Each time I take the stage at a conference or sales summit, I can pretty much count on someone telling me how their business is different. They feel they are the only people who face pricing pressure. They often tell me that it is OK to discount a deal if it gets them the sale.
Yes, these are the same people who were awarded a trophy for coming in 8th place in competitions in elementary school.
Remember that if you discount without changing the deliverable, then every amount you offer as a discount would have been profit. If you run a 30% profit margin, and you discount by 10%, then you are discounting 33% of your profit.
The reality is that the client who would have purchased without a discount, would naturally do the deal with a discount. So, if you don't maintain the integrity of your price, you might never know if you could have succeeded without discounting.
Pricing pressure is real. However, you can get better outcomes if you understand the source of such pressure.
Procurement and purchasing people are the first people we blame. I often hear from salespeople, "The procurement person only cares about price." Actually, her job is to convince you (the seller) that they see you as a commodity and only care about price.
According to Jack Quarles, author of of How Smart Companies Save Money, "The biggest fear of procurement people is not overpaying. Rather, our biggest fear is purchasing something that does not deliver the desired results." Quarles helps companies improve their procurement processes to get more value per invested dollar.
No matter how much the client pays, it's not a good deal if they don't get results.
Once you know that results matter most, then when faced with pricing pressure, counter with a discussion about results. If procurement is treating you like a commodity, it's your job to illustrate what makes you worth the additional investment.
Asking Bad Questions
I see a common line of questioning that leads to pricing discussions. Professionals will often enter a competitive situation, and ask questions like, "How much are you currently paying?" Or they might ask, "What's your budget?" In both cases, these questions open a dialog that is centered on price.
The customer who buys based on price, will leave your company when another vendor discounts under your price. Eventually, you erode your margins and cannot afford to deliver good value to the customer.
Instead, if your client is already using another vendor, try asking questions to uncover what they like about their current vendor, and what they wish they could change. You could even ask a question about their results: "0-10, how well is what you are receiving meeting your vision of what you had hoped you'd see?"
If you start the conversation about price, don't be surprised when your client focuses on price. If you focus on results, then they might follow suit.
Look In the Mirror
You can easily point fingers at clients, competitors, or partners as the reason why you are feeling pricing pressure. However, most often, pricing pressure comes from the seller unwittingly focusing on price.
With a few simply changes to your approach, you and your team can shift the discussion from price to results. When you focus on results, your clients will tend to follow. Ironically, once you focus on results, price becomes secondary.
It's Your Turn
We've all had experiences when vendors have either focused on price or results. When have you been willing to pay more for results? Share your experience in the comments below.