Helping Manufacturers And Distributors Improve Sales Performance And Profitability • 800-867-2778 • Issue No. 52

Robert Nadeau
Managing Principal

Overcoming price pressure

The extended economic downturn has created a tight spending environment. Today's customers are squeezing every purchase for maximum savings.

For sales professionals, it looks something like this.

Your product and service are a perfect fit with the customer's needs. You've identified and gotten to all the decision makers. You can meet their incredibly tight delivery schedule.

Then, just when you think the deal is done, you hear; "We really like your proposal, BUT, your price is too high."

At this point in the sale, you have two options.

You can provide the customer with a valid reason to pay more for your products and services. Or you can lower your price to meet the customer's perceptions of the value of your offer.

The sad news is that most salespeople lack the skills necessary to successfully overcome downward price pressure. As a result, they are forced to discount their asking price in order to get the sale.

Most sales managers are keenly aware of the fact that price discounting has a negative impact on your bottom line. But little thought is given to the fact that price discounting reinforces the customer's false perceptions about the value of your products and services.

What causes price pressure?

In making the purchase decision, customers compare price and value based on the information available to them.

When the customer perceives that the value they will receive from your products and services exceeds your price, the sale will move forward. However, when the customer perceives that your price exceeds the value they will receive, the sale stalls and price objections arise.

In the past, customers were a bit more willing to look for the inherent value of the products and services they purchased. But not any more. Today's customers are intently focused on getting the lowest PRICE. But why?

A 30 year focus on price

The reason today's customers are so price-focused is that during the past 30 years, changes have occurred in the retail and B2B markets that have decreased the focus on value and increased the importance of PRICE.

For example, during the 1980s, the telecom and trucking industries were both deregulated. This brought about the introduction of 800 telephone numbers that provided toll-free national telephone coverage. The deregulation of the trucking industry lowered freight rates and allowed cost-effective carriers like UPS to grow and prosper.

These regulatory changes fueled the rapid growth of the catalog industry. Customers gained access to new sources of supply that offered brand-name products at significantly lower prices. In many instances, customers were willing to forego the service and availability provided by local suppliers in order to take advantage of these lower prices.

During this same time period the retail environment also experienced dramatic change. The average retail space in the US increased from 7 square feet, to 21 square feet per person, as the big box retail store concept began to emerge and flourish. The stack 'um deep and sell 'um cheap business model offered customers fewer services, no frills but guaranteed lower prices.

By the end of the decade, the concept of Every Day Low Prices was deeply etched into the minds of customers.

In the early 1990s we experienced the internet revolution which has forever changed the way all of us shop for and purchase products. In the comfort of our homes and offices, we can search the world wide web for an ever-increasing array of products at rock-bottom prices.

And if you don't have time to find the best deal yourself, there are over three million websites that will search for and locate the lowest price for whatever it is you seek to purchase.

As we move through the current decade, the extended economic downturn combined with customers who have been conditioned to focus on price rather than value, has created an incredibly tough selling environment. Downward price pressure is at an all time high, yet most salespeople lack the skills they need to successfully defend high prices.

What's the solution?

To successfully defend higher prices, salespeople must communicate value using the same language they use to communicate price.

In almost every instance, price is presented to customers in terms of dollars-and-cents. Easily understood and easily compared to other prices.

However, when it comes to communicating value, salespeople often rely on terms like dependable, longer-lasting, durable, cost-effective and fuel-efficient. This difference in language makes it very difficult for customers to determine if the value they are going to receive exceeds the price they are being asked to pay.

As a result, customers focus on the one thing they have been conditioned to focus on - PRICE.

To successfully overcome downward price pressure, salespeople must learn to communicate value in terms of dollars-and-cents.

Dollars-and-cents value is delivered to customers by helping them improve their performance, reduce their costs and/or by reducing their exposure to risk and liability – in a measurable way.

The good news is you probably are delivering dollars-and-cents value to your customers. However, your salespeople need to know how to calculate and communicate this value to customers using the language of money.

Ask yourself the following questions.

Can you help your customers improve productivity?
If you can, what is the dollars-and-cents savings they will realize as a result of better labor, equipment and material utilization?

Can you help them reduce costs?
If you can, what is the dollars-and-cents savings they will realize as a result of reduced material, energy and fuel consumption?

Can you make their work environment healthier and/or safer?
If you can, what is the dollars-and-cents savings they will realize as a result of fewer accidents and injuries?

By learning how to calculate value in terms of dollars-and-cents, your salespeople will not only be prepared for – but anxiously awaiting – the opportunity to respond the next time a customer says, "your PRICE is too high."

For more information, call 800.867.2778.

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