Price and its function in processes of selling and buying
Krzysztof Czupryński
Sales Coach. The owner. Advisor to the management board. Author. English trainer
The Management Encyclopedia provides the following price definition: 'a specific value expressed in money equivalent to a given good; a marketing instrument; the determination in the money unit of the value of goods and services, the main element of Marketing Mix'.
Both scientific literature and a range of business publications provide us with a wealth of knowledge of pricing, pricing policy making and formulating a variety of pricing strategies based on long-term and short-term goals Enterprise. However, I think that from the point of view of our sales practice, it is better to focus on presenting this extensive knowledge in the form as shortened and as accessible as possible.
Why do we need knowledge of this at all? Well, I'm going to try to address a situation that is not directly related to the sale. You need to perform an urgently overdue report to your superiors. The term has been pressing you, and you can't handle too complicated software. Additionally, you don't know how to properly fill in complex spreadsheets. Ignorance will cause a growing feeling of frustration. If you had more time, you would certainly call a work colleague who would give you specific substantive guidance. Spreading this action over time and gaining knowledge would allow you to do much better without unnecessary stress. So because of a lack of knowledge, we don't know how to act at the moment. The same is true when overcoming price objections, where the customer can exploit our ignorance of certain mechanisms affecting most purchasing decisions.
Before we move on to discussing the role of price in the buying and selling processes, I would like to invite you to some exercise that will allow us to draw some conclusions together.
Exercise 1.
Imagine that I am proposing to you to receive a sum of PLN 250.00 for the purchase of shoes, of any kind and purpose. The only criterion for choosing will be the prices presented in four price groups. The first group will be footwear with a value between PLN 80.00 and PLN 120.00. In the second group there will be shoes in amounts from 121,00 PLN to 150,00 PLN. The third group is products in the higher price group, i.e. from PLN 151.00 to PLN 200.00.?The fourth group will represent the product with the highest price, starting at PLN 201.00 to PLN 250.00. Your task is to choose simply: which shoes will you choose, having only information in the form of prices?
To facilitate answers, I will use a simple drawing:
Picture 1. Product selection based on information only about its price
I have already done this exercise a lot of times. The vast majority of respondents chose shoes in the highest amount, i.e. from 201.00 PLN to 250.00 PLN. The remaining price group, i.e. the range of 151.00 PLN to PLN 200.00 PLN, was the second group of the most frequently given responses. Footwear with the lowest prices, i.e. the third and fourth, was the least likely to choose. When we collect all the answers of the previous respondents in the form of a chart, we will get the following picture:
The vast majority of people I surveyed chose footwear in the top price group (group 1) and group 2.
If we tried to describe the product groups I had indicated, we could do it as follows:
?Picture 2. Product only based on price information selection?
On the basis of my research, we could also be tempted to conclude that the most popular products are the highest prices and high averages. Surely you can say that this is just an exercise that does not fully reflect the realities of trading. However, I must say that only once in history it ?has happened to me that the respondent has chosen the cheapest product. This had been done during the organization of training for an international company. It is surprising that he had been a person who used to choose the cheapest products on a daily basis. Moreover, in real-world sales situations, its sales of high-priced products were the most difficult. Simply, their own shopping habits determined the ability to overcome price pressures.
However, if, on the basis of most of the elections, people surveyed were tempted to make further proposals, a certain trend would be revealed. Namely, the higher the price, the higher our belief that the product will be of better quality. In turn, a cheaper product may not meet our needs, and its use will not prove satisfactory.
Let's move on to another exercise, which consists in choosing a used car only based on information about its price. When we intend to purchase such a vehicle, we very often use various internet portals specializing in their sale. A very interesting phenomenon is that the prices of used cars of the same vintage can vary, and in a significant way – the same brand of used vehicle from 2000 year can cost 3 500,00 PLN one time, otherwise 10 000,00 PLN, in some in turn even 20 000,00 PLN and much more. If you had any of your own experience buying a used car, you could certainly notice that the lowest prices were offered those that were almost unusable. Their technical condition and operating history left much to be desired. In many cases, mega-offers were an incentive for us to arrange a visual inspection. But then, looking at the vehicles up close, there were numerous flaws. Often tired of the search for the cheapest products, we returned to the more expensive offers.
Most interestingly, very often sellers of the most expensive cars in a given age group did not want to negotiate prices too much at all. The seller of the more expensive car quickly managed to emphasize the most important features of the car type: inspections in authorized punts, original varnish, all liquids replaced on time, elements of suspension of the highest quality, gas installation reputable company, etc. Thus, the same model of the vehicle could cost in one place up to 2.5 times more than in the other, and the differences in the quality offered were colossal. Of course, sometimes there may have been different situations where expensive product did not meet our quality expectations at all, but this was sporadic. I encourage you to think about situations from your own life when you have bought the cheapest product, which then resulted in dissatisfaction with its use.
