High Prices and Lost Deals
It pains me to say this, but it’s true: high prices lose sales. As a pricing aficionado, I’m always pushing for higher prices, so it’s my fault (and yours if you push for higher prices too.)
First, let me throw myself at the mercy of the court. Every time you lose a sale, it’s because the price was too high. You see, you could have lowered your price–to zero if necessary–and won the deal. That is proof the price was too high. That means for every deal you lose, price was to blame.?
Now, please allow me to defend myself. Here are two arguments in my defense.?
First, every deal you lose is also the fault of value. Pricing and Value are equally at fault. Buyers trade money for value. If they don’t perceive enough value, they won’t buy your offer. It’s possible that your product didn’t offer that buyer enough value. It’s also possible that your sales and marketing efforts didn’t communicate the value well enough that the buyer understood and believed it.?
Before blaming and reducing the price, I recommend you focus very hard on value. If you don’t deliver enough value, improve your product or focus sales on the market segment that gets the most value from your product. If your product is already good enough, focus on communicating your value. Improve your value communication before decreasing your price.?
My second defense: Maybe you want to lose those deals. Buyers willing to pay more (meaning buy from you at higher prices) are often much better customers. They get more value from your product. They go into it looking for solutions to problems, not deals. They are less likely to ask for free support. These are higher-margin, lower-cost customers. These are your ideal customers. These are the ones you want to serve. When you spend your resources serving the needy, price-sensitive customers, they aren’t available to serve your best customers.?
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Of course, you can have a business model that competes on price, but that’s not a fun place to play. Your innovation is about cost cutting, not added value to customers. Assuming you are a business that believes you offer more quality, features, and/or capabilities than your competitors, then you should get paid for it. You should charge higher prices. Will you lose some business? Probably. But if you improve your understanding of and ability to sell value, you will lose many fewer. And those you lose, you probably didn’t want anyway.?
If this resonates with you and you’d like some help, feel free to contact us or share your comments below.
Now, go make an impact!
The Value Sales Expert - Helping Sales Directors/VP's and sales teams understand and communicate customer value and master Value Selling. Supporting thesellercode.org
7 个月Your article certainly highlights the importance of understanding and communicating value in sales Mark Stiving, Ph.D. It's a crucial reminder that focusing on value, rather than just price, can lead to more profitable opportunities. It's too easy to slip into the "discount default". Ultimately that is not great news for you and not necessarily a good deal for the customer - we buy for value not just because it's cheap. (customers who buy just on price are NOT your customers! Leave then to someone else to make no money out of)
Author and B2B Pricing Consultant
7 个月Mark Stiving, Ph.D. While at first blush I’d disagree, I do agree in the end. Bottom line NO company is a victim of the market, every company decides what price they offer to what opportunities. Why would a company intentionally offer a low/negative margin price to some opportunity? Rarely there are viable reasons for this, but most times companies come in too hot and lose the sale or they come in too low and leave money on the table - it all ties back to understanding the opportunity (segmentation) and willingness to pay. So, I agree with your comments! Thx for sharing!
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7 个月Hi Mark, good post. This: 'Buyers trade money for value' is the crux. What's our pricing strategy? Be the low-cost, no-frills leader? Be the premium provider (and actually deliver that defensible premium value?) One lesson I learned a years ago is that, for some customers, and especially enterprise customers, it's less a matter of absolute price and more about predictability and 'no surprises' during the contract term. And your note about firing poor-fit customers is, pardon the pun, right on the money.
Very important points you raise - at some point the value just isn’t worth it, and the Pricing pro needs to be aware of the dance. I use the “twenty dollar” test, particularly for bleeding edge product releases. Let’s assume a customer understands the product, and feels the price is too high (assuming in the thousand-dollar range for this example). I ask “would you buy it for $20?” If the answer is “Sure!” you have a pricing problem. If $20 (or some arbitrarily low price) doesn’t generate interest, then it’s a value problem. This happens (often) when costs balloon during development, so the product folks start adding non-core features, in an attempt to justify a higher sell price. Pricing folks need to understand competitive value, and be able to fight for realistic pricing despite internal pressures.
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7 个月I accept your defense, Mark. In my experience with tens of thousands of sellers, maybe 5-8% are excellent at selling value. Back when I was doing exclusively sales performance, I and my colleagues (who had personally coached many hundreds of thousands of B2B deals) had several recurring anecdotes. One: according to salespeople, 100% of lost deals were due to price. Also 100% of wins were the result of excellent salesmanship ("They were only human. They couldn't help but decide to buy."). My then-company's sales training initiatives regularly (when a client would bother to set up a rigorous measurement, which was surprisingly uncommon), our methodology showed ROI in the hundreds of percent: 500%+ was common. At one point in the company's history, its current CEO was so desperate for sales that he ordered insane levels of discounting. I made myself persona non-grata by asking "In what world will a customer need us to drop our price from a 500% ROI to anything higher? If not, is the problem something other than price?". If a seller hears any version of "your price is too high", they should respond as if they heard "your value is too low", and proceed accordingly. Unfortunately, few know how, and even fewer do.