As published on Forbes.com
Look at any consumer advertising, and you’ll often hear, “We beat XYZ’s prices every time. Come here for the best deal.” Of course, savvy customers know that in some cases price matters most. However, there are many instances when the lowest price is not the best deal. This is particularly true when buying and selling business services. I firmly believe price matters when the seller believes price matters most. In my experience it seems most executives and sales professionals are better prepared for the unlikely event of catching on fire than they are prepared to deal with pricing pressure.
Here are tips to help business sellers uncover the truth when facing pricing pressure with savvy customers.
When Services Are Involved – Results Matter Most
If you are purchasing a commodity, the only factors that would impact price are availability, convenience, delivery, and service/trust. Most of the stuff you buy on Amazon could possibly be purchased for less (though not often). On the other hand if you got arrested, you probably would not seek legal representation using Amazon as your resource. Not all defense attorneys are the same, right?
Whenever services are involved, smart buyers know that people are not a commodity. You can’t just interchange one pulse for another. A buyer considers the likelihood that the services they are buying will deliver the results they need. Results matter more to the buyer than efforts from the service provider. During the procurement process, a buyer might think of weighing the cost and outcome against the probability of success – but this isn’t about statistics, it’s about business. In statistics, the 10% chance of $1,000,000 is better than the 90% chance of $100,000 (because $100k > $90k). In business, however, you’d never bet on the 10% chance of success.
Be Prepared For Pricing Pressure
If I ask most businesspeople what to do if your clothes catch on fire, everyone would say, “Stop, Drop, and Roll.” If I asked for the three things you should do when you face pricing pressure, your team might STOP what they are doing, DROP your price, and ROLL over. This means that most executives and sales professionals are better prepared for the unlikely event of catching on fire than they are prepared to deal with pricing pressure.
Uncover The Truth
If you believe that you are a true commodity, then your only weapon is price. For most organizations, saying you are a “commodity” is a typical excuse. I have clients who are insurance brokers, IT consultants, accountants, lawyers… and at one point each of them was convinced they were a commodity.
Negotiations are all about uncovering the truth in the balance between cost and value – Something we discuss pretty extensively in Same Side Selling. Pricing pressure either comes out of the fact that you did not help the client appreciate your unique value, or they just want to see if they can pay less.
Their price is less – can you match it?
Susan received a call from a client who said, “We really want to work with you, but the other vendor is $10,000 less than you. If you can match their price, we’ll work with you.” You might think that a discount of 10% is not too much to give away. However, consider that if your business operates at a margin of 40%, then you are actually discounting 25% of your margin. Either, you need to maintain price integrity, or accept that what you offer is priced too high.
My advice to Susan was that if the other vendor was offering a lower price for the same value, then the client would not have called you. Instead, we taught Susan to say, “What was it about us that makes you want to work with me and my team?” The client spent about 5 minutes convincing Susan (and themselves) why Susan was their preferred vendor. Susan ended up using some of the following newly learned concepts to win the deal without discounting.
Overcome Pricing Pressure With Stop, Swap, and Trade
There are some buyers who have gone through extensive training on negotiating. With rare exceptions, you’ll encounter skilled negotiators in less than 20% of the situations. Briefly, let me summarize a few steps that are part of a rather detailed training program.
When your client raises a pricing objection, those without training will either ignore the comment, or immediately offer a concession. The untrained professional immediately offers a concession. In a business setting, you might actually erode confidence. Standing firm demonstrates confidence in what you offer. Instead, Stop and ask questions to clarify what’s going on. You might ask questions like “You said the cost is too high. Are you taking about the initial purchase, or the long-term cost?” This starts a dialog about value and ensures you understand what you are facing.
If you give a concession without getting anything in return, we call that a unilateral concession. In that case, you are telling your client two things: 1) You were overcharging them before; and 2) All they have to do in the future is whine and you’ll cave in. Your discount might even cost you the business.
Instead, empathize with their need for a lower price, and ask where you can work together to reduce the scope or change the terms to reach a lower investment. The swap might sound like “I appreciate that you need to drop the cost by $10,000. I’m sure that if we put out heads together, we can probably remove some tasks/options/requirements that would drop the scope by at least $10,000. You might suggest a longer or shorter schedule, different levels of expertise, or a variety of options. The key is to maintain a list of what you can swap. This means that you are cooperative and flexible – just not willing to give a unilateral concession.
You might need to give something modest just so they know you are willing to work with them. If you feel you need to give something, I’d encourage you to offer more service or value instead of offering a reduced price. Ideally, you tie that to their results. In that case, we still need to avoid a unilateral concession. This is a good time to trade for items that could be of value to you without costing them money. It might sound like “I can probably sell this internally if I can get you to participate in a video testimonial and case study.” The lesson is that even when you give in a little, they need to return the favor.
It’s Your Turn
Avoid the urge to Stop, Drop, and Roll. Instead focus your team on the notion of Stop, Swap, and Trade. Remember that if the client does not get the results they need, it isn’t a good deal for anyone. Once you uncover the truth, you and your customer can get on the same side of the table to appreciate value.
What tools have you found to be effective in dealing with pricing pressure?