Pricing Wars

& Understanding Sales Cycles

Subject: Pricing, Sales Strategy, Sales Cycle, Negotiation, Selling Value

By Victor Antonio

If you speak with product managers about sales in general, one of the most often cited complaints is the salesperson’s inability to hold the line on pricing.  “Every time I get a call from a salesperson, it’s always about reducing the price a little more in order to win the business”, said one product manager.   Sound familiar? 

What are some of the rules of engagement when it comes to entering into a price war with a competitor(s)? 

Lets start with some cautionary notes on pricing:

1) When you lower your price you set a precedence with that particular customer.   

 

2) If other clients find out, you will be forced to give the same concession under duress or fear of losing them.

 

3) If your discounts are great, what message does that send to the market?  To your customers?

The last note always concerns me the most.  The market may perceive such price slashing measures as the beginning of the end.  Statements like: “How can they afford to be so cheap?” or “At these low prices, how will they survive?”   These statements can hurt and undermine a company's credibility worse than having higher prices.

Now don’t get me wrong, as a consumer love a great deal.   But we all know that there are no free lunches in life and somewhere along the road you wind up paying; usually more than you expected. 

Having said that, what is a salesperson to do in the face of price pressure?  Sell the value of the company?  Absolutely.  Sell the quality of the product?  Absolutely.  Sell the customer service and quality of support?  Absolutely.  This is sales 101, so I'll continue on the assumption you the salesperson have already addressed these issues.

But what if your faced with a competitor who can match your one-for-one on all three?  How do you as a salesperson get around that?  I recommend the Question, Statement & Silent Approach.  The aim or goal of this approach is to sew the seeds of concern.

A phone call or face-to-face meeting should go something like this:

For example, use the questions cited above, “How can they afford to be so cheap?” and then add "I know what it cost to build and support the project and I'm stumped!"   First you ask the question and then you make a 'doubting' statement.  And, as soon as you make the statement, be QUIET and wait for the customer to respond.  You will either get one of two key responses:

1) A confirmation of your thinking (i.e., I don't know either which makes me somewhat suspicious of their intent) , or

 

2) An explanation that might be useful to you (i.e., customer says, "I don't know if you knew, but we guaranteed them a minimum for the next 3 years.  That's why the price is so low").  This is probably information you did not have before; be alert and keep probing.

Other follow-on questions can include, “At these low prices, how will they survive?” or "Will they have to scale back on their support to you (the customer) in order to give you these prices?"  

Remember you goal is to indirectly plant in the customer's mind your "shock and disbelief" that you competitor has lowered their price.

This strategy works for larger sales as opposed to smaller retail/commodity sales.  For example, if you selling a large computer network to a big company, this approach can be used to stave off price slashing. 

In smaller or more retail-like sales, this strategy is less effective.  For example, Cingular Wireless recently initiated aggressive nationwide pricing plans that could spark a pricing war.  The strategy I outlined for selling a customer will have little if no affect because the majority of customer are price shopping.  Technical support follows right behind pricing but is less of a concern for two reasons: 1) Customer assumes good quality service, and 2) if the customer doesn't get good quality service, they can switch to a new phone (which at today's rate are almost being given away).

In large sales, a decision a customer makes has long term ramifications on their business.  For smaller sales, the decision can be reversed with minor inconvenience to the customer.

Victor Antonio is a Sales Trainer and Motivational Speaker with 20 years of industry experience in the market.  He has a BS in Electrical Engineering and an MBA.

Copyright © 2005 by Victor Antonio   All rights reserved.  This article MAY be reproduced in any form or by any means, electronic or mechanical, including photocopying, as long as the author’s name, website and email address are included as part of the article’s body.  All inquiries, including information on electronic licensing, should be directed to Victor Antonio.