About one-third of consumers are purely hung up on price, while the other two-thirds are open to at least hearing another argument, says Tom Reilly, an author and value-based shopping expert. "Value is always long term," Reilly says. "Price is short term". If your customer is fixated on price, the best strategy is to turn that to your advantage – it can actually help shape the value of your product and signal value.
Salespeople love to talk about price. They compare one product with another on the basis of cost, they go on about the discounts they can give, and they try to outsell the competition with claims of a lower price. However, all that talking about price actually focuses your prospect’s attention on it, even if they weren’t overly concerned with cost at the beginning of the sales call. Interestingly, studies show that the typical salesperson is a lot more concerned about price than is the typical customer! Constant price undercutting can damage brand equity and erode profit margins. Meanwhile, customers develop low expectations and become disengaged.
Follow these three tips on your next sales call to minimize the importance of price while still maintaining a healthy margin.
1) Focus on the benefits, not price
The best way to convey to your prospect that your product is the most appropriate solution to their problem (regardless of price) is to focus all your attention on the benefits. Never assume that a prospect fully understands the benefit of a particular feature - always point it out and expand on it. The more benefits you apply to the prospect’s needs or wants, the more often you’re able to show them what’s in it for them.
2) Build and deliver value
When you create value in the eyes of your buyer, the product or service you’re offering becomes more desirable, and price becomes less important. By establishing value early on, you can actually make a higher price work for you as a competitive advantage. Sensible buyers realize that with most purchases, you get what you pay for, and when you do reveal your price, it can make a statement about the quality of your product.
Use the sales call as an opportunity to pinpoint exactly what the prospect considers valuable, and adjust your offerings to meet that criteria. Focus less on price and more on the value you are able to provide your prospect, to keep your buyer’s attention on what they’re ultimately concerned with - finding the right solution.
How do you define value? Can you measure it? What are your products and services actually worth to customers? Remarkably few suppliers in business markets are able to answer those questions. Customers - especially those whose costs are driven by what they purchase - increasingly look to purchasing as a way to increase profits and therefore pressure suppliers to reduce prices. To persuade customers to focus on total costs rather than simply the price tag, a supplier must have an accurate understanding of what its customers value, and will value in the future.
3) Be confident about your price - and stick to it
In order to maintain your profit margin, it’s necessary to present your price with confidence and stand firm. In order to deal with price-cutting attempts, you’ll need to get comfortable responding to the phrase “your price is too high.” Try these responses:
- “Let me tell you why our price is where it is.” Repeat each of the benefits your product provides and the emotional costs your prospect will save by buying from you.
- “Let me explain how each of the things we’ve discussed will help you.” Expand on the benefits and the emotional relief you’ll provide.
- “We can work to give you a better price but we’ll have to remove some of the components we’ve discussed. Which would you like to eliminate?”
There will always be a close link between pricing and customer attention. Try the following 8 strategies to steer your customer away from the price tag:
Use Price Structure to Clarify Your Advantage
The first way to use pricing to diminish price sensitivity is to make it call attention to the value your product or service delivers. To achieve this you must revise your pricing structure. Explain to customers that they will be charged according to the value delivered and they will reasses their preferences in line with that value.
Sometimes one seller’s price restructuring can revolutionize an industry. Norwich Union (now part of Aviva), changed how it charged for car insurance. Traditionally, a policy’s annual premium is based on the insurer’s analysis of the risk presented by a given driver. Norwich Union’s innovation was to do away with annual premiums and begin charging per mile driven. Rather than choosing on the basis of the lowest quote they can find, clients are forced to consider the purchase in light of their own unique behaviour - and during the process they come to appreciate the argument for use-based insurance, taking it out of head-to-head price competition.
Willfully Overprice to Stimulate Curiosity
Willful overpricing can make customers pay attention. Perhaps added features justify that price, features that suddenly become important to you as the customer – and allowing the vendor to compete in an intensely price-conscious market.
Partition Prices to Highlight Overlooked Benefits
Price Partitioning breaks the price into component charges, to highlight dimensions of differentiation that might otherwise have been overlooked.
For example, cable television customers generally buy a bundle of services from their providers. Providers have two pricing options: They can charge one all-inclusive price or they can itemize the bill. The amount payable is the same - so does it make a difference?
Research shows that it does. Presenting a cost as a set of smaller charges invites closer analysis and therefore increases the likelihood that a customer will revise their consumption behaviour. To those who saw the price partitioned, quality mattered. Partitioning will only succeed however when it prompts customers to see a real benefit they would otherwise have overlooked.
Equalize Price Points to Cement Personal Relevance
This strategy for turning price sensitivity to your advantage applies when customers are asked to choose among several options designed to appeal to different tastes. In such cases all the variants should be priced the same, and customers will be compelled to discover which option best suits their needs. They will work to fully appreciate the range of options a seller is offering, not to find ways to shed features for a lower purchase price.
Don't be tempted to discount
Faced with heavy competition, marketing departments resort to all sorts of price promotions - coupons, quantity discounts, referral discounts, bundling, and targeted promotional offers. Research shows how counterproductive these can be. Far from suppressing customers’ price consciousness, promotions actually heighten it. If you want customers to deliberate about your offering’s selling points, don’t offer them a special price.
Help customers find the right pricing 'fit'
If you provide different pricing packages, give your prospects some hints about how to assess their own fit for each one. Highlighting your "best offer" is one thing, but it's extremely helpful also to give customers a set of questions or scenarios that will help them determine which package is best suited to their particular needs.
Leverage your strengths and experience
It never hurts to integrate proof or encouragement to assure the buyer that he or she is making the best possible decision. Find places to tie-in content that shows how purchasing your product or service will pay off:
- Provide names of other companies that have bought from you.
- Show results your company has achieved, or ROI data.
- Provide hand-picked testimonials, including social media
- Provide customer case studies.
Emphasize Your Customer Service
The toughest job selling value to customers is getting them to picture the full depth and breadth of everything your company has to offer. This is why the whole purchase decision should be painfree, and make sure that your customers realise you'll be there to provide exemplary customer service – and keep providing that good service throughout the lifespan of the customer.
Some companies prefer to keep customers focused on price because they have a basic cost advantage to leverage. Most companies, however, would benefit from getting people to think harder about value. They need customers to appreciate the innovations and benefits they provide and to make sure that these innovations get the attention they deserve, rather than just the price tag.
You may also like
- The Strategy and Tactics of Pricing: A Guide to Growing More Profitably, 5th edition by Thomas Nagle, John Hogan, and Joseph Zale.