Cutting prices can lose business
"If you can do it for $12, you can have the business". With his next three words, Bill lost thousands of dollars of business. He said, "I'll take it!"
Too many sales people focus on price and forget about value. Price is simply what you charge. Value is the sum total of all of the positive effects that the product or service has on the buyer's business. In most cases, your offering has many benefits for the customer. Each of those has a corresponding value that adds to the equation. Business customers buy because they believe that they will get value that is significantly larger than the cost. In fact, most buyers are unaware of many of the benefits of their purchases and therefore underestimate the value they receive.
Every price is too high without an appreciation of value.
If that is true, so is this:
Every price the customer offers, before they understand the value, is too low!
Could that be why you lose proposals that simply respond to RFP's? Maybe the customer can't find your value in that sterilized document?
Could that be why you lose when you respond to the caller who says, "I just need a price?" Maybe they think you are just like everyone else. After all, you did not bother to tell them any differently.
Hey, we all reject stuff we don't understand.
How many times have you seen someone handing out free stuff on the street or in the mall and simply passed them buy. It's FREE and you won't take it! You don't see the value.
To increase our chances of making the sale, we must do three things to ensure that we have maximized value in the customer's mind:
1. Understand their business
You must understand your customer's business well enough to explain to them how your offering will improve their bottom line. This means asking more questions and doing more research before making your proposal. The good news is that once you understand one company in a given industry, most of the others will have similar circumstances.
Example:
A distributor of Swiss watches was trying to get a container load to their US jewelers in time for the critical pre-Christmas buying season. She was shopping for shippers and two responded. One offered a price that was $9,000 and assured the shipper that they could get them there on time. They had years of experience and many testimonials that showed that they had done it before. The second shipper cut the price in half and guaranteed that if the shipment was late, they would rebate 100% of the fee.
Which shipper won the business?
The first one.
They knew that a container of Swiss watches holds 5,000 watches with a retail price of $3,000 each or 15 million dollars. If the container arrive late, the watches will have to be sold at an after Christmas discount. That's a loss of $1.5 million! Clearly the distributor would care more about the reliability of company A than the potential $4,500 rebate from company B.
2. Maximize your value
If is often true that different people in the buying organization will see different value in your offering. In the example above, the person on the loading dock might like the lower price. But the product manager, the CEO and others will appreciate the value of reliable service.
Identify all those departments in the buying company who might see value in your offering. Make sure they know what you are proposing and get them to be internal advocates for your solution. When you get a large enough cheering section, it's like having a "home team" advantage.
3. Include your value in your proposal and quote.
Too often, we make our value propositions in a face to face discussion with the buyer. Then, when we believe the sale has been made, we formalize the number in a quotation or proposal. In many cases, one or more people may review this before it is signed off. Even the best sales people get blindsided by a last-minute influencer that was not disclosed earlier. When that person sees the numbers with no sense of the value, they may reject the proposal as over priced. Head this off by adding to the proposal, a summary of the value that you and the buyer agreed on.
This is the subject of chapter 12 of my new book, The Team Selling Solution: Creating and Managing Teams that Win the Complex Sales. Click on the link to learn more about it and to hear a sample of the book on CD.
So what about Bill and that $12 deal?
The customer had called Bill because he wanted a supplier who was open longer hours than his current supplier. Bill's company is open 24-7-365. He told Bill why he wanted to switch and that he was currently paying $13 and bought thousands each year. That's when he offered Bill the business at $12.
Bill's mistake:
He failed to see that the customer was currently paying $13 for less service and wanted more. The customer saw value in Bill's hours of operation. If Bill had asked why the extended hours were so important, he would have learned that the customer was paying overtime to work with the other company's shorter hours. This move would save them many times the cost of the service. Bill could easily have justified an increase to $15 and still won the contract! His failure to see his value cost his company thousands of dollars and cost him some nice commissions.
Remember: Think Value and Win More Sales
Steve Waterhouse is Principal and Founder of Waterhouse Group (www.waterhousegroup.com), a sales consulting and training company that helps companies dramatically increase their sales.
