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Q: Dan, my customers are constantly trying to negotiate a lower price from me by saying my pricing is too high. Any advice?
Steve P.
Wakefield, MA
A: Steve, a great question. Please see the overview below.
YOUR PRICE IS TOO HIGH!!!
4 Key Questions To Address The Price Objection
When addressing the price objection your goal is to avoid lowering price. That can be a challenge, especially when customers have been conditioned to negotiate a better deal.
The key is timing. In other words, avoid discussing price until the time is right. Only negotiate price when the customer is ready to buy and there are absolutely no other outstanding issues. Negotiate price only when: (a) the customer has realistic expectations; (b) the customer is set to buy now, not later; (c) the customer is convinced that your solution meets her needs; and (d) you have an idea of what your price needs to be. The Superstar knows that price is reduced only in exchange for one thing: THE ORDER!
Now, when you both are ready to discuss price, you have to be prepared to answer these four key questions:
- Is My Customer Being Reasonable In Her Request For A Lower Price?
- Is My Customer Ready To Invest Now?
- Is Pricing The Final And Only Remaining Issue?
- What is The Price Differential?
The questions must be asked in the order shown. The sequence is important because you may end up vaporizing the objection with the first question. For instance, your customer may respond with something absurd, allowing you to move off the topic of price until the time is right.
Question 1: Is My Customer Being Reasonable In Her Request For A Lower Price?
How can you determine whether your customer's price objection is reasonable? Let's say she says: "Your price is too high". Then you simply ask, "Compared with what?" or, "Can you explain that?"
Asking your customer to elaborate so that you can better understand her objection is essential when addressing any objection, not just the price objection.
Frequently the customer says something silly, like, "My grandfather told me to expect a price of $X." Or , "I have a bid from eighty-eight years ago, and the price was much lower."
Alternatively you may receive a rational response: "I have just received a lower bid from another company for the exact same offering as you." If this is true then you need to justify/explain to your customer why your solution is worth more than the alternatives she is considering. This is accomplished by reviewing an analysis of your lower TCO (Total Cost of Ownership) and/or your higher ROI (Return on Investment).
After you have sold your value and your customer is still balking at the price, you can then proceed to question number 2.
Question 2: Is My Customer Ready To Invest Now?
To determine if you customer is set to invest now you simply ask: "Are you ready to make your final investment decision now?" Unless the customer is ready to buy now - not four months from now - there should be no pricing negotiations. Move on to discuss some other issue related to their project. Your customer may still come back to price even though they are not ready to invest now. If this happens you should firmly state that you will insure that once they're set to buy, you will work with your company to insure that they receive a very competitive price. You must convince them that taking their valuable time to enter into a time consuming negotiation now only to revisit price later is not the best use of their time.
If the customer is committed to buy now, continue with Question 3.
Question 3: Is Pricing The Final And Only Remaining Issue?
Asking this simple question will help you proceed: "Removing the initial investment from the decision just for the moment, are you 110% convinced that we offer the right solution and that there are absolutely no other issues to be addressed?" (Notice that you should use the more graceful term "initial investment" instead of price.) One word of caution here. Many times customers "forget" to reveal to you that there are major outstanding issues. They will tell you that that price is the only remaining issue only to later unveil payment terms, delivery, warranty, or other key issues. The superstar anticipates potential remaining issues and insures that the customer is 110% sure that there are absolutely no issues remaining other than price. This is done with with powerful closing questions: "So just to confirm, you are sure that you have no outstanding concerns with our terms of payment, warranty, delivery or any other issues, correct?"
You do not want to be negotiating price at the same time that you're negotiating delivery and installation schedules. Don't muddy the price waters with other issues. Remember, Superstars only consider lowering price in return for one thing: The Order!
Once you are 110% sure that there are no outstanding issues, you may continue with Question 4.
Question 4: What is The Price Differential?
To determine the pricing hurdle you must overcome to win the deal you ask: "Please share with me what the price difference is so that I can make a sound case to my management, and I'll do my very best to narrow the gap." Your customer will typically respond with something like: "I don't feel comfortable sharing that with you." In that case, you do not have enough information to approach your manager and professionally request a lower price. You simply can't call your manager and say: "Our price is too high....I need a bigger discount." If your manager does give you a larger discount (doubtful) and you end up losing this opportunity just imagine how poor you look in the eyes of your manager and company. At this point you must get your customer to share with you an idea of where you need to be to earn her business. Remember that in order to arrive at this question #4, your customer already said that removing price from the table, she is 110% convinced that your solution is the best one for her. She should want to assist you in getting the deal finalized. At a minimum, she should be willing to approximate the difference as a percentage.
Once your customer provides you your target price you will then use a confirming summary close to insure that you have a full understanding of exactly where she stands and what you need to do to earn her business: "So let me review, you indicated that you want to finalize your investment decision tomorrow, you are 110% convinced that we are the right solution for you and the only thing standing between us doing business is $X, correct?"
One final key thought:
Don't Drop Price!
As a Superstar you should never drop the price; instead, consider other ways to close the pricing gap. Typically this means offering additional products or services that equal or exceed the requested discount. The impact of a price drop on the net income of your company would be substantial, whereas providing a product or service decreases your net income only by the wholesale cost (not the retail cost) of that extra product or service. When choosing which products or services to offer in a negotiation, choose those with high contribution margins, such as software, maintenance, and warranty.
Summary
Here are the Four Major Questions to Ask in Response to Price Objections:
- "Compared with what?" or, "Can you explain that?"
- "Are you ready to make your final decision now?"
- "Are you 110% convinced that we offer the right solution and there are absolutely no other issues to be addressed?"
- "Please share with me what the price difference is. I will make a sound case to my management and do my very best to narrow the gap."
Close 'em!
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Daniel Adams
Adams and Associates
532 Walker Road
Hinsdale, IL 60521
630-215-5090
Email: dadams@trusttriangleselling.com
Web: www.trusttriangleselling.com
Copyright © 2007, Adams & Associates. All rights reserved. Reproduction in whole or in part in any form or medium without express written permission of Adams & Associates is prohibited and strictly enforced. |
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DON'T FORGET!
Trust Is Achieved When You Believe That The Other Person Has Your Best Interests In Mind
If Price Were The Customer's Only Consideration,
Why Would She Need You?
Customers Do Not Want Your Product, Never Have, Never Will.
Selling Is NOT About Selling!
It's About Helping People Make The Correct Investment To Solve Their Problem.
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