The Discipline of Market Leaders

When It’s Okay To Sell On Price Alone

Not selling based on price is the third rail of sales wisdom; it is dangerous to suggest otherwise, I know. The common wisdom says that it is wrong to sell on price. The common wisdom is wrong. Sometimes selling price is exactly the right strategy. We run into trouble as salespeople when we don’t know enough about our own company’s business to know whether or not it is the right strategy.

The Discipline of Market LeadersMichael Treacy and Fred Wiersema outlined the the three basic strategic choices a business might make in their wonderful little book The Discipline of Market Leaders. Those choices  include Operational Excellence (the price leader, think Wal-Mart), Product Leader (innovation, think Apple), or Customer Intimacy (best total solution, think your company if you are in B2B). Companies do well when they make one of these choices and act accordingly. Salespeople run into trouble when they work in opposition to their company’s choice.

If your company has made the choice to be the low price leader in their space, then you must sell price. Your target market must be those for whom price is the most important factor. When you align your efforts with your company’s strategy, things work out well for both of you. But when you decide to try to capture a higher sales price when selling to the price-motivated prospects, you are working against your company’s strategy. They have built their strategy on volume. Ultimately, the higher price you captured will cause customers to continue looking for another provider, and they will find one. You will lose sales, and your company will lose the volume for which it was designed.

What the common wisdom against selling price is really addressing is the fact that salespeople often choose to sell based on price when it is not their company’s strategic choice. If your company sells B2B, it is doubtful that they have chosen lowest price as their strategy. It is a very difficult position to hold. They have more than likely chosen to be the innovative product leader or to focus on the best overall solution. Both of these choices require that a company capture a higher price for the cost of innovating or the cost of customizing solutions to create the best overall solution for their clients. As a salesperson, selling based on price here works against their company’s strategic choice. It works against their own interests a salesperson too; it makes the clients you acquire expensive to serve because your company is not capturing a high enough price to be able to provide the level of innovation or solution that they really need. It leads to unmet customer expectations, lots of complaints, and lower than necessary margins.

If your company is the innovator, align your efforts by selling to those who need your innovation. This group of prospects can capture the value of using your company’s offering to better compete in their own space and you can easily create value. If your company’s choice is customer intimacy, sell to those for whom the best overall solution is the right choice for creating value in their organization. Align your efforts to the market your company is designed to serve. If your company has not chosen price as a strategy, it is wrong to sell on price.

Salespeople who believe that every customer wants the lowest price are wrong. Many companies choose to buy based on innovation because that is where they create and capture value themselves. Others really want the best overall solution. In all likelihood, if you are selling price to these segments it is because you have not successfully differentiated yourself and your company from the pack and you have not created enough value for the customer to capture the a higher price.

The rub? Too many companies try to occupy more than one of these strategic choices, confusing both their customers and their salespeople.

Comments

comments

  • http://www.thelatimergroup.com Dean Brenner

    With our clients, we find that it’s best to sell on the full spectrum of the variables in front of you… price, quality, durability, service… whatever you have available to you. We advocate not selling on any one single aspect of your value proposition because then your value is locked into that one aspect, and if the world changes, your perceived value changes.

    I agree that we should not be afraid to sell on price, but I would take it father and say that we all should avoid ever selling on any one thing.

    Respectfully,

    Dean Brenner

    • http://www.santhonyiannarino.com S. Anthony Iannarino

      Thanks for the interesting comment, Dean. I believe it goes to my point.

      Sometimes the choice to sell price is just the easiest thing for a salesperson to do to win. It is almost always because of some lack of selling skills that can be improved. If you are selling “the full spectrum of variables in front of you,” then you are not selling price. That is the right decision, use all the variables, build the best total solution. I have, as of late, seen this: A client is the low cost provider in their space, but their salespeople don’t want to sell price. The company wants to sell price! They have developed their organization around the idea of operational excellence. The salespeople are losing deals on price that their company is strategically designed to win.

      (leave aside the compensation issue here . . . yes, they are compensated on gross profit and not revenue)

      It is a rare and novel issue, which caused me to write about it.

      I’m not sure that I agree that you aren’t selling one thing; do your variables not roll up into the best overall solution (and doesn’t that include some component of adapting a solution as things change)?

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  • http://www.salesbuzz.com/training/ Sales Training Program

    When the prospect is ready to go (prospects needs are confirmed to be met) and they can pull the trigger but simply want a “better” deal and you as a sales person have the room price wise to make it happen.

    Although “better” deal doesn’t also have to mean lower your price… Adding something of value is a great way to sell at full price… but that’s a whole other blog post.

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