I Need a Lower Price!

By Tim Connor

Corporate consolidation and restructuring has salespeople scrambling like never before in the history of American business. The game changes with regularity and certainty.  Yesterday's decision makers are today's research gatherers. Last week's stable relationship is no longer a sure thing. There are now buying committees, group purchasing organizations and senior corporate executives are making decisions that were once delegated.  It is difficult at best to navigate in today's choppy corporate environment.  Everyone seems to want lower or better prices.  Many client and customer relationships are in jeopardy.

How can today's salesperson balance the drive for corporate profits, the customer's desire or need for lower prices and high value and not sacrifice the organization's ability to maintain market share, competitive position and long-term success?  There are three areas I would like to address in this article.  Part one, what is the root cause or catalyst for this drive for better price. Part two, what will be the outcome of this continuous business or consumer attitude. Part three, how can salespeople continue to play the game successfully in this new arena.

Part One. What is the root cause or catalyst for this trend in the drive for better price?  For the past several years consumers have been effectively selling salespeople on the idea that price is their most important concern.  This attitude has moved into business purchasing gradually at first, then with lightning speed.  Purchasing agents have always been price conscious, often pitting one supplier against another to gain a better or lower price. This is not new behavior.  But the zeal with which this price shopping is increasing is taking a great toll on sales efforts in every industry.

Today corporate buyers are putting increasing pressure on salespeople to get better prices.  Often they sacrifice customer satisfaction and loyalty in this drive to lower their costs.  These savings are sometimes not justified if you were to look at the long term market consequences.  There may be short term apparent savings off the direct bottom line, but sooner or later the real "costs" will become quite evident.   These future costs can be in poor customer awareness, loss of competitive market position, turnover of key personnel just to mention a few. 

Permit me to expand this idea a little further.  There is low cost and low price. There is high or low value.  And there is a fair price and cost for a good value.  Consumers have proven again and again they want the latter.   

Price is what you pay for a product or service and cost is what it ultimately costs you.  I have discovered in the past twenty years as a trainer and consultant to a wide variety of  organizations, that there is always money to fix a problem, but there was never enough money to prevent it. Time and time again I have seen corporate buying decisions made with little thought for how a marginal product or service would cost them increased inefficiency, reputation and customer turnover in the future.  Making purchasing decisions with the only focus of cutting costs is shortsighted.

The recent changes in purchasing practices in the health care industry is an excellent example.  The trend in this industry is to consolidate purchasing, with Group Purchasing Organizations, thereby enjoying the benefits of lower costs because of their ability to consolidate purchasing thereby improving overall buying power. I believe that this drive for lower prices will ultimately hurt not benefit the customer or patient. Yes, it is true that many organizations need to become more efficient and prudent in their buying, as well as rethink their profit objectives and margins, but to squeeze corporate America until it bleeds benefits no one. 

Part two. What will be the outcome of this continuous business or consumer attitude?  I am beginning to see a backlash in corporate purchasing in many industries.  Increasing numbers of customers are now venting their disappointment, frustration and anger with these organizations that have become penny wise and pound foolish. And they are expressing their disapproval by taking their business elsewhere.  

Organizations need to re-visit their willingness to sacrifice the ultimate benefit of high value for the immediate pleasure of low price. Another trend these past few years in a number of industries, is that decision making is moving higher up the corporate hierarchy.  I believe this trend will not last for a number of reasons.

1). With the thinning out of management levels and staff in many organizations, the people at the top have more and more on their plate that often requires immediate attention.  For this reason they will not have the time or ability to make the best overall purchasing decisions.

2). In the most successful organization's today, decision making, authority and autonomy is moving down the ladder, not up.  The sixties, seventies and most of the eighties was dominated by a top-down management mentality.  The employee rebellion of the late eighties and early nineties has cured that malady in most of the fast growing and successful organizations of today.  However some organization are refusing to modify their opinions, expectations and business style.  These organizations will soon find themselves far behind their competition with no hope of ever regaining lost market share.

3). The best people to evaluate a product or service and its worthiness and value are the people that must use the product or service on a routine basis. Often they are the point people  dealing directly with your customers. Shoving inappropriate, poor quality, or outdated products and services down the throats of employees who must ultimately defend these to the customer is causing increased stress, frustration and generally firing the pilot light of discontent.

4). History has proven again and again, saving money in the short term is not always saving money in the long term.  You can't measure everything with a  calculator or a spreadsheet.  Saving a dime per wigit when you buy thousands per month, may cost a machine operator,  customer service representative, or repairman excessive downtime.  It will certainly take a toll on their attitudes and morale that will find their way to the customers office, showroom or plant.  

Part three.  How can salespeople continue to play the game successfully in this new arena?  There are a number of contributors that determine whether a salesperson will lower price or cave in to customer pressure to price demands.

Situation 1:  There is the self-esteem of the salesperson.  Salespeople with low self-esteem tend to reduce prices more often than salespeople with high self-esteem.  The low self-esteem salesperson hopes to receive appreciation, approval or recognition which is needed in their psyche.  High self-esteem salespeople are not looking for approval but to make sales and solve customer needs, problems or wants both short term as well as for the long term.  Salespeople with high self-esteem tend to be much stronger negotiators for the same reasons.

