Why Price Shouldn’t Be the Eternal Boogieman

Price, the eternal boogieman for sales people is and always will be an issue in sales.  It is up to the sales professional to manage and deal with it, their ability to do that will not only determine their own personal success, but by extension that of their company.

Let’s state up front that we are not trying to make light of the issue, price is a critical factor in any purchase, even more the case in uncertain economic times accentuated by shrinking budgets, delayed decisions, and competitors resorting to discounting to win deals.

As we all know discounting is a cancer, especially when everyone “one downs” the other and while the customers win at first blush, everyone loses at the end.

Now you may ask why and how customers lose with a lower price point?  Well contrary to a popular view pushed by some sales pundits, companies do not fail due to lack of revenues, but more accurately due to a lack of profits. Discounted deals result in revenues, but often show little or no profits or worse at times a loss on specific deals.

That impacts sellers in the immediate sense, and as profits are reduced across a sector due to discounting, things such as R&D, service, quality, reinvestment decline with it to maintain profits. This eventually trickles down to the customer and impacts them over time.  It may be easy to blame the customers for this type situation, but that simple view may help sellers rationalize their actions, but it is the seller’s job to manage the sale, which includes price.

Consider two facts; first, while price is a big factor, it can be over come. A few years ago I attended a workshop on negotiating; they showed that decisions generally break down as follows:

• Price – 40%
• Product quality and fit – 20%
• Relationship/Rapport between buyer and seller – 20%
• Internal Factors (politics, priorities, etc.) – 20%

While price is the largest component, it can be trumped. Even if your product is at the high end of the price range, you can still over come the discounters. If you score 10 points on the Internal Factors; 15 points for Relationship; 18 points for Product Quality: and 20 points for Price, still puts you ahead of those who come up short on everything but price.

Second, buyers are sensitivity to “realistic” prices. People understand when something is too cheap to be real and will pass on buying below that level. The same is true for the high end, when something may be great, score top marks for all factors but is just priced way too high, and again no buy.

Now I know you are sitting there, and rightly so, saying “this is all well and good but my clients are still demanding price concessions, so how do I stop the pounding?” I would be. Well to start, and on a very tactical level, concessions are a step up from discounting, concession implies the client acknowledges the value and fit, the question becomes what each party can do, give or give up to get the deal done.

On a strategic level, you have a lot more options, especially if you are willing to work.  One of the most important aspects of sales is that you as the seller need to set and control the flow, this is a must, period. Now before you pop a vein or go puritan on me, I said control the FLOW not the prospect or the client.  Someone has to drive.  Someone has to lead.  This may as well be you.

With that, you can begin to frame the discussion around value and returns, rather than price or outlay. Here we are not talking about some abstract notion of value, but specific elements with teeth.

Having said that there is not an absolute method, but there are several models and methodologies that can be applied.  At Renbor we look to the financial world, specifically to value oriented investors. When you look at some of the factors they consider, many can be repurposed for communicating and selling value. Based on the buyer’s reality you would accentuate different elements, be they break even time, inherent risks, total cost of ownership or ROI, and more.

Presented in context ROI is a much better foundation for a sales than price. A 10% return on $10,000 product is still better than a 5% loss on a comparable product priced at $6,500.

As is often the case in sales, it really comes down to understanding the market, the client, having a plan, the questions to execute the plan, and then doing it.