Episode #128: Defending Your Price

Salespeople don't set the price of what they sell. This is usually an obscure outcome decided by someone else inside the machine. It might actually be an elaborate process, where multiple variables are carefully calibrated, mathematical formulae are applied and a price is arrived at. Or, it might be a slightly moist index finger boldly thrust skyward to come up with a number. The latter is often the case when arriving at pricing for services. Regardless, the salespersons task is to sell at that price. This is where we get into trouble.

Salespeople are total wimps when it comes to price. We have learnt that getting a sale is what counts and price is an obstacle in that process. If we are on a fixed salary and bonus or base salary and commission, the two usual cases in Japan, we get paid when we make a sale. Do we know the profit margin attached to each sale? Usually no and actually we don't often care either, as long as we get paid. We are just happy to (A) not get rejected by the buyer and (B) get a win, however small. Our self-esteem is totally tied up with getting sales, modest in size or otherwise.

The instinct of the salesperson then is to make the price as malleable as possible. Offering a discount seems to get the buyer in a good mood and more likely to give us a yes. This reduced price immediately impacts our commission and if we keep doing this, will also impact our bonus and job security, as we don't bring in enough revenue relative to the target.

The key problem is that the salespeople often don't believe in their own product or service. Because of this they can discount with gay abandon. This is a short-term gain for long-term pain. The ability to meet the price requirement is a critical piece of the salesperson’s skill set. Dropping the price may be easy, but we never build the skills to really succeed in this profession. It usually is a path to our removal by the sales manager, who understands we are unable to sell.

Amateur salespeople, when they don't believe in the price, start right off the bat with a discounted price. They say stupid things like, “normally the price is x but I am going to offer it to you for y”. Or, “if you buy two, I will drop the price by x”. The client hasn't even requested a discount, begun haggling, attempted to massage the ask and yet lo and behold, a miracle has just popped up without warning. This tactic may be misinterpreted by salespeople, who don’t know what they are doing, as building trust and a good relationship with the client. That is a false dawn of hope on the part of our intrepid hero or heroine.

Thanks to volunteering an unprompted price cut, the client now understands that your firm are a bunch of liars who say one thing, but do another. They also know you are a tricky bunch who are trying to snow buyers with your fiction pricing magic. They don't see the gratuitous lower price as a bargain. They see that as the starting point in a negotiation to drive the price even lower. By having a listed price and immediately offering a lesser price, the buyer feels you cannot be trusted because you cannot even defend what you say is the value of your offering.

By dropping the price so quickly, the whole question of perceived value is brought into fundamental disrepute. There is no fixed price for this sale and therefore no equivalent particular value attached to it either. We are now in the Wild West of selling, where there the only rule is the right of force and the buyer has the Gatling Gun and we have a water pistol.

The salesperson’s job is to pour on the value explanation and show why this pricing is fair and reasonable, fully justified and easily defensible. If they do need to meet the client’s restricted budget or need to allow the buyer to save face with their bosses, then any discounting should in the first instant be attached to volume purchases. If they buy more then the price can be adjusted. The amount reduced should be as smallish amount, as part of the first offer. Remember, we are now off the paved highway and are hacking our way through the dense brush of a negotiated agreement, where there are no maps, no signposts and no 5th Cavalry about to come to the rescue over the sand dunes.

If the price point is to be assaulted, then the reductions should be small and fought heroically all the way. Do not go for round number drops or large number drops, go down in dribs and drabs. The client will feel much better knowing that they got a legitimate discount against the usual price, because they extracted that right out of the salesperson’s hide, rather than the salesperson rolled over right from the get go. When that happens, they doubt everything about you and your company because your pricing seems bogus.

Never drop your price. Defend your price with value. Resist reductions all the way down and extract some form of quid pro quo against volume purchases. If you buckle, you will be destroying the brand, the brand positioning and the credibility of the firm. You may lose some sales. These are usually people who cannot afford you anyway. If you believe in the value of what you are selling don’t give in, defend, show value, fight, fight, fight.