
As with many things related to pricing, “relative” is the key element here.
A lower-priced competitor might be offering significantly lower quality than you. In this case, it’s your responsibility to convince the customer of this reality.
When you see higher-priced competitors, it’s useful to understand whether their relative level of quality is higher or not. Just looking at their prices is not enough.