I think that behind most of these negative emotions are simply ignorance and disbelief. Generally speaking, we are afraid of denial. It is not uncommon for us to be accompanied by a strong feeling of anxiety due to the fact that we offer more expensive products. We will take a closer look at this phenomenon in the section dedicated to overcoming price reservations. Nevertheless, I would like you to think more deeply about the answers to these questions.
Let's return to the price function itself in the purchase and sales processes. According to the cited definitions, the price (Latin) pretium ?is a certain value expressed in money, which is equivalent to a given good. Price as a marketing instrument, in turn, is the determination in the monetary unit of the value of goods and services. In addition, price is the main element of Marketing Mix. We can therefore say that it reflects the value of a given product in the eyes of the customer. In other words, this is as much as the customer is able to pay for the product or service. The higher the value of the product for the customer, the higher the price is able to pay for it.
They may conclude that if, in our inner sense, the product is not worth the price, it will certainly be the same in the eyes of the customer, and the seller's task is to demonstrate all the values resulting from its purchase. On the other hand, the buyer's task is to weaken the value of our product by using various word licks, which consist in precipitating the seller out of a sense of self-confidence.?The more professionally we conduct trade talks, highlighting all the advantages and benefits of the product, the more the value of the product in the eyes of the customer increases.
"The price is so much as the customer is able to pay for a given product or service. The higher the value of the product for the customer, the higher the price He is able to pay for it"
Working as a technical and commercial advisor in the construction industry, I have once had a very interesting situation. Namely, I had visited an contractor company that was at the stage of choosing products for the investment. After numerous calls from local construction wholesalers, I knew that the whole choice of suppliers was accompanied by very strong price pressures. Wholesalers even fought each other at the stage of the offer itself in order to lower prices. This is a characteristic of the majority of project sales, where bidders literally fight each other at the outset of the purchasing process. I decided to visit this company and talked to the owner of the company. As usual in these meetings, the conversations began with a request for me outright: "What prices will I receive from your company?"Well, this is a characteristic opening of negotiations in the construction industry. Then the owner of this company showed me a stack of price offers. I started reviewing them and noticed that most of them are a typical price list. None of the offers contained other product information. In principle, the customer received only prices. My task was, of course, to conduct our conversations towards professional examination of needs and use of language benefits.
When I did everything I planned, the customer himself asked me, "If your products are so good, how much will I have to pay for them?" I replied simply, "How much can you pay more?" I received the data as a percentage – the company is able to pay about 10-20% more for my products. Of course, I was happy, but I also approached it from a distance. I was aware that as the customer told me that he was able to pay more between 10 and 20%, he could physically pay even more. We finally reached an agreement and finalized the contract. Most interestingly, wholesalers continued to try to make even lower offers, even when deliveries were already in progress. At the stage of our discussions, I also noticed that many price offers were higher than those informed by wholesalers. This is supported by training knowledge:
-???????Many industries are affected by all sorts of price wars. Virtually everyone agrees that war is causing competition.
-???????Apparently, 52% of companies surveyed think they are in a state of price war.
-???????On the other hand, as many as 95% of them believe that competition is to blame for this fact.
Why do companies think, that their competitors are cheaper? Firstly, in most cases, the information is incorrect, e.g. in the case of information. Compares other products, secondly, customers bluff very often
"The more professionally we conduct trade talks,?highlighting all the advantages and benefits of the product, the more value of the product our customer can see"
The same was true in the case I was discussed. Price offers were higher than those anticipated by wholesalers. The customer often compared other products. However, from my observation point,?an important training and sales conclusion was the fact that the customer did not see any values in all products offered by both manufacturers and wholesalers. When a calculated merchant receives only the prices of products, without indicating their properties, it is difficult for him to guess the additional product’s values resulting from their purchase. Of course, the role of the merchant was to focus the conversation on the cheapest products in order to precipitate me out of confidence about my products. In my opinion, just offering prices is not enough. Our offers are worth expanding to provide concrete advantages of purchasing a product and the benefits of cooperation with our company.Learning about the mechanisms of purchasing decisions seems important in understanding the concept of the function of the price itself in this process.?So let's try to expand the knowledge about price, which will certainly prove useful in our daily sales struggles.
As I mentioned, the price is part of Marketing Mix. And what is Marketing Mix at all?
Marketing Mix is, accordingto Wikipedia, 'marketing composition'. "marketing mix" – marketing mix) – a set of elements (instruments) through which we can influence the market. The most popular concept of marketing composition is the so-called. 4 P, product, price, place, promotion'.
