You’re in the running for a big deal. It’s a great fit for your company and you’re excited about adding such a prestigious name to your client list. There’s only one catch. They want you to lower your price (rate) by 20%.
Arghh!!! What do you do?
A.) Lower your price to meet the demands of the client
B.) Hold firm on your price and keep your fingers crossed
C.) Meet them half-way; reduce your price 10%
D.) Offer an alternative option (change offering/volume/delivery)
Do you feel like you’re in this situation more and more? If so, you’re not alone. According to various surveys, price sensitivity is on the rise. It spiked at the onset of the recession and seems to be alive and well. In fact, many purchasing managers are rewarded or incented on controlling their costs (and that includes what they are paying you).
Increased competition in the post-recession economy has implications. One of these is price or rate sensitivity. But there is much more on the line than just lowering your price to get the deal. It’s not that simple. There are lots of questions to consider like:
• If you lower your price/rate, are you setting a precedent that may come back later to bite you?
• Do you have room in your pricing to reduce it and still come out ahead?
• Will a lower price decrease your perceived value with the client?
• Will you be seen as inflexible and not a team player if you don’t make a concession?
• If you don’t lower your price, will you have another shot to negotiate?
• How does a lower price impact your profitability?
• Do you need the work, even at a reduced profit, just to keep workers employed or overhead costs covered?
• Are you willing to play hardball if it means it’s “all or nothing?”
• Does the client have other attractive options to consider from your competitors?
• What other options can you suggest to counter the price reduction request?
It would be nice to give you an easy way to counter the price objection. And there are many that can be very effective. But I want to be “real” with you. Based on your answers to the above questions, you may find yourself responding differently in different situations. And that’s ok. In fact, it’s the smart thing to do.
With that said, let’s dig deeper with handling the price objection and dealing with price sensitivity. The truth is that one of the ways to handle a price objection is long before you get it. It starts with understanding your clients so well that you are the obvious and best choice for them.
This requires you to not only be “the expert,” but to be able to leverage that expertise to offer insights (and value) that your competitors can’t. Are you different in a way that is relevant, valuable and compelling to your clients? Unfortunately, the vast majority of organizations are not. In fact, only about 14% in a CEB survey had offerings that were perceived as both “beneficial” and “unique” by their customers. Are you in the remaining 86%? If so, you would do well to do some organizational soul-searching and determine what and who you want to serve? And do you want to be the best of what you do or just one of the players?
While there are lots of steps involved, it all boils down to creating your “Unparalleled Value” and being able to communicate it effectively with your prospects and clients. I’ve mentioned this in other articles including, The Competition Is Knocking.
If there is one thing that is certain in business, it’s that the sands are always shifting. So be cautioned, this is not a one-time process. As competitors up their game or market conditions change; you must reevaluate your “Unparalleled Value” to make sure that it continues to provide a distinct advantage to your customers.
But perhaps you didn’t set yourself up for the win on the front end, and you find yourself in the position outlined at the beginning of this article. What now? While there are many effective ways to counter. Here are six that can be very effective if done properly.
1. Lead with your unique benefits. Can you still communicate value to counter the price reduction request? Of course you can. If you do, however, you have to make sure that it is value that is perceived as important, relevant and compelling to your customer. That may mean that you have to ask some more questions, engage in more conversation and not just go for a knee-jerk reaction to their price objection.
2. Change the offering/options. Instead of slashing the price and caving into the demand, you counter with an option that protects your profit margin. For example, you tweak your service or product offering to hit the lower price point. Instead of providing the “Cadillac” version, you offer a “scaled-down” option that gives them a lower price and a lower value.
3. Hand it back. With this approach, you let the client tell you what options or services they would like to remove from your offering, so that you can adjust your price accordingly. In other words, instead of you figuring out how you can meet their demands, you get them to choose another option that will work for them. You might say something like, “I’m happy to consider reducing my price. I’ve given you the best price I can offer for what you originally asked for. I can, however, alter my offering to you to get your total price reduced. Of the services that are included in my proposal, which one(s) would you like to remove or change?” This is a great way for you and your client to understand what is truly important. Of course, your real hope here is for the client to realize that they want it all, just as you proposed and without a price concession. And if that happens, it’s wonderful. But if it doesn’t, it’s a great way for you to get insight on what really is most valuable (and what’s not so valuable) to the client.
4. Offer a pilot program or smaller initial offering. With this option, you are reducing the scope or size of the product or service offering. For a new client who may be hesitant to commit to a large ticket item, this can be a great way to get your foot in the door and proceed to a larger scale after both parties are more enthusiastic to move forward. In our line of work at RefuseOrdinary, we often do a training program for one subset of the overall team as a pilot program. For example, there may be four offices that need training. Why not start with one office first and let the client get “wowed” with the results before moving on to train the remaining three offices? If you believe in your ability to deliver, this is a great way to jumpstart the relationship with a client.
5. Ask for a higher volume/frequency. You may not be willing to reduce the price 20% across the board, but you are willing to get the per unit or per service cost down. To do so, you may suggest a discount based on a higher volume. In other words, their costs per unit or per service is reduced. I find this one is particularly beneficial when your customers want a lot of different things and needs to justify their expenditures to higher-ups. With one of my clients in Georgia, she wanted a series of face-to-face sales workshops along with a time-management program for all team members. I knew from our discussions that the time-management program was likely to get axed from the budget. To salvage the deal, I offered a per workshop discount based on increasing the number of workshops over a two-year period. It meant doubling the commitment to me over the long-term, while stretching their budget out. I also made sure that the time-management program was timed to coordinate with the delivery of the sales workshops in order to control my travel and opportunity costs.
6. Provide pricing options. Sometimes a price objection is based on real budget or cash flow constraints. Can you offer an installment plan or other options that allow the customer to stretch out payments? You can even charge a premium for this option if you choose to because the customer needs or wants to avoid paying the full amount upfront.
Of course, any options you offer or that will be considered is going to be influenced by the type of buyer you are dealing with, what’s driving their decision and what is most important to them. It means you not only tap into their factual needs but their emotional wants. So throughout the sales process, your ability to relate, understand and engage with your client will provide you the proper knowledge and insights to move forward with a win-win situation.