CRUSH PRICE OBJECTIONS

SALES TACTICS FOR HOLDING YOUR GROUND AND PROTECTING YOUR PROFITBy TOM REILLY

The McGraw-Hill Companies, Inc.

Copyright © 2010 Tom Reilly
All right reserved.
ISBN: 978-0-07-166466-0

Contents

Chapter One

Facing Reality

Reality isn’t the way you wish things to be, nor the way they appear to be, but the way they actually are.

—ROBERT RINGER, LOOKING OUT FOR #1

Perception is subjective reality. It is the meaning that you attach to incoming stimuli; what you see is reality for you. With price objections, your perceptions coupled with the buyer’s perceptions may offer a discordant view of reality. Resolving differences in your subjective realities is one of the fundamental challenges of dealing successfully with price objections. You may perceive your price as fair while the buyer perceives it as unfair. The greater the divide between your perceptions, the greater the challenge to resolve the price issue. You need to earn a profit, and the buyer needs an equitable and viable solution.

This chapter is about bridging that great divide by introducing you to the realities of price resistance. By studying these realities and integrating them into your daily selling, you are invoking an objectivity that may prove to be your greatest weapon when battling the beast of price resistance. Specifically, this chapter will cover the following:

* Ten realities that shape the landscape of selling in a price-sensitive environment

* How your attitudes influence the outcome of your efforts

A key characteristic of resilient people is their willingness to face reality as it is, not as they wish it were. We begin with ten realities that affect your life as a salesperson. Accepting and integrating them into the context of your sales presentation provides the energy behind the death blow to the beast.

REALITY #1: YOU WILL HEAR PRICE OBJECTIONS

They go with the territory. In spite of your best efforts, someone will object to your price. As a consumer, do you accept the first price a salesperson presents to you? No, of course not. Think about your last major purchase—house, appliance, or vehicle. Did you attempt to negotiate a better price? When you were a child, did you attempt to negotiate a bigger allowance? Have you ever negotiated your salary or compensation package? We wonder why buyers ask for a cheaper price, but facing price resistance is a sign that you are engaged in your territory.

REALITY #2: YOU WILL LOSE BUSINESS BECAUSE OF PRICE

There is some business you want to lose because of price. If you want competitors to have low-profit, high-aggravation, and slow-pay business, then take Napoleon’s advice, “Never interrupt an enemy when he is making a mistake.” From our research, we have concluded that if you are not losing one in six deals on price, your price is too low. If you target all customers as viable opportunities, you will mix price shoppers with value-added shoppers. With price-shopping customers, your in-pocket profitability is lower because they demand the same high level of treatment at a lower price. These two questions help you clarify your focus and face the reality of where to invest your sales time:

* Do you want every order or every opportunity?

* Have you ever met a customer whose business you did not want?

REALITY #3: YOU WILL SELL IN SPITE OF YOUR PRICE

In every seminar I have ever conducted, salespeople have told me, “I was able to sell for some reason other than a cheap price.” Think about your own selling. Consider the last good or service you sold for which your price was higher than a competitor’s and you still got the business. Why were you successful? Was it your service, product availability, or your relationship with the buyer? The customer recognized the value in your proposition and was willing to pay for it. Customers have taught you how to sell your total solution—in our terms, your value-added. Are you listening?

REALITY #4: EVERYONE WANTS EQUITY

When the buyer says your price is too high, he is more focused on what he is giving than what he is getting. When the buyer obsesses on price, he is locked in on his sacrifices more than your solution’s advantages—his pain versus gain. The one thing the buyer wants more than a cheap price is equity. He wants to feel that he is getting at least as good as he is giving. The sale is always about the customer, and his perception of value is sacrosanct.

Drawing from management psychology, equity theory explains employee-motivated behavior. People want equity from their work; they want a fair return on their personal investment. If they perceive equity—getting as good as they are giving—they are motivated to perform. The same concept applies to buying behavior. People buy when they feel they get as good as they give. Your task is to present your solution as an equitable exchange for the buyer’s money. Here is a paradox: equity exists in the buyer’s mind, not in your mind. It is not reality unless the customer views it as reality.

REALITY #5: SOME PRICE OBJECTIONS ARE FAKE

Some price objections are real; some are not. Fake means that price is not the real reason the buyer is hesitating. Whether the resistance is real or a red herring, there is an incentive for the buyer to bargain on price. If the buyer gets a better price, she wins. If not, she has lost nothing. From the buyer’s perspective, why not ask for a lower price? Regardless of the motivation, you are dealing with a price issue at that moment.

REALITY #6: PREPARATION BUILDS CONFIDENCE

Whoever is better prepared for a price negotiation tends to emerge from that negotiation with a more desirable outcome. Being prepared does not guarantee your success, but being unprepared portends failure. Just as you never want to be out-prepared by the competition for a presentation, you never want to be out- prepared by the customer for a price negotiation. It is the one thing you control, and it affects your confidence and competence. Do you remember the one school test you studied for weeks in advance? This type of preparation fuels your passion and excitement, and this type of energy makes you persuasive and your argument compelling.

