The next time you complain about a competitor lowballing your price, consider that your biggest competitor might be you. This truth was revealed to me when a client asked how he was supposed to deal with the customer who called his inside sales associate and other area branches of the company if he didn’t get the price he wanted.
Since then, I have asked almost every client and salesperson, “What are the chances I will get the same price on a product if I call four different people in your company?” The answer most people give is that chances are slim to none. The obvious conclusion is that lower prices are being offered arbitrarily because of fear, guilt, or special favors, not based on merit.
Additional research has illustrated that many dealers charge their highest-volume customers higher prices than low-volume customers. There are numerous reasons used to justify the price discrepancy, including “higher volume creates more work and requires higher margins” or “lower prices to new clients are incentives to get more business.” These are usually rationalizations to justify bad sales decisions.
Years ago I wrote an article that recommended a model of standard pricing while posing the question, “What if salespeople were not allowed to negotiate?” I asserted that you might actually get your asking price; salespeople would deliver prices instead of starting points; prospecting energy would increase; and, ironically, clients might be happier knowing they got the best price possible.
That article was previewed before publication and stirred controversy from people who felt the writer was out of touch and had no clue about sales in the real world. Craig Webb, ProSales editor, had the decency to ask me if I wanted to move forward publishing the article and gave his full support when I said, “Yes.”
Dealers with whom I’ve worked have adopted merit-based pricing models that actually work. Their clients’ prices are based on objective factors such as volume, payment timeliness, cross-selling add-ons, and other factors. Many dealers have discovered they can emulate these pricing models to raise profits without increasing unit sales.
The only obstacle to a structured pricing model is fear that you’ll lose a sale. To this I say, salespeople will be incentivized to prospect more assertively to find the right buyers. After all, isn’t that what prospecting is: the sifting of opportunities to find the right gem?
Also, having a pricing structure doesn’t mean you can’t negotiate; it means you’ll negotiate better. The correct answer to a request for a lower price: “If I can … would you be willing to …?”. You don’t need to commit, but at least ask the question. “Would you be willing to …” can be a request for faster payment, flexible service such as a later or single delivery, a cross-selling opportunity, or commitment for more volume.
I stand by my belief that a structured pricing model is a powerful way to go to market. If you believe in the concept, try it for yourself. The one thing I am sure of is that the lowballer in your market might be the person inside your own organization. Before you point the finger at your neighbors as the destroyers of sales margins, look in your own backyard.
