If you’re struggling with pricing issues, you need to read this article.
I just received a response to a proposal that I had issued for speaking at a trade show. The response was that my proposal was not accepted; from discussions with the person, I know it’s because my fee was too high. And I’m fine with that. I’m never upset about losing business because my price was too high – but I’m always amazed by salespeople who are.
Our prices say a lot about us, no matter what you’re selling. The price is both a declaration and arecognition of value. When we supply a price to a potential customer, we’re declaring, “this is what we’re worth.” When the customer accepts, they are recognizing, “Yes, this is what you’re worth.” It’s a simple process and a simple transaction. So why do so many salespeople get it wrong on the issue of price?
The reason, I think, is a lack of understanding, and a lack of willingness to update old, tired sales techniques. The philosophy used to be “start high, you can always go down, but you can never go back up.” That worked in the days when pricing on nearly every product or service wasn’t commonly available at a few keystrokes. The Internet – and its quick, easy access to pricing – has revised customers’ expectations. Customers now expect one-shot pricing. If you’re going to survive and thrive today, you have to be prepared to provide this – and preserve profit as well. Impossible?
Nonsense. It just requires the recognition of a few simple truths.
Truth #1: Price negotiation is bad. I know, I know; this goes against decades of sales teaching. That’s fine by me; I’m educating salespeople to succeed in 2012 and beyond, not 1972. The key problem with negotiation is simple. There is a moment in time when the customer is most primed to buy, when the customer’s interest is highest, and when the customer wants to sign the purchase order. That’s obviously the best time to close the sale, right? Right. The trouble is that when negotiation starts, the customer must then begin inventing reasons NOT to buy from you – and I don’t need to tell you why that’s bad. So, how do we keep the customer at that level?
Truth #2: Design your pricing with “realistic profit.” What you want, at the point of a proposal, is to issue a price that you’re willing to stand by, that has a good profit in it, and yet one that the customer can pay and still look themselves in the mirror. Here’s an example. When I started selling cars, our dogma was that we started at sticker price and negotiated from there. The problem was that most customers really didn’t LIKE to negotiate. Negotiation brings with it fear that they’re going to get taken, and once negotiation begins, we have to agree on the ‘real’ price. After going through that ordeal a few times – and watching my sales manager continually discount cars to the point where my commission was nearly gone – I decided to try a new strategy. I started pointing at the sticker, reciting that price, then quoting a price a few hundred dollars off it. To my surprise, a high percentage of customers immediately bought at the discounted price – which was above the prices we usually got. My commissions went up, my customers were happier, and so was the owner of the dealership. And – not coincidentally – on busy days, I was able to talk to more customers because the sales process was shorter.
What was happening was that I was giving my customers permission to purchase without negotiation. They knew they weren’t supposed to buy at sticker – but by giving them a small “feel good” discount off sticker, they were able to leave by buying at a “good deal,” and they didn’t have to fight for it. My ‘quality ratings’ from customers even went up. Not shockingly, no one else at the dealership embraced my strategy – and most of them made less money.
In today’s market, the best strategy for pricing is to design a price that you’re happy to live with – and happy to walk away from the sale if you don’t get it. One of the most pathetic strategies I see salespeople using is begging for the ‘last shot’ at the price, which tells the customer that the proposal they have means nothing, and that the salesperson is willing to beg for the business. There are ways to prevent that….but this article is running a little long. I’ll talk more about this issue next week.