REALITY #7: YOU ARE SUPPOSED TO MAKE MONEY

Your company is in business to make a profit. Unless your company is a nonprofit organization, you must earn a profit on a sale. You lose money when you discount. I have met salespeople who sold as if they worked for a nonprofit. For them, making a sale was more important than making a profit. The purpose of a business is to make money—hopefully, lots of it. There is no reason to feel guilty about making a profit. That is why your company is in business.

Profit is not a dirty word; it is the lifeblood of your company’s ability to reinvest in its future. Profit funds your R&D, recruitment of top talent, and service programs. How can you deliver maximum value if you have nothing to give? The profit you garner in the form of a higher price is an investment your buyer makes in receiving greater value from your company in the future.

REALITY #8: SALESPEOPLE CREATE THEIR OWN MISERY

Most price resistance is a self-inflicted wound. Salespeople have taught buyers to object to price. A fifteen-year study of sales behavior conducted by the Vass Company appearing in a 1996 issue of The Competitive Advantage magazine reported that 90 percent of salespeople impulsively—and unprompted by buyer price resistance—offered a cheaper price to get the business. Salespeople are more tenuous about price than buyers. Researchers Peter Dickson, Florida International University, and Alan Sawyer, University of Florida, discovered that fewer than half of customers surveyed could name the price of a given product and that most customers underestimated the price. Could it be that the root of most price objections is buyers’ lack of information about the price-determination process, resulting in expectations of a too-low price? Unrealistic expectations coupled with a lack of salesperson preparation guarantee price resistance and concessions.

REALITY #9: VOLUME IS NO SUBSTITUTE FOR PROFIT

An argument I often hear is, “I’ll cut the price and make it up in volume.” There is no guarantee you will make it up in volume. On the contrary, you could be multiplying your losses.

Several years ago, I was speaking to a group of salespeople. The president of the company introduced me to his group: “Ladies and gentlemen, we have some good news and some bad news. The bad news is, discounting has become horrendous in our industry, and our profit margins have plummeted to the point that we are now selling at ninety-seven cents on the dollar. The good news is, sales are down this year, so we are not losing as much money as we could be.” The group laughed, and it set the stage for my presentation on value-added selling.

Most salespeople still believe they can reduce price and make up for it in volume. Can you? Do you want to? Do you really want more low-margin business? To paraphrase Warren Buffett, one of the smartest people in the world about money, when you’re in a hole, stop digging.

REALITY #10: ATTITUDE DRIVES BEHAVIOR

People behave as they believe. They move in the direction of their thoughts and become what they think about. Once an attitude is in place, certain behavior naturally follows. This is the essence of the self-fulfilling prophecy: someone believes in outcomes and behaves in ways that create the outcomes he or she expects.

Your attitude about price affects price negotiations. If you enter a negotiation expecting price to be an issue, it will be an issue. Unwittingly, you will create a price objection. If you believe that factors other than price should be considered in a negotiation, likewise, you will create that outcome. Your attitude about price makes your expectations reality. If you enter a negotiation believing your price is too high, it will be too high. If you enter a negotiation believing you offer an incredible bargain, you will discover most people share your enthusiasm for the value of your solution. Your attitude influences the outcome.

Here are some negative attitudes about price that I have heard over the years from salespeople:

“Price is the only feature that sells in our industry.”

“The only incentive buyers really care about is a cheap price.”

“The only way to compete in our market is to have the absolute lowest price.”

“It’s a waste of time to convince someone to pay more for something.”

“Forget service and support, what really counts is a cheap price.”

“Hey, if I don’t cut the price, I’ll lose the business.”

“It takes too much effort to avoid price objections.”

“It’s different in my industry; you can’t sell value-added.”

If you find yourself believing any of these self-defeating statements, you live and die by price objections. The remedy is simple: flush these ideas from your mind. Remove them from your thoughts and your beliefs. Expunge the negativism before it becomes your sales philosophy. These negative attitudes are like a disease that eats away at your spirit, hope, and effectiveness. Replace them with more positive, self-enhancing thoughts. Here are some examples:

“There are buyers who will pay more for a better solution. I have witnessed this in the past. I have seen these buyers. I have sold to them. I know who they are.”

“Price is only one of several variables that go into the decision process. There are many factors that affect the buyer’s decision to buy.”

“My attitude about price affects my profit margins and my success.”

“We sell something special, and I am excited about what we can do for the buyer.”

“No product is overpriced unless it is under-desired by the buyer.”

“The more value I build in on the front end, the less important price becomes on the back end.”

Which set of attitudes, positive or negative, do you feel better prepares the salesperson to negotiate price more confidently? Which set of attitudes, positive or negative, do you think results in higher margins?

Some resistance to this concept is a strong indicator of the degree to which your attitude is holding you back. It is like driving with one foot on the brake and one foot on the gas. If you want to move forward, you will need to get your foot off the brake. Changing your attitude will accomplish this.

