Wednesday, March 16, 2011

Can't Pay or Won't Pay?

Every one of your customers wants a lower price—or at least they say they do. For some, the price is really a deal-breaker. For others, it’s just part of a game they play to test your limits.

If you believe that a customer is not negotiating, you need to probe to find out if it’s a matter of not being able to pay your price (their eyes were bigger than their budget) or if the price itself, in their opinion, is too high. In other words, they can pay it, but they don’t feel they’re getting enough value for their money. The way they answer questions like “What’s stopping you from saying ‘yes’ today?” will tell you which fork to take.

If the price is beyond their means, you may want to remove some components to make the total package smaller. Or, depending on the product you’re selling, you may be able to install one component at a time, building up to the full system as your customer’s bank account allows. You can also try to work out some payment terms, if your company finances allow carrying the customer on your books. These tactics can also be used when you’re dealing with a negotiator, of course.

Then there’s always the option of cutting the price by forgoing some of your profit, too, although there’s a hidden cost to that: if your shop is busy doing this low-margin job, you may have to delay taking on a full-profit one, since there are only so many hours in the day, technicians on the staff, and facilities in the shop. Putting the full-profit job off until later has a cost, too, in terms of that customer’s satisfaction.

If the problem is an imbalance between the price and the value in the customer’s mind, you can either build up the perceived value, decrease the perceived cost, or both. To build perceived value, talk up the benefits of what you’re selling; how much faster it will solve the customer’s problem, how much more power it will provide to his application, how many more of his competitors will be eating his dust. Sell the sizzle along with the plain facts to get the customer excited about what they’re buying and what it’s going to do for them.

You’ve probably already listed all the advantages your product offers for the customer, but don’t hesitate to repeat them at this point. Open your presentation to the idea page, put it between you and the customer and point to each feature as you talk about it. As you highlight each one, ask the customer an open-ended agreement question (“What do you think of that?” or “How do you think that would work for you?”) to keep them talking about the value of the product instead of its price. A small tactic like that makes the product benefits more tangible and increases their perceived value.

You can also use the bandwagon effect. Talk about how many top performers are using the equipment he’s considering or the product’s record in other markets. The point you’re trying to make, of course, is that he can be as good as them if he has the same equipment. You’re not selling a product or service, you are giving him membership in the exclusive club that meets in the winner’s circle.

To deflate the perceived cost, quantify it differently. How many times a year does the customer use it? If the life of the product is three years and the customer will use it ten times a year, divide the cost by thirty, and point out that it’s only costing him X dollars per use. Lead him to the conclusion that it’s a small price to pay for success.

Another option is to talk up the value your product or service adds to his company. Point out that he’s making an investment in an asset, not buying some transient gratification. Those widgets you’re selling will be in his production line for a long time. Someday, he’ll want to sell his business. He’ll be able to recoup at least part of the cost of your product at that time in terms of a higher price for the business he’s selling.

As you can see, the key to handling price objections isn’t just to give a standard reply and hope for the best. You have to find out what kind of price objection you’re dealing with, then answer it appropriately. Engage the customer; talk to them; above all, listen to what they’re saying about your product and your price. They’ll tell you which fork in the road leads to a sale.

Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, hiring, firing, and motivating personnel, financial management, and business strategy.

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