10/10/2016 – The price war can get the best of us. Have you ever lost a deal on price? Sure, we all have. There is not a sales person out there or a business owner who has not lost a prospect or a customer simply because they (the prospect or customer) thought they could get a better price or a smarter deal from someone else.
Losing on price is painful on so many levels. One, you see all your hard work go down the drain. The sales calls, the proposals and the follow-up touches are all just out the window. Two, you feel discouraged. Like, why do you even bother trying to get out there and find business if all customers care about is price? And third, what is the point of having a higher quality product and better service if price is the deciding factor? For these reasons it can be tempting to play into the price war.
Losing on price can be painful. But the truth is, if you are losing your customers over price it is because price is all you are selling. Customers and prospects don’t buy price unless they believe that price is all that is being offered So if you want to get out of the price war you need to stop selling price. Instead, start selling risk and value.
Let me share an example. One year ago I had a prospect call me with the potential of hiring me to consult on this very subject. He is a software developer based out of South Carolina. His sales teams were being hammered in a community-wide price war. Losing deal after deal to their competitors. Competitors whose cost of doing business was much lower and therefore had the advantage of selling their software at a cheaper price.
This CEO contacted me because his sales people, once again, had come to him and asked him to lower the price of their software. They felt the only way they were going to meet their goals and compete with these other companies was if they could match their price or at least get in the same ballpark. Sounds reasonable right, sounds fair?
There was just one problem. This CEO could not lower the price. He had already done that three times before. Now his margins were so thin, there was nowhere left to cut. It appeared the price war was over and he was at a loss. Because if lowering his price was the only way he could compete than he would have to shut his doors.
Just to get a little clarity on the problem, I asked a couple of questions. Do you have customers who currently pay your price? Yes! Great. Why do they pay your price? Why are they willing to pay more for a product that they can get easily less expensively? He looked at me stunned for a few minutes than he answered, “I don’t know.”
Important questions right? You want to get out of the price war and stop competing on price? Then you need to understand what people are willing to pay for and why they are willing to pay for it. We put together a survey and we asked his customers. Here is what we found out:
- His customers did not feel they were paying too much for his product
- They loved that fact that a person always answered the phone when they call, no downtime or annoyance with phone trees
- He had been in business for more than twenty years. His customers appreciated that he was a small business just like they were. In addition, they were tired of the big boys always being sold or merging. It felt like starting over every single time it happened
- Site visits and face-time calls were also a big deal to them. They enjoyed doing business with someone who cared enough, bothered enough to get to know their companies, knew them by name and had been to their offices and their plant floors.
- Mostly, they felt the risk of not doing business with him was worth the value of what he was asking them to pay.
Amazing information and all good reasons not to offer his software at a lower price. See, in the customer’s mind, they were not paying more for the product. Oh sure, on a sheet of paper it looked higher. But they knew what they were saving in downtime, expertise of service and relationship was well worth the price they were paying.
If you want to get out of the price war, then you need to learn to sell more than price.
3 Strategies To Ditch The Price War!
Understand the Risk
You need to know what your customers would lose if they left you over price. In other words, what is the risk of not doing business with you? For my clients’ customers, it was downtime. It was learning to work with new software and new companies. And it was a lack of understanding of their true needs in terms of products and value.
Tap Into The Value
If you know what they risk in not doing business with you, then you also need to understand what they gain if they choose you. What do they get in exchange for a higher price? In my client’s case, they gained a CEO who knew and had been to their business, a stable and steady company not looking to merge or acquire other companies, and customized software that fit their needs and solved their challenges.
Sell The Risk & Value
Once you know the risks, once you understand the value you need to make it part of the conversation. In other words, you need to sell risk and value. To customers, our people, products and services all look the same. If we want our customers to pay more we need to give them a reason. For my client, we worked what current customers said into our sales conversations with prospects. We stopped competing on price and started selling risk and value.
It is a myth that in this economy customers are not willing to pay for products and services. But today’s consumers are savvy, well-informed and skeptical. They are willing to meet your price, but not without a reason to do so. If you want to get out of the price war, if you want to stop losing on price then you need to learn to sell risk and value.