If you find it difficult to get excited about your product, service, or company, I suggest three alternatives. One, you need training. Learn more about your product. Study the impact your product has on the buyer. Review success stories and reignite the passion you once felt for your company and your product. Two, get another job. If you cannot get excited about what you sell, you are selling the wrong product. It is unfair to your employer, to your buyer, and mostly to you. On the other hand, if you are starting to feel some hope and getting excited, that is exactly where you ought to be at this point. Three, study this book like your future sales success depends on it—it does.

CHAPTER SUMMARY

Buyers and sellers have their own perceptions of reality. When your view of reality mirrors the buyer’s reality, your job is easier. There are also a number of objective realities you must accept to succeed in sales. Your understanding of these realities and your attitude about price affect the outcome of your sales efforts. If you believe price will dominate the sale, it will. If you believe it will play a minor role, it will. In either case, you are right because you are creating a self-fulfilling prophecy. Since the outcome is strongly tied to your expectations, it is good strategy to have positive expectations.

Chapter Two

Factors That Affect Price Sensitivity

Living is a constant process of deciding what we are going to do.

—JOSÉ ORTEGA Y GASSET, TWENTIETH-CENTURY SPANISH PHILOSOPHER

Decisions. Life is filled with them. Even a nondecision is a decision; it is a decision to do nothing. A buying decision is like any other decision a person makes. There are myriad influences on buying decisions, which makes it difficult to guess what is in another person’s heart and head. Second-guessing human motivation has been the vocation and avocation of psychologists and philosophers for centuries. For the rest of us, studying the context in which people make decisions can offer clues about the motivation behind their decisions.

This chapter is about understanding the forces that influence price sensitivity. Your understanding of these dynamic forces and their impact on the buying decision provides context for you to frame your message of value. Specifically, in this chapter, you will learn about

* price elasticity and price sensitivity;

* factors that influence buyer price sensitivity; and

* buyer pressure points that mitigate the importance of price in buying decisions.

Although some buyers automatically reject price and value-strip your product, we will study buying decisions as a more sophisticated process than knee-jerk reactions to your price.

PRICE ELASTICITY AND PRICE SENSITIVITY

Prices increase; demand plummets. Prices increase; demand is stable. What to do? This is a sales book, not a primer on pricing strategy and tactics. For a more technical guide to price elasticity, I suggest reading any good economics book on the topic of pricing. Simply put, price elasticity describes the relationship between demand and price. Products are considered elastic if demand changes as prices change and inelastic if demand remains stable as prices change. Buyer needs tend to be inelastic, and buyer wants elastic. For example, people need fuel for their vehicles, and demand changes gradually as price increases. Fuel is an inelastic product. Premium or boutique coffees are more elastic. If Starbucks raises the price on a cup of coffee, demand falls because this product is more elastic. A cup of premium coffee is more want than need.

For our purposes, price sensitivity is the buyer’s tendency to focus more (or less) on acquisition price for a variety of reasons. Understanding these driving forces makes you a more informed businessperson, better able to construct a compelling defense of your price.

FACTORS THAT AFFECT PRICE SENSITIVITY

Imagine the negotiating advantage you would have if you could peek inside the buyer’s head to see how and why he makes decisions. As you read this, neuroscientists are doing that with functional MRIs, giving birth to an emerging field called neuromarketing. For now, unless you are a neuroscientist, you must rely on other clues to discern buyer motivation. Since people make relative- value decisions—weighing what they want to acquire against what they sacrifice to acquire it—it is important to understand the context in which they make their buying decisions. Some contextual factors increase price sensitivity, and others decrease it. Some create a mental tug-of-war for the buyer.

Factors That Decrease Price Sensitivity

Customer satisfaction, brand loyalty, and customer retention are inversely related to price sensitivity. This means that satisfied, loyal, and returning customers are less focused on price. They understand your value and appreciate it. With them, you have earned the right not to be the cheapest. This applies to your competition, too. If you are attempting to dislodge a competitor from a customer who is satisfied and loyal, you have a challenge ahead of you. Buyers change when the pain is greater than the gain.

Relationships mitigate the importance of price. The stronger the relationship, the bond the seller enjoys with the buyer, the less important price is. When two people trust each other and desire to do business with each other, they work out the details, and price is a detail. This is why some large companies attempt to set up a firewall between buyer and seller. They may use purchasing groups or outside consultants to prevent their buyers from becoming too close to the suppliers. They realize that when buyers and sellers have a special bond and feel a personal loyalty to a brand or salesperson, price becomes less of an issue. Selling is relationship management.

Engaged customers who participate in the sale and know more about your product are less price sensitive. They understand how your product’s features and benefits apply to them. They use their knowledge to see advantages of which you may be unaware. Buyer engagement is key in a price-sensitive sale. Questioning and interactive presentations involve buyers. Think of ways you can engage your buyer.

(Continues…)

Excerpted from CRUSH PRICE OBJECTIONSby TOM REILLY Copyright © 2010 by Tom Reilly. Excerpted by permission of The McGraw-Hill Companies, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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