Why Price Puts Salespeople on the Defensive and How to Stop It
Why do sales people give in to price demands as if lowering the price is the only way of winning the customer’s business? Well, even though the customer doesn’t explicitly state that a lower price will win out, a number of salespeople believe it will.
It’s that reaction that allows the customer to assume control. However, what exactly is the customer concerned about? Are they concerned about price, or is it something else they want addressed? The answer to these questions is quite surprising. The customer isn’t concerned about price itself, but more about what that higher price implies. Ultimately, higher pricing mean higher costs.
Understanding the Customer’s Concerns
Businesses don’t want to see costs increase. Rising costs can mean the difference between business won or lost. Costs that can’t be passed onto customers erode profit, lead to lost customers and lost market share.
Salespeople need to understand how to react to this customer tactic so that they aren’t eroding gross profit on sales by lowering price every time a customer claims it’s too high. So, how can your salespeople help the customer focus on cost reduction as opposed to price reduction?
1. Return on Investment (ROI) Sales Strategies: Some call them cost-per-use strategies but we’ll refer to them simply as ROI sales strategies. Simply put, if your product has a higher price due to its ability to last longer than your competitor’s offering, then show how much your customer saves by going with your product. While a number of companies express these savings in percentages, the best approach is to define the dollar value savings that your product offers over your competitor’s. Help your customer make a decision in your company’s favor by showing them how buying your product will save them money.
2. Loss-Leader Offering: One way to maintain your pricing is to offer an ancillary support product free of charge. It may be something you use all the time, but something your customer has a hard time finding. This strategy is employed continuously by companies who want to maintain gross profit margins and defend their product’s pricing within their market. It’s a simple way of keeping your customer happy: Give them something free, something they can’t get themselves, or something they equate as a savings, and you’ll successfully divert your customer’s attention away from your product’s sticker price.
3. Devil They Know: Many times a customer is concerned with your price simply because they don’t have any viable options to compare your offering against. For instance, your customer may be purchasing something from your competition that doesn’t solve their problem, doesn’t address their needs and won’t provide any long-term solutions. However, your customer doesn’t know this. For your customer, it’s the devil they know versus the one they don’t. They know they don’t have the best solution with your competitor, but at least they know what they have. Unfortunately, they have no history with your company. You need to explain why your offer is better by justifying your price relative to what your competition offers. However, be careful to avoid direct comparisons. Instead, stick to generalities.
4. Quality and Longevity: If your product is constructed better, then tell your customer why. If you have a long list of customers who swear by your product’s longevity and quality, then tell your customer why. If you can justify your product’s pricing with cold hard facts, ones that explain why your offer is superior to any competitive offer, then go ahead and do just that. Use the information directly from your market to justify your price.
5. Using Brand Champions: Don’t be afraid to use your brand champions. Nothing is more impactful for new customers than to hear from like minded individuals who value your company, your product offering and your approach to market. Take the time to define who your biggest brand loyalists and champions are. Then outline why they prefer your product over your competitor’s. Finally, use them as references when making a claim about how valuable your offering is.
6. Vendor Managed Inventory (VMI) Agreements: Consignment inventory agreements are vendor managed inventory agreements where your company helps to reduce your customer’s costs of inventory. By shipping one large volume of product to your customer, you’ll reduce their incoming freight costs per unit, in addition to reducing a number of other inventory-related expenses. With consignment inventory your customer is only billed for the units they use in that particular month. This allows them to reduce their costs of freight, reduce the number of urgent shipments due to inventory shortages, while also helping them to reduce their costs of financing, damage and obsolescence. In the end, you’re able to keep your pricing as is, while your customer is able to reduce their costs of having inventory on their shelves.
7. Lower Freight and Warehousing: Your company may be able to help your customer save money by reducing their freight costs. Using those aforementioned VMI agreements is one way to reduce costs. Another includes allowing your customers to piggyback on your freight. For instance, if you ship to and from their location more often than they do themselves, then you may have a better freight rate that they can benefit from. Will this help them reduce costs? It will. In fact, if you combine this strategy with a warehousing strategy, then you can reduce their costs even further by providing them with low-cost warehousing. They’ll save money on freight and will reduce their costs to hold finished goods. Don’t allow your salespeople to be swayed by your customer’s concern about pricing. Granted, there are times when you have to be more competitive, times where you have to sharpen your pencil in order to win new business. However, take the time to understand why your customer is so preoccupied with pricing. In many instances, it is merely a concern rooted in costs. These seven solutions are simply a start. Take the time to come up with your own list. The focus is to get your customer to listen to cost reduction strategies as opposed to simply dialling into your pricing.