Are you working hard to hold the line on your prices?
MHEDA members are at war! It is a price war. This is no overstatement of a disturbing reality. The battlefield is in the customer’s mind, but the customer is not the enemy; nor is the competition. The enemy is a short-term, tunnel-vision thought process that causes customers to make irrational and price-only buying decisions.
We live in a consuming world where “value” has become a euphemism for “cheap.” Advertisers tout “value pricing.” This is code for cheap prices. Big-box superstores and online retailers brag about their everyday low prices. Desperate restaurateurs offer two-for-one specials. Does that make you feel like you overpaid for your last meal there? Price-shopping consumers have value-stripped the airline industry down to a commodity business. Do you ever wonder how much the person sitting next to you on the plane paid for his or her ticket? Are things better for the material handling world? No.
One lift truck dealer called me because he was going to lose a multi-truck sale over $50 per truck. He pleaded for ideas on how to justify a $50 difference between his truck and the competition’s truck. I gave him some eleventh-hour suggestions, and he salvaged the sale. It left me thinking: “If a customer is willing to walk for $50 per truck, what has this industry become?”
At stake are your future and the future of this industry. I do not know any company in MHEDA that is a non-profit organization; why sell like it? You can prevail in this war. You can operate as a for-profit organization if you do a better job of handling price resistance. You can negotiate good deals for your company. You can win the war with this adversary. How?
Prepare and Plan
There are many legitimate reasons to lose a piece of business: wrong product, product availability, delivery or maybe your price is wrong. The one inexcusable reason to lose a piece of business is that the customer out-prepared you for the price negotiation. If the buyer did a better job of preparing than you did, shame on you. If you reduce your price because the buyer out-negotiates you, you have learned a valuable but painful lesson.
Study. Plan your negotiating strategy. Research the buyer’s needs and pressure points (those conditions that deflect price). How will you take early, positive control of the conversation and guide it down a path of value, not price? What is unique about your products and your company that explains the difference in prices between you and brand X? What will you do if price becomes an issue?
Help the Buyer Think Differently
Price-thinking buyers need to be educated. They must learn the downside of making short-term business decisions. What are the consequences of going “cheap” on a project? Ask questions like: “If you were to review this decision a year from now, on what criteria would you judge the effectiveness of a solution?” Price will rarely be the issue. “What does a successful outcome look like to you?” Shift the focus to the finished product, not the buying process. “What do you want to remember most about this decision and the solution you choose?” Everyone wants a smooth transition to a new solution.
Tap into the buyer’s legitimate fears and concerns. Fear displaces greed every time. Ask, “What concerns you most about moving forward?” “What pitfalls are you trying to avoid with this decision?” “What is your biggest red flag on this project?”
Buyers who recognize their fears make prudent buying decisions. Give the buyer something to consider: “Which offers a greater risk at this point, paying a little more than you anticipated or not getting what you need to do the job you want to do?”
Change the Conversation
Why should price dominate the conversation? Is price the only thing that the buyer cares about? Does the buyer need the cheapest solution or the best solution? Does the buyer want a short-term fix or a long-term solution? This is where your preparation comes into play. You want to direct the buyer down the path of value, not price. Price shoppers value-strip products and attempt to reduce them to their core-commodity status. Once exposed, the naked product is tough to defend.
Customers buy more than a generic space to store goods or move inventory from point A to point B. How well inventory is managed and maneuvered is where your value-added comes into play. If your trucks consume less energy, operate more quietly, require less maintenance and have a higher resale value, that’s value added! Talk about that—a lot.
Develop a Discount Discipline
Be stingy with your discounts. Are you working as hard to hold the line on your prices as the buyer is to whittle your margins? Under what conditions will you change your price? If your company’s financials mirror the average return of the S&P 500, every bottom-line dollar you retain through prudent discounting is like adding $16 to your top line. So if you retain an additional $10,000 bottom-line dollars because of your discount discipline, it is like adding $160,000 to your top line. That is significant!
Just because the buyer raises a price objection does not mean you must lower your price. That is only one way to respond to price objections. Just because a buyer does not have the budget does not mean your price is too high; their budget is too low. When a desperate competitor offers fire-sale prices, why copy their strategy? You cannot be an industry leader when you are a price follower.
|Meet the Author
Tom Reilly is a sales coach, author and speaker located in Chesterfield, Missouri, and on the Web at www.TomReillyTraining.com. This article is drawn from his latest book, Crush Price Objections (McGraw-Hill, 2010).