Losing on Price
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Ask a salesperson why he lost a deal and the answer is often “price.” Let’s stipulate that is true. It is still only half the story. If you attach enough gold bullion to your product, the value would increase to the point where the customer would pay your price.
When you lose on price, it really means that you didn’t deliver enough value for the price. Both sides matter.
To avoid losing, you can do two things: lower your price or increase the value you deliver. Lowering your price is usually a horrible idea, so how can you increase value?
Create more value by improving your product. You can add more capability, more features, more services. However, these additions must be valued by your market or you still won’t win at your price. Talk to your market to be certain that what you are adding matters to them.
Communicate your value better. You could have the best product in the world, but if your market doesn’t know it, you won’t get paid for it. Communicating value is the responsibility of both marketing and sales. Marketing communicates to a market, sales should be customizing that communication to individual buyers.
If you do a fantastic job at creating and communicating value, then you will win more customers at higher prices. That’s the goal. Yesterday on a plane I was sitting next to a CFO. She said, “We almost never lose a sale once we can communicate our value.” First, I love the attitude. Communicate the value! Second, they should RAISE PRICES. If they never lose deals on price, they aren’t charging enough.
Let’s do a little math. If you never lose deals and raise your price by 10 percent, you could lose one out of 10 deals and make the same revenue. (You probably make more profit if there is any variable cost to your solution.) However, if you have never lost any deals, you probably won’t start losing deals by charging 10 percent more. But what if you raise prices by 25 percent and now you start losing 10 percent of your deals? Excellent. You made about 15 percent more revenue.
As a rule of thumb, if you aren’t losing 10 percent of deals based on price, you should raise your prices. Of course, there is an emotional cost to losing deals, but we have to get over it. We are in the business of making money. Not losing deals is a clear indication you are leaving money on the table.
So what did we learn? We have to raise prices so we lose some deals. And we have to raise value to stop losing deals. My recommendation: constantly do both. Drive up both value and prices to the best of your ability.
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There have been many good comments and most revolve around communicating the value proposition. Everything is situationally dependent and Mark covers them all through statements made at a high level of abstraction regarding the pricing issue. Bear in mind, when discussing the pricing issue, that there is a spectrum of responsibility in communicating value that crosses between marketing and sales. High-volume, commodity, low-margin markets require marketing to be responsible for communicating value and they don’t have direct contact like sales people do. So their ads must do the job. In high-margin, lower-volume situations such as multimillion dollar contracts for products or services, communication of value is upon the shoulders of sales people who have direct contact and can use more targeted verbal and written methods. While Mark’s statements fit for most markets, the ensuing banter here gets a little more specific and some statements don’t fit the spectrum, but rather only a segment of it. Lastly, remember that pricing on value works better as competition becomes weaker. Otherwise, in a highly competitive, high-volume commodity market, cost plus margin pricing is usually required.
Operations and Management
6 年Or, more likely, improve the communication of that value, in particular to that customer or application.? Often the vendor can reveal value that the buyer hadn't considered to provide a clear differentiation. ?
Global Leader - Sales Excellence - Honeywell Intelligrated
6 年Offer a different product which meets price and value expectation ! If there is none - try the rest of the suggestions above
Manager, Strategic Fiber Pricing and Contracts at Corning Optical Communication
6 年I'd say a lot of times when you lose on price, it's not really a price issue, it's just the easiest reason to give someone to avoid revealing the true reason. I think this is an important question to ask - did we really lose on price or could there be other reasons? You could end up increasing value and still lose...
Operational Excellence Professional | Delivering Efficiency and Growth
6 年Would like to see a follow up about how Pricers can influence those that hold the keys to delivering value outside of price (delivery, customer service, etc.). Thank you!