“Competing on price alone is a race to the bottom, and it’s a race nobody wins.”
Why do I say that nobody wins when the salespeople compete on price alone?
First, please allow a slight correction: there are huge super-store type places whose entire Value Proposition is indeed that they have the lowest prices. They do very well. And, their customers get what they want, as well.
I’m talking about you, me, and the vast majority of businesses in our mainly free-enterprise based economy. By and large, focusing your presentation on having the lowest price is hugely counterproductive. And, truly, no one wins; the one who loses the sale loses in terms of not having the sale. The company and salesperson obtaining the sale loses. And, yes, even the customer loses.
The first one above is obvious.
But, why does the winner actually lose?
1. Live/Die by the Sword. Win the sale based on lowest price and you will most likely lose your customer the moment someone new comes along with an even lower price. If they buy from you on price, they’ll also leave you based on price.
2. Lack of Profit. Or, as Chubby Checker famously asked, “How low can you go?” If you go low enough, you won’t have enough profit to keep your business sustainable. Plus, you’ll be investing time, energy and service into an account that doesn’t pay for itself, keeping you from acquiring and properly serving other, more profitable accounts. Or, you might need to provide less service for accepting the low price, which will harm your customer, and cost you in effectiveness and reputation…and ultimately, new business.
Reminds me of the person who says, “Well, sure, we lose money on every sale…but we make it up in volume.”
Okay, so what about the customer? He or she loses, too? How can that be? Yes, counter-intuitive. So, consider:
1. At best, lack of service. If there is little or no profit, the vendor is not able to provide the very best care and service. I don’t mean they don’t want to, but they probably are not able to! (See point #2 above.)
2. At worst, an out-of-biz vendor. Certainly if the seller won this buyer’s business based on low price, they are doing the same with others. They are not making a large enough profit and that spells disaster. Disaster for them. Inconvenience for the buyer.
Of course, there’s nothing wrong with having the lower price. However, don’t make that their reason for buying. Sell on value with the bonus being that it’s also the lowest price. Rarely is that the case but, if it is, by all means, communicate it.
How Do You Want to Be Positioned?
What it really comes down to is this:
- When you sell on price, you are a commodity.
- When you sell on value, you are a resource.
It’s quite understandable that the customer is going to try and obtain the lowest price possible, if they possibly can. Though, they’d be well-advised to heed the famous words John Ruskin when it comes to buying on low price alone.
“It is unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.
The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.” – John Ruskin, English critic, essayist, & reformer (1819 – 1900)
I received a question from a reader of my blog: “What percentage of buyers do you think buy on price?”
While I don’t have any figures, I’m not sure the question itself is correct.
Because, if you ask people what their determining factor is in the buying process, many (not all, but many) will tell you it’s price. Yet, the results are often quite different.
Have you ever walked into a store determined to buy something simply on low price and come away with a better, more expensive product and were happy it worked out that way?
Most people will answer yes. And, it was most likely the result of good salesmanship. No, not in selling a person something they don’t want or need (that’s not salesmanship – that conartist-ship). Rather, finding out if what the customer wants is really the cheapy brand or something of higher quality. And, a professional salesperson determines that by asking questions and listening.
Of course, not everyone claims low price as their ultimate buying value. Personally, I tend to buy more on convenience. Others I know buy on style. Still, others buy on what they believe will most impress others. I’m sure there are other reasons, as well and I’m not judging any of them. I’m also not implying, or saying that any of them is the correct reason.
I am saying that “low price” is often what people think is their determining factor when it usually isn’t.
Best Not to Fall Victim to False Assumptions
Automatically and reactively coming down on price believing that’s going to cause the prospect to buy is usually not the correct move. Sure, they’d like the lowest price they can obtain from you in exchange for the most value they can obtain from you. Who can blame them? All else being equal, that makes sense.
For reasons already explained, however, we know that selling on price alone will hurt both you and your prospect.
So, as a sales professional, don’t get sucked into thinking that what you automatically need to do is lower your price. After all, they’re not buying on price, even if they really believe that is their motivating factor.
Bonus thought: If you are a “price buyer” then you will most likely believe your prospects are, too. Your inclination will then be to focus on low price. And, you’ll be surprised when they still don’t buy from you (unless you’ve luckily come across another true price buyer). The same for whatever type buyer you are. So, remember…your buyer is not you, and you are not your buyer.
Find out what’s important to them, not to you. And sell based on what they value.