"If you can do it for $12, you can have the business". With his next three words, Bill lost thousands of dollars of business. He said, "I'll take it!"
Too many sales people focus on price and forget about value. Price is simply what you charge. Value is the sum total of all of the positive effects that the product or service has on the buyer's business. In most cases, your offering has many benefits for the customer. Each of those has a corresponding value that adds to the equation. Business customers buy because they believe that they will get value that is significantly larger than the cost. In fact, most buyers are unaware of many of the benefits of their purchases and therefore underestimate the value they receive.
Every price is too high without an appreciation of value.
If that is true, so is this:
Every price the customer offers, before they understand the value, is too low!
Could that be why you lose proposals that simply respond to RFP's? Maybe the customer can't find your value in that sterilized document?
Could that be why you lose when you respond to the caller who says, "I just need a price?" Maybe they think you are just like everyone else. After all, you did not bother to tell them any differently.
Hey, we all reject stuff we don't understand.
How many times have you seen someone handing out free stuff on the street or in the mall and simply passed them buy. It's FREE and you won't take it! You don't see the value.
To increase our chances of making the sale, we must do three things to ensure that we have maximized value in the customer's mind:
1. Understand their business
You must understand your customer's business well enough to explain to them how your offering will improve their bottom line. This means asking more questions and doing more research before making your proposal. The good news is that once you understand one company in a given industry, most of the others will have similar circumstances.
Example:
A distributor of Swiss watches was trying to get a container load to their US jewelers in time for the critical pre-Christmas buying season. She was shopping for shippers and two responded. One offered a price that was $9,000 and assured the shipper that they could get them there on time. They had years of experience and many testimonials that showed that they had done it before. The second shipper cut the price in half and guaranteed that if the shipment was late, they would rebate 100% of the fee.
Which shipper won the business?
The first one.
They knew that a container of Swiss watches holds 5,000 watches with a retail price of $3,000 each or 15 million dollars. If the container arrive late, the watches will have to be sold at an after Christmas discount. That's a loss of $1.5 million! Clearly the distributor would care more about the reliability of company A than the potential $4,500 rebate from company B.
2. Maximize your value
If is often true that different people in the buying organization will see different value in your offering. In the example above, the person on the loading dock might like the lower price. But the product manager, the CEO and others will appreciate the value of reliable service.
Identify all those departments in the buying company who might see value in your offering. Make sure they know what you are proposing and get them to be internal advocates for your solution. When you get a large enough cheering section, it's like having a "home team" advantage.
3. Include your value in your proposal and quote.
Too often, we make our value propositions in a face to face discussion with the buyer. Then, when we believe the sale has been made, we formalize the number in a quotation or proposal. In many cases, one or more people may review this before it is signed off. Even the best sales people get blindsided by a last-minute influencer that was not disclosed earlier. When that person sees the numbers with no sense of the value, they may reject the proposal as over priced. Head this off by adding to the proposal, a summary of the value that you and the buyer agreed on.
This is the subject of chapter 12 of my new book, The Team Selling Solution: Creating and Managing Teams that Win the Complex Sales. Click on the link to learn more about it and to hear a sample of the book on CD.
So what about Bill and that $12 deal?
The customer had called Bill because he wanted a supplier who was open longer hours than his current supplier. Bill's company is open 24-7-365. He told Bill why he wanted to switch and that he was currently paying $13 and bought thousands each year. That's when he offered Bill the business at $12.
Bill's mistake:
He failed to see that the customer was currently paying $13 for less service and wanted more. The customer saw value in Bill's hours of operation. If Bill had asked why the extended hours were so important, he would have learned that the customer was paying overtime to work with the other company's shorter hours. This move would save them many times the cost of the service. Bill could easily have justified an increase to $15 and still won the contract! His failure to see his value cost his company thousands of dollars and cost him some nice commissions.
Remember: Think Value and Win More Sales
Steve Waterhouse is Principal and Founder of Waterhouse Group (www.waterhousegroup.com), a sales consulting and training company that helps companies dramatically increase their sales.
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