The modern techniques of overcoming
price objections
A
lady customer once got me by surprise and gave me the nastiest memory of my
salesmanship memories ever. She was a good customer that never gave me hard
time to serve until the time of clearing her bill. She could not believe the
change that I presented to her was all that was left, that she demanded to know
why my prices were that high. With a big smile that quickly faded out, I lost
all confidence and ended up saying “I do not know”
True
I did not know since I was not among the price decision making panel at my work
place. I did not care much until the second time another customer this time a
man asked the same question “why are your prices this high?’He woke me
up out of my reveries demanding to know if my chairs in which he was seated
were made of gold “even if your chairs are made gold can you really charge
me this high?” I lost all confidence again and another customer that had
come as a friend left as an enemy. I was not to blame for the high prices
but at this moment I made up my mind that I needed a study on how to answer
such questions.
“Your price is too high” are five
words that seem to strike terror in the hearts of so many salespeople. But it
really need not. Consumers are born with this phrase engraved into their
brains. No matter what business you are in, people will always tell you that
your prices are high. I’ve almost never heard, “Wow! Your prices are very
cheap.” Have you? If you have, raise them now. Continue raising them until you
hear them say “your prices are high.”
Every
salesperson and many others within selling organizations have heard this
lament.
Whether
at the start of the sales process or as a final objection to closing the sale,
to succeed as a salesperson you need to learn to respond to this inevitable
objection. Even the prospect who is ready to buy will present the price
objection to obtain a discount. Knowledgeable buyers know that there is often a
standard discount for which they qualify. For example, when checking into a
hotel, the smart buyer will ask if this is the best price while signing the
registry, knowing that this question will likely lead to a discount as a
result.
Often,
the desk clerk has discount authority, and simply asking will result in a lower
rate.
In
business transactions, however the price objection is just often a request for
more information to defend the purchase and is, therefore, an opportunity to
sell the value of the product or service. This justification may be to satisfy
senior management or the buyer’s own sense of getting the best possible price.
However
there is chance that you will respond to the wrong price objection. Hence the
need to know the different kinds of price objection. There are six fundamental
perspectives regarding price. These include;
- v PRICE in
relation to COMPETITION in the industry
- v PRICE in
relation to an APPROVED BUDGET
- v PRICE in
relation to BUYER EXPECTATIONS
- v PRICE in
relation to A PROCESS ALTERNATIVE
- v PRICE in
relation to A PERCENTAGE OF THE PRODUCT PRICE (FOR
CONTINUING
SERVICES)
- PRICE in relation to “CUSTOMERS DOING-IT-THEMSELVES”
Each
perspective must be understood, and the sales response to each should reflect
that understanding. Responding to a price objection that does not currently
exist in the prospect’s mind may simply raise that specific objection
unnecessarily.
When
faced with a price objection, the first challenge is to learn precisely which
price objection is relevant. The best approach to the objection is simply to
ask questions to further refine the prospect’s perception. One of my favorite
responses to this query is simply “are you sure?” The phrases “Tell me more” or
“Explain,” will usually elicit the information needed to respond positively to
the price objection.
PRICE
VERSUS COMPETITION
The
most common assertion you’re likely to hear in the marketplace is that your
price is too high compared to competition. Assuming that the marketing
organization has properly priced the product or service, the challenge now is
to discover the differences between what’s being offered by the competitor and
your proposal. Frequently, the competition’s price is lower because the product
or service is less robust. Sometimes, it is related to a time-specific “special
of the day.” In either case, this is enough information to respond positively
to the objection: “Your price is too high!”
PRICE
VERSUS APPROVED BUDGET
Sometimes
a client develops a budget based on old or unreliable data. If the prospect
learned about your company through word of mouth, she may have been told about
a less expensive solution provided by your company to a friend. Her situation,
however, may require a more expensive solution. If a budget was established
based on the friend’s solution, then this situation needs to be explored. This
process will result in reducing the proposed solution, or acceptance of the
higher price for the original solution. In either case, the key to responding
to the price objection is to ask questions and gain more information.
Probing
questions will reveal how the prospect established the budget. If the basis was
inadequate data, there is an opportunity to address the issue of value you are
providing.
Value
is based on three propositions:
v
Your proposed
solution will increase revenue for the firm.
v
Your proposed
solution will reduce costs.
v
Your proposed
solution will avoid additional costs in the future.
Each
of these basic propositions may be present in your sales situation, and there
may be the added psychological buying needs of status, image, and similar
intangibles. The important concept to keep in focus is the need to determine
how the budget was developed and to provide additional information that
increases the value as well as the budget. If this objective cannot be met,
then the challenge is to reduce the scope of the proposed solution to fit into
the approved budget.
PRICE
and the BUYER EXPECTATIONS
Price
expectations are often unrelated to value or competition but are simply an
intuitive feel for what a product or service should cost. This can be a
difficult objection, since the perception must be addressed, and it may be
cultural or psychological, and unrelated to value.
Travel
is a case in point. Prices for all goods and services are considerably higher
in Japan and Paris than in the United States. Most travelers have difficulty
accepting these high Prices, and you will often hear people complain about
these prices and vow never to return to those places again.
