Category Archives: Price

Do You Talk Price Or Value?

Price and value.

Value and price.

They are almost always not the same thing.

In these times of economic downturn, one of the most frequent questions sales people hear from customers is a request for a cost reduction.

One of the most frequent responses I hear of from sales people is “ok”.

It is NOT ok!

Not until you, the sales person has looked deeper in to what is going on with the customer.

If you give a cost reduction, several things are going to happen:

  1. Your revenue will drop, assuming all else stays unchanged. If you’re a company listed on the stock market, that means your share price, EPS and other key metrics will take a hit. The kind of hit that, if too big, or goes on for too long, tends to end in layoffs. I’m just saying…
  2. Your profit will drop even quicker – cost reductions all come out of your profits, if you have any left.
  3. The customer knows that you are their ‘go to person’ next time they need a cost reduction. Giving a cost reduction without getting something in return breeds – it breeds more cost reductions. And while you’re giving away your business (because that’s what it is), your competitors are potentially stealing your other customers…

So stop doing it!

I’m NOT saying you can’t give cost reductions.

What I AM saying is… Get something in return…

For example:

A customer comes to you asking for a cost reduction. You have a price agreement that matches volume to price – more volume means less unit price – standard stuff. So you could respond with something like this…

“Hmmm. I know the economy is tough, and your volumes are down like almost everybody else’s. I understand the situation you are in. With your lower volumes our pricing agreement calls for a price increase, and I was thinking about that. How about we keep the price as it is for the moment, even though your volumes are down?”

Or how about this:

A customer comes to you demanding improved/shorter delivery times. They’ve been ordering less so they carry less inventory during the down turn, and reduce the cash tied up in inventory – very common. Now they’re seeing the beginnings of an up turn, and are concerned they won’t have enough inventory on hand to meet demand, and they want to maximise their ‘take’ on this upturn to balance the bad few quarters they, like so many, have experienced.

A shorter delivery cycle clearly means something to them – they attach some value to it. So what are they prepared to pay for it? Are they willing to pay extra in revenue terms? Possibly, but usually not. AND it’s worth asking…

A shorter delivery cycle might mean challenges for you – it can mess with your own plans, schedules, raw material inventories and so on- there’s a knock on effect, and, frankly, why should you pay for the strategic decisions, good or bad, of even one of your customers? Don’t give shorter delivery cycles away for nothing – otherwise next time a customer needs something, they’ll come to you first, and get it from you, instead of your competition… and you get nothing out of it…

Oh sure, I can hear some of you saying “if I don’t, I’ll lose their business!” – well, maybe you should! Not all business is good business!

OK. So if the customer is unwilling to pay actual extra $ for speedier delivery, what can they give you in return? More backlog – advanced orders, would be good, incentivised through a price/volume agreement… this will help you with your forecasting and planning, which is something YOU value, and maybe enough to offset the hassle you may have of providing shorter delivery cycles.

Here’s a third example:

“We like your solution. If you can beat the solution offered by Competitor X, the business is yours.”

I know. It’s tempting to a lot of sales people.

But beware!

If the statement from the customer is accurate etc, that they really DO like yours over Competitor X, then find out what it is that they like more, before you even think about dropping your price.

Anytime a customer is telling you their selection is now to be decided on price alone, such as in this example, then either the customer…

  • … really is buying on price alone, meaning they have commoditized you, OR, more likely…
  • … you haven’t done a good enough sales job yet, and have failed to connect your solution with enough aspects of what they are trying to fix, achieve or avoid through this purchase. And this means they can’t tell the difference in value between your solution and the one from Competitor X.

Let’s assume it’s the second outcome.

In which case, go back to it, find out more about what it is the customer is trying to fix, achieve and/or avoid, and in the minds of the key decision makers, connect your new and deeper understanding of this with appropriate aspects (features, advantages & benefits) of your solution.

If you can’t do this, OR you really are in the first situation, where you have been commoditised, the customer is unable or unwilling to see your value, and all you do by giving in at the lower price is confirm their view of you – that you are not different and do not deserve a higher price… This is NOT a sustainable strategy!

 

OK, off my soap box! What price/value conversations have you come across, good or bad, and what happened? Let me know!

Price Negotiation Is Not Sales Negotiation…

(This is a post I originally had ready to go in August 2011 – no idea why I didn’t post it – but here it is!)

Don’t give anything to the customer, without getting something back in return!

Selling can be defined as achieving a ‘mutually satisfactory exchange of value’.

My mother is in the final stages of selling my grandfather’s home – he passed away recently, having had, as we Brits are fond of saying, a “good innings”. A few weeks ago she was approached by a prospective couple who wanted to buy my grandfather’s home, and they made a fair offer which my mother accepted.

A few weeks down the line, and things are getting a little bit frustrating for my mother, as she shared with me today by Skype. The lawyers for the buyers were getting just a little bit picky with several aspects, and my mother saw this as the precursor to a revised and lower offer.

“I’m not dropping the price – I’m going to stand firm!”

