Don’t Negotiate Prices if You Care About Your Customer Relationships

What My Sales Ride-alongs Taught Me About Why Prices Should NOT Be Negotiable

Many years ago, when I was just really getting to know the Pricing industry, I was given the opportunity to go on a sales ride-along with one of our prospective customer’s sales reps to better understand how we could craft a user-friendly pricing optimization solution for sales reps.

I was so excited. I had envisioned this beautiful pricing application that sales reps would log into, multiple times a day, to get critical insight on the “optimal” price they should be quoting for each different customer. This was going to be my chance to validate how well this application would work out in the field.

Tiny: My First Sales Ride-along

I got to the store at 6:30am as agreed. I was introduced to a sales rep named “Tiny.” He towered over me with his 6-foot-6 frame and 350-pound torso. Lucky for me, “Tiny” was one of the nicest guys I’d ever met. After about 90 seconds of small talk, we quickly got into his pickup truck and started our 30-minute drive out to the first customer.

Along the way, I started up a conversation about how Tiny made pricing and quoting decisions. I wanted to understand his thought process and what data he considered when deciding how to price.?I was excited to see this sales rep in action… selling new products … quoting prices. This was going to be good.

But when we arrived at the first customer site, what actually transpired was a bit different from my expectations. First of all, I expected we would be going to an office. But this customer site was a water treatment plant, partially under construction, out in the middle of nowhere in rural west Texas—no office, no building. Second, I expected we would be meeting with key people in the customer’s organization. Nope. Wrong again. Nobody was there except for a couple of maintenance workers. I started wondering who Tiny was going to sell or quote prices to. As fast as I got out of the truck, Tiny had quickly walked over to talk with one of the maintenance workers. I tried to follow him and listen in, but before I could get there the conversation was over, and Tiny was loading up jackhammer and a few bits into the back of his truck. That was it. The visit was over.

As we drove off, I asked Tiny about the customer and their needs, and how we would go about quoting a price for them. His answer floored me. “We don’t really talk about price very much. Most of our conversations are focused on what types of equipment they need and when they need it in order to make sure their projects get completed on time. They had a problem with this jackhammer, so I need to go get them a new one…”

Interesting… that didn’t go as I’d expected.

Throughout the rest of the day, we conducted 14 more customer interactions, a mix of onsite visits and phone calls. In total, 15 customer conversations. Only one conversation where price was even brought up. It was a single question from the customer, “Same price as last time?” Tiny’s response was simple: “Yes. That should be doable.” The pricing conversation was over in 30 seconds.

Eleven hours riding along with this B2B sales rep! A total of 30 seconds talking about price, and not a single number was even communicated! What the “H” just happened!

Of course, my previously envisioned pricing application was never going to work for this company or any company that had similar sales interactions.

Other Ride-Alongs

After my memorable ride with Tiny, I had the privilege of going on many more ride-alongs with sales reps in many other B2B industries. Although they were all unique in many ways, there were a few important commonalities that re-shaped my thinking on the role pricing should play in a sales relationship. Here were my observations:

