“Look I can get the same thing from somebody else for LESS money!”
Is Reducing Price The Answer?
How successful are your salespeople in handling pricing issues?
and do customers and businesses really buy products and services based solely on price?
It is true that a few people and businesses do buy based on price, however research have shown that price is virtually never the primary reason a person or organization buys anything and surprisingly it is seldom even the secondary reason.
Many salespeople might say “If you don’t think people buy on price, why not you follow me around for some sales call? Why, just yesterday I had a prospect say to me, there are only 3 major considerations to why he buys: “The first is price, second is price and the third is price.”
We know your prospects will tell you that because they are trying to get you to cut price. Every experience salesperson expects this yet sadly not all will stick to their price! From my coaching observations, most salespeople’s response is to immediately offer a price reduction or a recommend a lower “tier” pricing without much negotiation or push back. The action shows that the salesperson probably acknowledges that a cheaper price is the only reason why the customer to buy.
Even if you reduce price will it guarantee you the sales?
Why is it important to make your price stick?
Even though customers tell you that price is their only consideration, their buying behaviours often belie their words. There are 5 good reasons to not reduce price of your products or services.
1. Price is always an indication for quality
If a man on the street offered you a Rolex for $100, will you consider buying it?
You will probably say “There must be something wrong with the man or the watch!” this is because you couldn’t believe someone will sell you a brand new Rolex for $100.
Price does make a statement-a strong statement. If you price your products cheap or if your product price is too low, the prospect thinks there may be something wrong with it! Salespeople who sell at premium prices know that they can use a higher price to make a credibility statement about their product or service being better; that is, if it costs more, it probably is worth more. If you don’t think people equate price to higher worth or quality, let’s consider this question:
Would you go to the lowest bidder for your own, personal heart surgery?
2. There is no true commodity in this world
Do you know that there is no true commodity in this world?
Let me prove my point. Recently I had to replace a door knob and I went shopping in a local hardware shop. I asked the shop owner “What are the available door knobs in your shop?”
The owner replied “Well it depends on you, although they look similar, some have higher quality and I have many designs.” The owner then went on and showed me the different designs and materials available in the shop. The price difference of these knobs ranges between 20 to 100 percent. He even assured me that if I face any problems with the installation, I could just give him a call and he will gladly help. Naturally I made my purchase in that store.
In essence, I could have bought the knobs from others, but because I bought it from his shop, I am getting his experience, his quality control, his service, his policy and procedure and his care and attention.
So the next time someone tells you your product is the same. Think about this…
How is possible that your products or services is similar to your competitors when they are getting your service, your experience, your quality controls, your care and attention?
3. Don’t mess with price-buyers
Salespeople who are the most successful don’t mess with the price-buyers. That’s right-they know when not to sell and whom not to sell. There’s probably not an experienced salesperson in this world that hasn’t had the unhappy experience of accepting an order from a true price-buyer and after which, wishing that he or she had never met the customer.
One of the most difficult thing for salespeople to understand is that the pure price-buyer is devoted to one fundamental purpose; “you are not going to make any money from me.” That’s right. These pure price-buyers are going to squeeze every drop of blood out of you and your organization before they place the order. The worst part is that this type of buyer takes all your sale time, does all the complaining and they will most likely forget to pay you.
Pure price-buyers often have little or no conscience and is scruples when it comes to stealing any ideas, designs intellectual property, information and knowledge that they can get their hands on. You are naive to fall for those ideas about developing a relationship with a customer by proving yourself to them through lowering you price.
Remember if your products, services and ideas are worth anything, they must be paid for.
4. Your competitor will do the same
Here’s the point: Competition never fails to react. Discount your price by 10 percent and you can bet your last dollar your competition will too. When that happens, what are the chances that you’ll sell additional volume?
The only additional volume that you will realize will come from prospects who have not been buying the product or the existing customers who will buy a little more of your products. The probability of increase in sales volume from these sources is very small because your competitors will get their share too.
Even if you reduce price, you only end up having to sell more to make up for the loss in margin!
5. Cutting price does not guarantee profitability
Cutting price may seem to be the fastest way to generate sales. However when an organization cut price, there are 3 potential risk that the company has to bear (1) gross margin goes down (2) wages as a percentage of sales goes up (3) sales volume begins to increase. Gross margin must go down when prices are cut. But most organization doesn’t cut wages when they cut price and sales do go up because of lower prices.
Wait a minute, “increase in sales volume…isn’t that a good thing?” It is if the organization is running less than optimum with its total capacity. Imagine if production is already running near capacity, and now it has to produce twice as much and within the same time frame. Can the organization meet the additional volume with the same quality and delivery terms? These are the three conditions that virtually always prevail when an organization really get itself into trouble and ends up filing for bankruptcy or having to sell off because it isn’t making enough money. So the next time you face pricing issues, perhaps time to think about:
“How you could differentiate yourself, your company and your product from competitors.” It is the more profitable way.