When clients call to tell a salesperson they chose their competitor, much of the time they point to the fact that their competitor had a lower price, something that is sometimes true and sometimes a nice way of letting the salesperson down without having to spend time answering their questions about what they might have done better. If it was the salesperson’s price that cost them the deal, it was something out of the salesperson’s control, providing them an external reason to assuage their ego and any hurt feelings.
It’s easy for salespeople to believe that their higher price is the root cause of their challenge in winning big deals, even though very few companies make significant changes to save money. The majority buy because they need to improve their results in some meaningful way. Here is how to talk to your sales force about pricing.
In The Discipline of Market Leaders, Michael Treacy and Fred Wiersema’s excellent book on understanding how a company’s strategy allows them to succeed, the authors explore three different strategies. The first strategy is to compete by having the lowest price, which is more difficult than most suspect. This is a commodity play, and it requires a massive scale. The second strategy is to provide the very best product, which would allow you to escape the commodity trap and charge more for the greater value you create. When something costs more to the manufacturer, it necessarily comes with a higher price.
The third strategy is customer intimacy, which means you don’t have the lowest price, and you may not have the best product, but your business acumen, situational knowledge, and intimacy allows you to provide the best overall solution, the one that creates the greater value for your client—even if the price is higher.
Our business strategy is customer intimacy. That means that we need to create more value than anyone else, something that we do throughout the sales process by doing excellent discovery work, collaborating on solutions, and spending time with the stakeholders who will be positively impacted by our solution. Executing this strategy is how we intend to win, which eliminates the other two potential strategies.
The Key to Execution
When finding prospective clients who are unhappy with their current results and are willing to have an exploratory conversation with a potential new partner, they are not content with their results and are seeking something better. In some percentage of these cases, the prospective client chose the lowest priced option, mistaking the price for cost, only later discovering the solution came with the increased costs of poor results. You know this because we’ve had to go in and turn things around.
The key to executing for our client is to make certain that we help the client make an investment that allows us to execute and deliver for them. Discounting and offering price concessions can be a slippery slope. Deep discounts remove the profit necessary to execute for the client, and relatively small concessions across many clients add up over time, depriving us of making the investments in our business, and making it more difficult to help our clients.
We have to execute our strategy. When we don’t capture the appropriate and necessary profit we need to execute, eventually, we’ll have more problems serving our clients, we’ll lose business due to our failures, and we’ll start to churn clients. When this happens to companies, it is increasingly difficult to meet your goals because you have to spend time and energy on problems. It also makes growth much more difficult because you must first replace your lost clients before you can create the first dollar of growth.
Try Selling With the Lowest Price
Even though it feels like it would be easier to sell at a lower price, it isn’t. While it is easier to sell to the bottom feeders, the people who believe that the lowest price is the greatest value are a relatively small part of any market. When someone is only focused on price, their loyalty belongs to the lowest price, not the company that is giving them that price. This is why bottom feeders have no trouble changing suppliers—or threatening to do so if their current supplier won’t match their competitor’s lower price.
When a company has the lowest price, they have made so many concessions that they are down to the single point of differentiation that is their lower price. If you believe it’s difficult to sell at a higher price, imagine what it would be like to sell to our clients without all the things that differentiate and define us. Our clients buy from the lowest-priced competitor because they are not willing to make the concessions necessary to accept that price.
But there is a more important reason we don’t compete by having the lowest price.
Who We Are and What We Do
Weak salespeople and weak sales organizations resort to selling at a lower price because they believe it makes selling easy. We aren’t weak salespeople, and we are not a weak sales organization.
Instead, we use a modern sales approach. We are truly consultative. We create enough value throughout the sales conversation to differentiate ourselves and our solution without having to worry about competing against lower prices. Our best defense is our offense, including our willingness to talk about the necessary investment early in the conversation, we justify the delta. Hence, the client understands the investment we are making in their solution, and by sharing with them the concessions they will make by paying less than what is necessary to the better results they need.
We earn the higher price we charge by solving bigger problems, creating greater value, and helping our clients improve their business and their results. Our price is a little more than our competitors’ price because it allows us to be who we are in the market.
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Filed under: Leadership