• The vast majority of sales conversations with customers did not include conversations about prices. Most of them were conversations about what the customer needed and how the sales rep could help the customer succeed in solving those needs. This is where sales reps were adding the most value for their customers.
• Most of the relatively few conversations about price were mostly informational, not persuasive or confrontational, especially when there was clear trust between the sales rep and the customer.
• Most of the time, sales reps did not have good knowledge of what prices other sales reps’ customers were paying for specific products and services. Their own price perceptions were based mostly on the prices they were quoting their own customers. They were making their own echo chambers with respect to price.
• Nearly every time I witnessed sales reps attempting a price negotiation stance during a sales conversation, the tone of the conversation changed for the negative, and it has felt like customers became more apprehensive and less trusting. It was like everybody's "B.S. meters" started flashing bright red.
• Even with sales reps that had authority to negotiate prices, most of their discounting discussions seemed to worsen things for the business, typically going down one of two paths. Either (a) the sales rep, wanting to maintain the illusion of being the “good guy,” immediately caved to the full discount request, or (b) the sales rep claimed they could not approve the discounts without approval from "above," positioning themselves (again) as the good guy, fighting the “evil” deal desk or finance executive that wouldn’t “let them give those kinds of discounts.” Some customers got angry at the company when the sales rep told them all discounts had to be approved by some other unknown party who did not understand the customer’s needs. It was clear customers believed their fate was in the hands of someone who didn’t care, who most of the time was painted as the “bad guy” by the sales rep. This did not improve the company’s relationships with those customers. They felt like their sales rep was powerless and the company did not value them as customer or care about their well-being.
• It seems like nearly half the time customers were asking if they could get a lower price, they were just doing a final check just to make sure they weren’t missing out on an opportunity—they were just trying to find out the limits … essentially just looking for someone to tell them "no."
• Even when sales reps agreed to a lower price, it seemed that most customers would keep asking until the answer was “no.” (e.g., “Is there any way to get a bigger discount?”)
• The absolute best sales conversations about price were with sales reps of companies who had transparent prices posted on their websites and had a policy of no discretionary discounts. These conversations allowed the sales reps to continue their helpful role of information providers, helping customers solve their problems. Pricing was taken completely off the table when sales reps told the customers that the company had a “fair pricing policy” where all customers were given the same price, based on their objective qualification for standard discounting criteria.

Summary Lessons Learned

Reflecting on all my observations, I believe there are several general lessons to be learned, regarding discretionary sales discounting for most B2B industries.

• Sales Value Add: The largest chunk of value provided by sales is their ability to help customers find answers to solve their problems and does NOT include pricing decision making or price negotiation most of the time.
• Sales Pricing Knowledge: Sales reps typically don’t have a good grasp of what real market prices are or what they should be for all the products and services their company sells.
• Sales Motivations: Sales reps are typically more worried about appearing to be the customer’s friend than looking out for the long-term benefits to the company or even their own compensation. They wanted their customers to be happy with them personally.
• Price Negotiation Process: The process of arriving at a negotiated price did not make the customer feel better about the company or the sales rep the vast majority of the interactions. This is supported by the results of customer satisfaction surveys across numerous industries.
• Unnecessary Discounting: Sales reps with discounting autonomy agreed to customer discount requests way more often than even they believed was necessary to win the business. Often, they said they just didn’t want to take any chances or give the customers a reason to dislike them. In many cases, it was like sales reps were using discounts to make up for other failures rather than just addressing the failures.
• Customer Relationships: Sales reps with no price autonomy had better relationships with customers, as long as the prices were posted on the website (if they weren’t posted on the website, customers sometimes didn’t believe the sales rep couldn’t negotiate) and customers seemed to like both the sales rep and the company more because of the open transparency.
• Strategic Control: Companies that took the pricing out of the hands of the salespeople had much more strategic control over their pricing decisions and the ability to measure the results of those pricing decisions. As a result, they were better able to optimize specific pricing strategies without sales reps interfering with customer price perceptions.

Considering all the direct observations of how discretionary sales discounting affects the company’s relationships with their customers, combined with considerations about how discretionary discounting affects the ability to control and measure the effects of specific pricing strategies, it seems there are very few arguments to support why sales should have any discounting autonomy. For that matter, why should anyone have the discretionary authority to discount prices outside of a standardized discount structure? It would seem that it would be much better to put the effort into determining the appropriate standardized discount structure and criteria rather than pushing this important operation out to sales reps to decide based on their own discretion.

