I read an article today about how to handle price objections. In this article the author advises salespeople to avoid talking about the price of the product or service they are selling until after they have “demonstrated the value” of their product or service. Unfortunately there is a fundamental problem with that advice: You cannot demonstrate value without talking about price.
Value Doesn’t Exist in a Vacuum
When you are talking to a prospect about the value of your product what is the measure of that value? Value is not an abstract concept. It has to be quantifiable to have meaning for your prospect. And no matter what unit of measure you use for value (cost savings, improved productivity, improved throughput, reduced customer support costs, reduced customer churn, improved customer satisfaction and so on) in the end it must always be reduced to a monetary basis to have any meaning for your prospect or customer.
Value is defined as “…the worth of something in terms of the amount of other things for which it can be exchanged…” This means that you can express the value of your product or service, for example, in cost savings, improved productivity, or reduced customer churn but it will have no meaning for your prospect or customer unless they can measure the worth of that value in terms of the money they must pay to receive it (otherwise known as an ROI.)
You can tell your prospect that “our customers have experienced an average 19% improvement in revenues in the first 3 years of using our product” but the first thing the customer is going to do is calculate what a 19% improvement in revenues would be worth to them in terms of the investment they must make to realize that value. But how can they make that necessary calculation if you are withholding pricing information? They can’t.
Your job as a salesperson is first and foremost to provide your prospect with the information they need to make an informed purchase decision. The number one piece of information that your prospects want when they talk to you is pricing. Keep in mind that before they have ever talked with you, your prospects have spent time online to research your company, your products and services. When they do talk with you they already have the facts and features of your company and product offerings in hand. What they want to understand now is the value your products and services will provide them. This understanding cannot be reached without talking about price.
Value is the Core of Qualification
In fact, you really cannot talk value to your prospect without qualifying them. Refer back to the definition of value above. Value is the “worth of something” (the measurable benefits your prospect will receive from your product or service) expressed “in terms of the amount of other things for which it can be exchanged” (money.) Now, think about what prospect qualification really means. Qualifying a prospect means that you reach a tentative agreement with your prospect that the value they will receive from your product or service is worth a certain amount of money (i.e. investment) to them. It doesn’t mean that they are in love with your price but that they agree in principle that the value they will receive from you has a certain monetary value to them. If you can’t reach this agreement with your prospect you shouldn’t be investing additional sales time with them.
How can you demonstrate your value to your prospect without talking about price? You can’t. And you shouldn’t try. Value doesn’t exist in the absence of pricing information.
Surplus is at the Root of Discounting.
It is easy to blame the salespeople for rampant discounting but it has always been my experience that the primary responsibility for over-zealous discounting and the resulting price and margin erosion rests with management.
When a manager has a surplus, whether of inventory or of salespeople not hitting their numbers (meaning that he or she isn’t hitting their number either), they look for a solution in the form of a discount. Approach the end of the month or quarter with too much inventory on the shelves or too many people not hitting their quota, and the first thing many managers do is authorize their salespeople to offer a discount to a customer to win an order and move some product.
All parties involved in a sales transaction, buyer and seller, are familiar with this cause and effect scenario. Salespeople wait for it. Customers wait for it. It is not an accident that the trajectory of orders during a quarter traces the familiar hockey stick shape. Everyone is familiar with the rules and is in on the game.
The problem with this end of period discounting is that these “one-time” discounts have a tendency to morph into the new default price point for your customer. If you’re handing out discounts at the end of a quarter to induce customers to close an order or accelerate a delivery, then your next order from that customer is going to be at the new price point you established with the discount. Balk at that and you’ll find that all your orders from customers will start to materialize around the end of your accounting periods.
Surplus is also a key factor in discounting conducted by salespeople. It occurs because salespeople oversell their product or service, in effect offering more features than what the prospect needs to meet their needs. This overselling occurs when salespeople are not adept at precisely qualifying their prospect’s exact requirements. A salesperson can’t sell value if they don’t understand the problem the customer is trying to solve. As a consequence, they tend to sell the entire feature set of their product or service in the hope of encompassing the prospect’s needs in the process.