Situation 2:  If an organization is losing market share, for whatever reason, they will tend to react by lowering prices which only accelerates their demise or shortens their life-span.  It becomes a downward spiral.  Increased competition - reaction:  lower prices - reaction:  less working capital to satisfy the organizations ability to compete - reaction: less satisfied customers - reaction:  increased customer turnover - reaction:  less and less working capital and so on into oblivion.  Exaggeration?  Just look at the increased numbers of business failures of all sizes during the past several years.

Situation 3:  There is a corporate attitude in many organizations today that to get more business they have to give away more business.  I have seen hundreds of organizations that have believed that to penetrate a new market or introduce a new product or service. it was necessary to "low ball" their products or services to get a foothold in this new market.  I have never seen this work as a long term strategy either for the organization or their customers.  Both lose in the end.

Situation4:  Many salespeople are price or numbers driven.  Their mandate from on high, is increase sales at whatever cost.  They are often successful in increasing sales, but at what cost?  High stress, burnout, high turnover and often at reduced margins.  Not to mention dissatisfied, disloyal customers.

Situation 5:  Organizations need to price their products or services with careful consideration for the following:

• Is the product unique in the marketplace?

• Do customers really want what the company has available?

• Is the product quality less than, the same as, or better  than the competitors?

• Is the market right for the product or is the organization attempting to force a segment of the market to purchase  what it chooses to design and manufacture?

• Is the organization pricing  a particular product or service to make up for general corporate losses or because other items in its line are weak?

• Is  sales compensation unfairly or poorly pegged to force salespeople to sell certain products or services that would otherwise be losers? 

Now back to our original question. How can today's salesperson balance the drive for corporate profits, the customers desire or need for lower prices and high value and not sacrifice the organizations ability to maintain market share, competitive position and long term success?

I would like to share three simple, yet proven strategies that can reduce and often completely disarm this "price only" mentality among today's buyers.

Salespeople need to have a number of things going for them to  handle this price issue successfully.

• They need to have tremendous product knowledge.

• They need to have excessive customer knowledge.

• They need to know the needs, fears, problems, concerns or wants of their customer's customer.

• They need to have the skill to match their product knowledge to the needs, desires, concerns and problems customers.

• They need to have a "general basic business understanding".

• They need to bring a great deal of practical experience or empathy to the  sales process.

•  They need to have high self-esteem.

•  They need to have exceptional sales skills.

•  They need to have the ability to manage the emotional issues in selling.

•  The need to manage the issue of rejection.

•  They need to believe in the mission, objectives and purpose of their organization.

Tall order?  Yes, but then the rewards can be just as big.  Now to the three strategies.  For the purpose of brevity,  I am going to assume that you have all of the above issues under control.

Strategy No one:  If you believe that price is a major issue with your prospect or customer, you need to determine what else is of concern to them and why.  This is accomplished with lots and lots of good questions asked in the right way at the right time.  Do not, I repeat do not launch into your presentation prior to determining what the prospect's dominant reason for buying is, other than price.  Once you have discovered this you need to focus on how your product or service addresses this reason.  If the prospect attempts to control the sales process by bringing you back to price,  you need to stand your ground and confirm if this is their only consideration. 

Keep in mind that buyers buy when they are ready and not when you need to sell. Also remember,  they buy for their reasons not yours.

Strategy No two: Resist the urge to quote price prior to building value.  Price will always seem high, if value is perceived as low.  Quoting price, any price, before you have attempted to establish a sense of value in the mind of the prospect, will seem high.  You build value not by talking about product features, product benefits but what the product benefits, customer benefits, do for the customer.

Strategy No Three:  Don't be greedy.  If you are dealing with a repeat customer that has a history of buying from you don't jeopardize the business by not being willing to be flexible on some products, while not reducing prices on other products or services.  The important thing to remember is that they are a customer of yours.  They have a history with you and are familiar with your service levels, response times, new product developments, billing and shipping procedures.  When they ask you for a better price on an item, they may be looking for a lot less than you think.  Don't react too quickly.  Ask them why they need a better price on that particular product.  Ask for something else in return if you are asked to reduce a price where you are not inclined to want to do so.  Ask for advance payment,  a bigger deposit, a portion of their business that you are not currently getting.  But if you must take less than your desired margin, get something in return.

By asking for something in return, you can often stop the price spiral from continuing.  You may even get some of their business that you might not have been able to do otherwise.

Let's wrap it up: Price is important, but every survey I have seen in the past several years has indicated that buyers want three things, low price, good service and good quality.  Which do you think, again and again comes up number one?  If you guessed service you are right.  Which comes up number two?  If you guessed quality you are right again.  That leaves price as number three.  Price is important, but in the minds of most buyers, it is not the most important.  They would like to convince you that it is, and often do, but never forget, most consumers and business buyers do not want to sacrifice service and quality for low price.  They just want you to think they will.

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