I was intrigued at my mother’s strong position, so I asked her what led to taking this position. Now, my mother is retired, and has never been involved in sales or in running a business. This is what she told me…

“They came to me – they want the home. And they made a fair offer. There’s no mortgage outstanding on the home, so I’m in no hurry to sell it other than to close this final chapter off. I know the lady involved has put her furniture in to storage and moved in with her partner, and it’s only a small place – they want to move. Plus one of your grandfather’s neighbours has expressed genuine interest in buying it too. I want to close all this before we go away, but if they’re not serious, well, I’ll tell them the deal is off… I can always rent it out over the winter…”

So many sales and business people that I know make one or more classic mistakes when they get to start closing with the customer.

First, they’re not sufficiently aware of the customer’s situation. For example, what sense of urgency, if any, does the customer have for making the purchase? What’s driving this sense of urgency? Without this, it’s difficult to know if you can and should stand firm, or if adding further value to the deal (either through lower pricing and/or adding in additional elements for the same price) is needed.

Secondly, they often aren’t aware of the financials involved – either for the customer in terms of the value of this purchase to the customer (NOT the same as purchase price!) or in terms of what the lowest acceptable price is to the seller – if you like, the ‘walk away’ point – it’s not true that any business is better than no business…

Thirdly, they don’t know what the alternatives are – for example, spending time and effort on a customer that is either eventually going to walk away, or insist on a low price represents lost opportunity – that time and effort could have been spent on a customer who is more, shall we say, ‘aligned’ with your values and desire for ‘win-win’.

Fourth, they let slip to the customer just how keen they are to make a sale and make it quick – at almost any price. One sign of this is the excessive keenness to do business. Often the really obvious sign is when such sales and business people lead in with “don’t worry about standard pricing – we can certainly do something there…”

Discounting is a valid part of the sales tool kit.

Just don’t make it the first or second tool you use – make it the last tool you use… else you’ll leave money on the table (get lower price than you could have got) with this deal and get a reputation as somebody who can always be squeezed, especially when times are tough – there’s no safety or satisfaction in the short or long term in getting in to a low margin business…

My call to action is simple:

Prepare and get clear before getting in to a price negotiation. Confirm that you are the the number 1 choice of the customer. If you aren’t, why would you even consider a negotiation? You are unlikely to win what ever you do. If you are the number 1 choice, then talk about value with the customer, not price – remind them why & how you are the number 1 choice!

It’s the Risk, Stupid!

In my last post I wrote about price being the issue – or rather, not being the issue.

It seems this is a subtle point that is easily and readily passed up by most.

I’ve just been watching the BBC tech show ‘Click’ (10 Sep 2011 edition). There was a review of the recent IFA tech exhibition in Berlin, Germany – the one where Samsung hastily withdrew their 7.7 inch new tablet following an injunction granted to Apple by a German court.

Lee Westaway, from CNET, stated that the price of most non iPad tablets was at least the same as the iPad, and that when faced with this choice, many buyers are going with the iPad because it’s established, it works, it’s proven, they know others who have one etc, and the new Android tablets are still a little bit “geeky” and unproven. He stated that if the price “was a lot cheaper, there’d be more reason to by one” (Android tablet, that is).

He’s wrong! And here’s why I think so – and it’s critical.

If the price were much lower, there’s be less reasons to NOT buy one – this is NOT the same as there being more reasons to buy one.

What do I mean?

Well, as I said before in my 29 Aug post, it’s really about risk. Or lack of it.

A lower-priced Android tablet means there’s less risk for me personally. If it was free, the electrical/technical/mechanical risks would be the same – it’s the same piece of equipment. And this would also be true if the price was $1 million. This is why the main risk variable is personal.

If I pay $99 for an Android or other type of tablet, it doesn’t matter too much if it sucks – I can say that for $99 you can’t go wrong with a device that’s clearly not an iPad and people shouldn’t expect an iPad experience. I can claim to be testing out the waters before deciding on whether I need a tablet at all, and if so, what capabilities I need.

This is the logical argument that hides the fact that the decision I make in buying it (or going with the iPad or none at all), like every other decision every human makes, is 100% emotional (see “Brain Rules!” by John Medina at www.brainrules.net and also “Buy-Ology” on Wikipedia…)

So the recent fire sale of the HP TouchPad device – at $329 these things weren’t moving – but HP says it’s bailing out of the retail PC/tablet business, lowers the price to $99 and these things sell out globally in a matter of hours – a ton of people around the world paid $99 for a device that’s got no future, no future support, no future accessories – nothing…

At $99 there were simply less reasons to NOT buy one – no body is going to call you a fool for buying something that was originally $500 or $600 for under $100 and that gets you ‘in’ to the tablet world… but for $300+, people imagined feeling silly buying the HP device, or the others when a little bit more gets you the ‘real deal’…

Next time you feel like you may be losing the sale and the customer is telling you it’s too expensive, remember this post – and call him or her out on it – explore the real reasons they have for not buying from you (and yes, it COULD be price alone, but ONLY if you’ve let them perceive the required solution as being a commodity – people do pay $50 for a bottle of water you know!!!)