When a salesperson’s offer exceeds the needs of the customer they are left with the choice of reducing either the scope of their offer or their price in an attempt to win the order. Offering surplus features that are without value to the customer almost always leads to a discount.
As a manager, to effectively address this discounting problem you need to develop a plan to reduce the surplus factors in your selling. First, the answer for salespeople who oversell is ongoing in-depth product training. Learning to sell value is next to impossible without a true understanding of your product or service. A rule of thumb is that a salesperson can’t effectively sell value if they don’t understand their product better than the prospect. Does your training accomplish that?
The second surplus factor to manage is the end-of-quarter discounting syndrome. This is a hard habit for management to break. Unfortunately going cold-turkey is the only effective method to curtail the practice. It could take one or two challenging quarters to flush the temptation out of your system and re-train your salespeople, prospects and customers. However, you will learn which customers are buying your product for the value versus the discount. These are the customers to focus on in the future.
Are you chasing a buck instead of disqualifying a prospect?
When a potential prospect tells you that your product is ‘too expensive’ what they usually mean is that your product is just that, too expensive for their budget. It isn’t an objection. It is a fact. Sometimes a prospect just can’t afford what you are selling. Even if they are otherwise a perfect fit for your product or service.
Unfortunately, salespeople are often too busy chasing a buck to really listen to the customer. They desperately cling to these so-called prospects, which really aren’t prospects, because they are loathe to kick any potential buyer to the curb. But, as a consequence, they skip what should be an essential early step in their sales process: qualifying the prospect on price.
There is no mystery to price qualification. Qualifying a prospect on price means that you reach a preliminary agreement about the value that the prospect will receive from your product in exchange for the dollars they are going to pay you. In other words, you have reached a tentative agreement with the prospect that your price is proportional to their assessment of your product’s value.
Unfortunately, salespeople have an unhealthy fear of the price question. They want to keep it in a closet somewhere and forget about it. It scares them. Like zombies or movies based on Jane Austen novels. They are afraid that any discussion of price will scare off the prospect. Which is exactly the point.
The downside to the salesperson of not qualifying, or disqualifying, a prospect on price is the risk of wasting their limited and valuable selling time on buyers who will not buy.
When Should You Qualify on Price?
Price qualification’s rightful place is early in the sales process, during the discovery and qualification phase, because a price objection is a valid reason for you to disqualify a prospect. First, ask the right questions of the prospect to fully understand their requirements and make sure these are aligned with your value proposition (aka your features, benefits and advantages.) Then clearly lay out the value, price and the ROI they can expect from your solution based on their stated requirements. If you can’t reach a preliminary agreement with the prospect on your “value for price” at this stage, then you probably need to walk away.
Qualification on price and value doesn’t mean that your prospect is 100% in love with your price. But it does mean they agree that you’re in the ballpark and any further discussions of price will be a negotiation, not handling an objection.
This begs then the central question: can you get a price objection from a truly qualified prospect?
‘Dude, that’s not a qualified prospect.’
A true price objection surfaced by your prospect at the end stages of the sales cycle usually means one of two things: A) you misplaced your backbone at the moment of truth and didn’t disqualify them when you had the opportunity, or B) you didn’t fully disclose your price during qualification. If it is A, then they were never a true prospect for your product or service and you wasted your valuable sales time on someone who was never going to buy from you. If the answer is B, then you misled the prospect about your value proposition and it will be difficult to rebuild your credibility with the prospect and win the order.
Finally, a warning. If you do a good job of qualifying the prospect on price, but they keep pushing back on price while ostensibly still moving forward with you in their buying process, then you should proceed with caution. It is possible the buyer has a hidden agenda and is using you in order to advance it. I remember one very large deal, early in my career, where the prospect kept raising price objections even though I had carefully qualified them. Unfortunately, I was inexperienced and made the mistake of responding to these objections. I didn’t have the experience to understand that the prospect was using me as a leverage point to negotiate a better deal with the competition. It was a painful lesson learned.