According to the Marketing Mix?Management Encyclopedia or the so-called marketing composition, 'a comprehensive category of interconnected elements (activities, processes, methods and techniques) used in the company and creating a jointly integrated system of impact on the market environment of the company (customers, competitors)'.
Both the first and second definitions show that the basic form of Marketing Mix is the so-called. 4 P:
The product, which is some good produced, which is intended to meet the specific needs of the buyer, i.e. the product itself as well as a specific service. The product can be anything that is able to meet the specific needs of buyers. This instrument for market-based entry includes:
-???????specific characteristics and advantages (properties) of the product
-???????brand
-???????packaging
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-???????additional services
-???????product or service name
-???????technical aids
-???????warranty
Price, i.e. expense (cost) that the buyer must cover. Mix's marketing element should also include the entire pricing policy, including specific discounting and payment terms.
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Distribution, or all the methods by which the products and services offered can be offered to final consumers on the market. A hugely important element of the distribution strategy formulated is the design of appropriate distribution channels, taking into account all types of distribution: intensive, selective, exclusive and (increasingly) mixed.
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The promotion of many of us is associated with great inscriptions in the markets. In fact, its importance in marketing is much broader. It is a team of all activities and measures by which the company provides information characterizing the product. We can include, among other things:
-???????advertising
-???????public relations
-???????promotion of sales covering those activities and measures which increase the degree of consumer propensity to buy, e.g. product by increasing its attractiveness.
To my positive surprise, the new concept of Marketing Mix in the extended formula, the so-called 7 P. The first elements, i.e. product, place (distribution), price and promotion, remain the same as in the 4P formula. In addition, the great importance of further elements is highlighted:
The expanded 7P Marketing concept focuses on the enterprise's human resources. There are people who contribute to the sale of the company's products and its development through their activities. Thus, there are also ways of communicating employees with customers in this regard. It is this approach that allows companies to develop through employee training systems, which we can include, above all, sales training.
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A process is a collection of all activities and interrelated activities that affect the quality of the services performed. In this way, all stages of contact with the customer are distinguished: from interest in the product, to the provision of all information about it, to all after-sales services. Working out the right process affects the effectiveness of the company, resulting in customer satisfaction. There is at the stages of construction of sales processes that you can implement and, above all, enforce customer service standards. In my opinion, it is also very effective to introduce standards for sales techniques themselves. A modern-minded and working company can unify the service process by standardizing customer conversations. Training of commercial staff seems to be one of the cornerstones of this concept.
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Material certificate, that is, all elements of the company's image, which can testify to the quality of the goods and services produced and professionalism. These elements include, among others: employee clothing, logo, transparent and aesthetic website on the Internet, interior design of customer service salons, coherent visualization. All elements of the material certificate should work together to have a positive impact on consumer feelings.
This knowledge will help us understand how many elements affect the final prices of the offered products. The different issue is, of course, the various fluctuations in supply and demand, which also determine the level of market prices. In any case, we can consider that sellers who do not know the value of their products will certainly not convince their customers to buy them – the product of the highest quality at the lowest prices simply does not exist. Formulating a pricing strategy is one of the company's most important tasks.
Since price is part of Marketing Mix, in our sales conversations we cannot go past price objections indifferently. When asked about the prices of the products offered, we should respond in a sense of understanding to the customer. Sometimes the participants in sales training expressed concerns like, "I'm afraid I'll be asked about prices, and yet I don't have the cheapest products." At the heart of the pricing techniques, however, are the belief that the customer's questions about prices are a good sign for us – because these are signs of interest in our proposal.
Given the state of economic knowledge that helps you overcome price objections, let's look at the most important factors influencing customer price sensitivity.
It is assumed that customers are able to accept a higher price of products and services when the purchase will result in several effects:
Buyers are less price sensitive, the more unique the product is.
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Buyers are less price sensitive when they are less aware of the existence of product substitutes.
Buyers are less price sensitive when they cannot compare the quality of a product with its substitutes.
Buyers are less sensitive to price when they assume that the product is of higher quality, brings with it more prestige, that is, it is more exclusive.
Buyers are less price sensitive when they see long-term and significant savings – EVEN despite the HIGHER PURCHASE PRICE.
In this chapter, I have briefly provided you with knowledge of the role and function of the price as understandable as possible. This issue is so extensive that in order to be able to describe it in detail, it would be necessary to write another book. However, I would like you to notice how many elements affect the level of product prices offered by companies. From the point of view of our commercial practice, it is important to understand the merchant's licks, the purpose of which is to precipitate our person out of a sense of self-confidence by striving to lower the proposed prices, of course for a conscious purpose.
I encourage you to further self-deepen this knowledge to increase your confidence in your conversations. Admittedly, I am aware that the mere knowledge of the role and function of the price will not cause us to sell our products more expensive immediately. We need practical guidance on how to overcome price objections.
More:
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