By Steven Reilly
Why is it that one salesperson will sell at list price while another will sell the same product at a heavy discount? When I ask the discounting salespeople about the discrepancy, they are always quick to point to different market dynamics, tougher customers, or some other external reason for being so quick to cut price. But, when I work with them in the field, it is quite easy to see how they put themselves in this position.
The first step in understanding how they do this to themselves is to realize there are only two ways to close the gap between the low price a customer wants to pay and the higher price at which a salesperson wants to sell. Either the salesperson convinces the customer that the value the product or service brings is worth the difference (that’s called “selling”) or they trade offers until the customer buys (that’s called “negotiation.”) Salespeople need to be good at both.
Salespeople who heavily discount almost always begin negotiating before the selling process is complete – before a firm foundation of value is built within the customer organization. This puts the salesperson at a clear disadvantage as a negotiator.
Salespeople who sell on price are more likely to respond to a customer’s request for a cheaper price with the phrase, “Well, would you buy my product if I discounted it by…?” The salespeople who sell on value, on the other hand, use the phrase, “Our price is fair and reasonable, and let me tell you why…” before discounting their price. Communicating the value their products or services bring is the first step in holding your ground against price erosion.
Here is a very simple example of the difference between the two approaches.
Suppose you have a car you’d like to sell. Prior to listing it for sale, you determine the Kelley Blue Book (KBB) value for the car is $15,000. Having taken very good care of this particular automobile, you decide to list it for $17,000 – $2,000 more than the KBB value.
Next, let’s suppose you receive a call from an interested party who says, “I’m interested in your car, but the Kelley Blue Book is only $15,000 and there are other cars like yours on the Web for a lower price.”
A salesperson who sells on price will typically respond with, “Well, would you be willing to pay $16,500 for it?” Which, of course, is a less-than-optimal response. By conceding too early, he or she gave away a substantial amount of profit for no reason. It’s called “caving.”
The better response would be, “This car is worth $17,000 and let me tell you why.”
The stronger your value proposition, the better your argument, the better you are at holding your ground. How well you defend your price is the most important factor in holding your ground in any negotiation. Your best salespeople are often your best negotiators – and vice versa.
Steve Reilly is a principal at SPJConsulting and author of the just-released Negotiating With Tough Customers, Career Press, 2016. Watch his video or visit his website at spjconsulting.com.