(Source “the
American consumer report”)
When
selling business services in this situation, you might need to introduce the
Market place to validate the prices. Pointing out that your prices are
competitive with other products or service providers, although risking
introducing a competitor, is the only recourse. When this step is necessary,
the strategy is to provide pricing relative to competitors whose higher prices
or lower quality are well known in the marketplace, and against whom you
compete very effectively.
PRICE
and the PROCESS ALTERNATIVE
There
is often a process alternative for the prospect, and your price is being
compared to that situation. Buying computer software to do a task may be
compared to a manual method. This type of situation is common in business when
a system is already in place, such as a customer service department, and a new
solution is being proposed (CRM) which will alter the basic business process
and produce benefits in addition to higher costs.
Once
again, the key to success in overcoming the price objection is to explain and
demonstrate the additional value of the proposed solution.
In
the example cited, the new CRM solution will perform new tasks that are not
currently being implemented. The impact of this enhanced service may be a
higher price. Probing questions will reveal the potential for increased revenue
and profits as a result of a higher level of service to the customer. The
system will also likely avoid the higher costs that occur when the additional
tasks are not performed.
For
example, post installation and warranty communications will not only increase
customer satisfaction, but also identify problems early in the life cycle of
the product or service. Early identification will lead to early resolution and,
a delighted customer who will be a stronger reference account for your firm.
Quantifying these data will overcome the objection of the higher price by
demonstrating the greater value.
PRICE
in relation to A PERCENTAGE OF THE PRODUCT PRICE (FOR
CONTINUING
SERVICES)
Sometimes
the maintenance or continuing support costs become greater than the original
cost of the product. When the cost of continuing warranty support exceeds 10
percent of the initial cost of the product, there is likely to be price
resistance. This is an important marketing issue, and the product-pricing
decision makers will balance these factors when creating the product marketing
plan. A higher initial price will impede the initial sale while a lower initial
price will help to sell the product. The trade-off is the continuing warranty
and support cost. If it is too high, the customers will not commit to service,
and the result will be customer satisfaction issues in the event of future
problems. If the cost is too low, it will be difficult to provide continuing
quality support on a subsidized basis. There are many variables that can impact
the cost of continuing support services, and they are not all within the
supplier’s control.
If
the price objection is heard with respect to continuing services after the warranty
period, then an approach that could be explored is that of the total cost of
ownership. Using the timeframe of the normal life cycle of the product, add the
initial cost plus the continuing cost for the term of the product life cycle.
Then, use this calculation to relate to the value of the product or service.
Another
consideration here is the customer’s own accounting system. Sometimes the
initial cost is capitalized and depreciated as an asset and the continuing
warranty and service costs are expensed as incurred during the operating
period. The prospect may have limited flexibility with the operating budget and
more options with the capital equipment budget. This case would suggest
bundling the continuing costs into the initial costs and providing no
additional cost warranty for the life cycle of the product. These options are
dependent upon accurately identifying the relevant price objection.
PRICE
VERSUS “DO-IT-YOURSELF”
The
comparison of the price versus “do-it-yourself” often denies the cost of labor
of the participant and the extended time involved for a person to accomplish
the proposed solution. A simple example is lawn care. Certainly everyone can do
this task at less expense than an outside service, yet few persons enjoy
spending time on this chore. Those who choose to do it themselves place less
value on their time, or truly enjoy this activity, than those who contract
their lawn maintenance.
In
selling to the education marketplace, and especially the universities, this is
a difficult price objection. The university often directs graduate students to
perform tasks that they are able to accomplish but that are not the best use of
their time and talent. Yet, their services are “free” to the university. If the
graduate student could be performing other work, which would provide income to
the university, this approach to demonstrating value might be a solution.
Another
situation, which is perhaps easier to address, is in the commercial
environment. If a prospect indicates that she can “do-it-herself,” the
challenge is to help her understand the value of her time. Then, you can
compare the value of her time used to perform the task with the price of the
service you’ve proposed.
In
the simple example noted earlier, the business executive or sales
representative who spends time on lawn maintenance can be approached logically.
The first step is to evaluate the professional’s time. It is likely that this
professional’s time is valued at more than $50 per hour. The time required by
the professional to perform this task is four hours per week. The cost of the
lawn service is much less than $200 per week. So, if the professional can
employ himself for these four hours on productive tasks, there is a net
advantage to outsourcing the lawn maintenance task. In addition, there are
psychic rewards for the professional who does not enjoy lawn maintenance
chores.
Every
salesperson will regularly be confronted with the statement: “Your price is too
high!” Then, selling begins. The challenge is to gain additional information
through questioning, identifying the appropriate price objection, and
responding with information supporting the quoted price. A rush to confront the
price objection risks responding incorrectly, and thereby introducing another
and different price objection.
“A Thought on Price”
by John Ruskin, English Philosopher, 1819-1900
“It is unwise to pay too much, but
it’s also unwise to pay too little. When you pay too much, all you lose is a
little money. But when you pay too little, you stand a chance of losing
everything, because the thing you bought is incapable of doing what you bought
it to do. The common law of business balance prohibits paying a little and
getting a lot – it just cannot be done
So, when you deal with the
lowest bidder, it is wise to put a little something aside to take care of the
risk you run. And, if you do that, you can afford something better.”
Quick references;
Managing Retail Price-Point and
Margin Pressures by Ted Hurlbut
