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Price Cutting Is for Sissies
October 10, 2007
Sales is about closing the deal. And in order to achieve that goal, a purchase price must be agreed upon.
By Mark Hunter
All salespeople, at one time or another, have had their price challenged. What do your reps do when that situation arises? As much as everyone in sales would like to consider themselves "great closers," many are "sissies" when it comes to this important skill—often boasting about never discounting their product then folding faster than a cheap umbrella on a windy day when first confronted on price.
Consider the following scenario:
Your top seller is on the verge of closing the biggest deal of your team's career. Doing so will put a nice, fat commission check in his hands and you'll soon receive kudos from everyone in the company. Now comes the curve ball. He discovers that the customer is looking for a price discount and-—to top it off—an equally qualified competitor is willing to undercut your company's price. Your rep is left with only two options: He can hold the line and not cut the price to keep the profit potential intact; or, he can cut the price and be willing to take a lower margin for the sake of landing the big order. He comes to you for guidance. Which do you choose?
Although the tendency for many is to give in to the price discount, you can make sure your reps avoid caving to the pressure of the moment by preparing them ahead of time as to why your product/service can better fill a client's need than your competitor.
1. Self-assurance is critical in a situation like this.
Reps need to be confident in what they say and—more importantly—ensure that the customer is certain of the benefits they will receive. The cheapest price might be what everybody is looking for but what good is a low price if a product/service doesn't deliver on what it's supposed to? When the customer requests a price discount, tell your team to ask prospects about how they intend to use your product/service, and what they expect to gain. Your goal should be to get them to express both the pain they will experience if what they're about to buy doesn't help them accomplish what they want it to and the need they have for your type of product/service.
2. Establish a high level of confidence in your price.
One of the best ways is by maintaining a full sales pipeline. This means that you have prospects and customers at each phase of your sales process so you don't have to worry about closing every sale. Your assurance comes in knowing that you’re making the right decision by not discounting because you "have" to.
3. Don't give it away.
The worst thing any salesperson can do when a customer is looking for a price break is to give in. Unfortunately, many cannot confidently communicate their price and they often cave. To overcome this problem, train your salespeople that they need to understand the buyer's perspective of how they can benefit from the product/service. For example, if I'm going to take a trip and my destination is 1,000 miles away, I have several options as to how I can get there. I could hitchhike, which would cost me virtually nothing but wouldn't guarantee when I'd arrive. I could drive my car, which my immediate costs to only the gasoline but my travel time could take several days. Or, I could fly, which would probably have the highest immediate cost but would undoubtedly be the fastest.
Because your goal in selling should be to help ensure the success of your customers, you can see from this example that the cheapest approach is not reliable, nor would it save time. In addition, most people wouldn't want to take several days to drive to and from the destination. Therefore, the best option is to fly, even though it’s probably the most expensive. Since time is of the essence in many industries, this value is worth the extra money. Price is clearly not the most beneficial or efficient.
4. Dispel quota misconceptions.
Besides being unable to confidently communicate their price, another common reason salespeople give in when challenged is because they believe the misconception that by offering a discount on the initial order, they can make it up on the next one. However, the truth is that there is no way to ever regain the lost revenue. Once the customer has accepted a lower price, that amount becomes their new level of expectation. Any other price is seen as an increase. Think of it from the following perspective: Would you believe a promise from your boss that if he/she were to hold back your next raise for a year, it would be made up to you later? We often kid ourselves into believing that we can get the higher price out of the customer on the next order.
5. Don't lose profits.
Finally, when a customer requests a discounted price, it is important to remember that giving one is an immediate reduction to your total profit. Depending on how drastic you are willing to go, you are ultimately the one taking the pay cut. Is that what you really want to do? Consider that decreasing your price may help you land the initial sale but it still does not make up for the revenue you'll lose over time.
Maintaining pricing integrity is a challenge. It starts with a self-assured team and it extends to the service you deliver and to the expectations of the customer. Don't entertain their requests for a discount. Without confidence in your price, you can say good-bye to your profits. Price cutting is for sissies.
Mark Hunter, "The Sales Hunter," is a sales expert who speaks to thousands each year on how to increase their sales profitability. For more information or to receive a free weekly sales tip via email, contact "The Sales Hunter" at www.TheSalesHunter.com.
Sales & Marketing Management Magazine
This article is brought to you by Sales & Marketing Management, the leading authority for executives in the sales and marketing field.
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