My Conclusions

Discretionary sales pricing autonomy is generally a bad idea from numerous angles. That's the conclusion I come back to over and over. And it’s difficult to find a single argument to support why discretionary sales discounting is ultimately beneficial, at least for the majority of B2B industries. Sales reps’ best and most impactful role is to help customers find ways to fulfill their needs and remove friction from the buying process—determining and negotiating prices is not consistent with this role. Price negotiations add friction. Although some sales reps (and leaders) might be expert-level negotiators, most of them are not equipped to execute complex pricing strategies and thereby determine the best price(s) to further the company’s long-term profit-growth strategies. Most customers do not become more satisfied with the company as a result of engaging in price negotiations in a variable price environment. Just the opposite, this type of activity usually worsens customer satisfaction.

Conversely, transparent pricing posted on a company website has been shown to both improve customer satisfaction and increase customer willingness to pay (based on several recent studies, including a Hanover 2019 survey of B2B procurement professionals). Companies with sales negotiated prices typically achieve lower overall margins than companies with non-negotiated, transparent prices. Sales negotiations on price can often result in relationships that are adversarial and lacking in trust.

Due to these realities with most businesses, it would follow that giving sales reps autonomy to negotiate prices is a horrible idea that will reduce margins, reduce customer satisfaction, and worsen relationships between a company and its customers. And to make matters worse, negotiated pricing makes it more difficult for companies to execute precision pricing strategies and measure the respective impact, thereby making it more difficult to maximize long-term profit growth.

All of this is amplified with the massive migration to digital commerce, where customers are moving to self-service buying and looking to reduce friction in the buying process even further. They want pricing information to be instantaneous and transparent, and many are willing to go somewhere else if they can't get it with their current suppliers.

Implementing the Needed Transformation

Once companies come to the same conclusions I’ve come to and realize negotiated pricing is not helping them achieve their long-term profit growth goals, it’s not atypical to run into resistance from among the other executives in the organization when discussions start to be had regarding the need for a transformation. I can tell you from personal experience, (a) the transformation is possible, (b) it will take a little work to manage through the change, and (c) it’s definitely worth the effort to get to the other side. If this is you, don’t be deterred by resistance that will inevitably be put up while others take a little time to reach the same conclusions you have reached. There are plenty of pricing change management experts who can help you through the process and even facilitate some internal executive discussions to help everyone get on the same page. It’s very possible to succeed and achieve the full transformation much more quickly than you might think. But consider bringing in outside help to manage a successful change.

If you are committed to helping your company achieve maximum long-term profit growth, you can and will succeed.

END.

Postscript

Like most things in life, there are always exceptions, and this is no different. I do believe there actually are a few (VERY FEW) circumstances where it makes sense to have negotiated prices, and even where sales should be empowered to negotiate the prices. These would be for situations where sales are very transactional and repeat business doesn't really exist, such as very custom projects that don’t have a standardized price driver, where the products are non-standard, and where there is only a single buyer for any given product... think about businesses such as high-end real estate, custom product development, or sports memorabilia. That said, I would reiterate that I believe these exception cases are probably less than 5% of all B2B businesses. There are specific criteria and rationale for these exception businesses. But from what I have seen across over 25 different B2B industries, discretionary discounting practices are typically quite bad for organizations, and I believe they need to change in order for those organizations to achieve their full potential for maximum sales and profit growth.

About the Author: Jeff Robinson brings the perspective of two-decades of executive leadership and pricing expertise. Through his teams, he's worked with hundreds of companies across industries to help them improve their pricing practices and results. He has designed, marketed, and implemented pricing solutions used by hundreds of companies, whose combined revenues total more than one trillion dollars. Having earned a bachelor’s degree in economics, combined with an MBA in marketing and finance, he has brought new perspectives to the world of pricing, often challenging prevailing notions or widely accepted strategies. Combining his formal education with over 20 years’ experience, he has recently authored the book, Price for Growth, A Step-by-Step Approach to Massively Impact the Value of Your Company by Leveraging Focused Pricing Strategies. Today, he is leading the development of a new company, Revolution Pricing, focused on helping companies create and select appropriate pricing strategies for maximizing the value of their own companies.