Episode #129: Taking A Hit On The Price

We all hate having to take a hit on pricing. We establish a price based on the value we provide. Clients however can take no great notice of that and just plunge right in, demanding a big discount. The rationale behind the requirement for a discount is often related to what they think it should cost or is a negotiating ploy to drag you down into the mud and blood of haggling. Of course the biggest pushback on pricing comes at the precise time you are the most desperate for some business, any business. Like sharks, some buyers can smell blood in the water and want to take a big bite out of your sale’s price.

Our pricing is a benchmark related to our positioning in in the market. We set our prices with the aim to reflect the quality of what we do. Well that is what we think. Our buyers may have a different take on the value or may have alternatives, which are much cheaper, with little perceived difference in the value. This is what happened to Starbucks in Australia. This is the one country where they basically failed. The alternative product and service from local coffee shops was perceived as having a cost to performance advantage over Starbucks. They had to close most of their outlets.

We have to make a choice. Do we suck up the discount to get the business or do we walk away. If we want to defend our positioning, then we may have to walk away. If you believe you provide a value of service, that is superior to the competition, then you need to defend the pricing by rejecting attempts to drag it down. You need pipeline of other buyers who will happily pay that amount to get away with this. If you are desperate, you will probably have few options but but to take the business and the pain.

Once you start down the slippery slope of discount pricing, the buyers start beating you up on price every time. For some, they enjoy a nice game of sports negotiating, where they have the winning hand all the time. They want see how much blood they can get out of you, by offering ridiculous numbers to determine how desperate you actually are. I was coaching salespeople from a firm where they would have to ring around offering discounts to get orders to make the monthly quota. They would get smashed by tough negotiators playing games with them. This was killing the sales team’s motivation.

You need to jump out of these types of toxic discussions and call someone else. This sports negotiating dead end destroys your confidence and hits your motivation hard. You plunge into a vicious cycle of negativity and despair. Don’t go there to titillate the nastier side of the buyer. The effort is not worth it. Look for more professional, ethical business partners instead.

If there is further business in the offing, then we are often persuaded to take the hit to get the other piece of the pie. The tricky part though is when the additional business is just that, “in the offing” and not nailed down and fixed yet. We can try and bake these in together, to get an agreement that we are pricing the first one at a discount, because we are getting the second piece of business. Buyers tend to resist this though, because they don’t want to commit. So it comes back to where is your walk away point and how capable are you financially, of actually walking?

In Japan, taking a hit on the price at the point of entry dooms you forever to be set at that price boiling point with the buyer. No matter how much you may want to lift the price back up, the buyer now has you slotted in at that low price forever. I have had this happen to me over and over again and I hate it. So going in with a discount to get more business is a deadly game here of lock in to permanent low profit margins.

Walking is painful because you are giving up business, with no replacement there to make up for it. Your mind is plagued with thoughts like “well a little bit of business is better than no business”. The impact on your positioning, your belief in the value of what you offer is very negative. Instead, put forward a credible number and if they don’t buy it, then you walk. The crazy thing is one buyer’s “ridiculous” price from you, is considered “quite reasonable” by another buyer. These two reactions have happened to me in the same day. After one meeting you are down in the dumps, then the later meeting has you back up again, with a spring in your step, instead of dragging your feet around. Don’t allow the buyer to drag you down, because sales is tough enough anyway, without having more negativity piled high on your head. If it isn’t right, then walk and find yourself another buyer.