The Power of Price

By Guest Author Linda Bishop

[Linda continues her series with a discussion on how the role of price in a buying decision and the buyer’s very mindset have changed as budgets have shrunk. Find out more in her book, “Selling in Tough Times”.]

“I’m sorry Joe, but I awarded the project to a different vendor,” Nancy said.

Surprise painted a concerned picture on Joe’s face. Nancy had been his customer for more than a year and he had expected to win this bid. “Why?”

“I got a better price,” she said.

“You told me our price looked good.” Joe knew he sounded upset, but he couldn’t disguise his emotions. This was a big order and he didn’t want to lose it.

Nancy sighed. “I know. When I said that, I expected you to get this job, but one of your competitors came in cheaper. Right now, I couldn’t afford to ignore that.”

Have you ever experienced what happened to Joe? I have. It hurts when a customer gives us the opportunity to quote and we gave them a fair price. In the past, our bid was good enough to get the business, so we assume we’ll get the new order too. Then the competition’s bid comes in and it’s lower. We lose on price and the loss stings.

Price matters when times are good. When times are bad, price more frequently casts the deciding vote. Now is the time to look for new ways to deepen your understanding of price’s role in business because knowledge helps you craft smarter selling strategies, close more orders and leave less money on the table.

Price matters because resources are limited. Companies have multiple goals and objectives. Tradeoffs are required.

Companies make tradeoffs by looking at alternative ways to spend and balancing total benefits against total costs. What do they get? What do they have to give up? They consider the purchase’s value—its relative worth.

Picture the buyer walking into a store. The shelves are stocked with benefits. The customer grabs a shopping cart and goes to the aisle where your product’s benefits are located. They select only the benefits they really want and toss them into the cart.

As you watch them shop, you notice they don’t pick up everything you have to offer. As they head for the checkout line, some benefits are left on the shelf. The cashier punches the keys and gives the buyer a price. The buyer learns certain product benefits come bundled together. They are included in the price whether the buyer wants them, or not.

The buyer inspects the pile. Hmmm. Is there enough value in the benefits they want to make them worth the cost?

Smart salespeople know there is always more than one way to solve a problem. There are always substitutes for your solution.

Different products offer different combinations of benefits in areas relating to:

Customers evaluate and rank benefits when making purchasing decisions.

On minor purchases where risks and tradeoffs are small, buyers decide quickly. They want to check the task off the list and move on. The salesperson in the right place at the right time with a reasonable price often gets the order.
Major purchases require more thought. They involve more money and bigger tradeoffs. Buyers apply higher standards of logic to benefits ranking. They engage in deep discussion and generate reports listing pros and cons. They do more to justify preferences and defend them.

Companies experiencing budget reductions are forced to increase the number of tradeoffs made in order to cut spending.

In tough times, even when a customer loved you madly in the past, that past relationship may not be strong enough to hang onto business right now if your price is higher than the competition’s. Have a strategy to cope with current market conditions. Recognize that short-term pricing decisions often have long-term implications, and take that into consideration.