What do you do when faced with a potential customer who is relentlessly
insisting on a discount? Even though there’s no doubt in your mind that
your product or service is worth every cent you’re asking, you also
know that there is an army of competitors ready to cut their price and
do whatever it takes to make the sale.
Being forced to cave in on price is frustrating, but you must admit,
when faced with a customer determined to go with the lowest bidder,
it’s winning the sale “at whatever cost” that’s most tempting. If you
play the price game, you will ultimately cut into your profits, allow
commoditisation of your valuable solutions and watch margins erode
away. The hard truth is, if your salespeople are already cutting a few
percentage points off the price to make the sale, they are already
failing their company and their responsibility.
To remedy discounting, an integrated, cross-functional approach to
develop and deliver compelling whole solutions is required for thriving
and winning in today’s complex business-to-business environment. If you
transition to becoming this kind of solution provider, successful value
achievement will be your future, and the desperate game of low bidding
becomes history. So how can you ensure that your salespeople won’t cave
in on price and compromise margins and profitability? What can you do
to prevent margin erosion at the point of sale? Here are four key tips:
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Make sure your salespeople know the value of your products and services and how it links to the customer’s business situations.
This the key to creating value and is at the heart of selling with
integrity and credibility. A salesperson must understand the
departments that are most affected by the solution, and the financial
impact of his solution on various entities within the entire company .
. .
If this sounds like a lot of work, well, it is. But I like to tell my
clients that spectacular success is always preceded by unspectacular
preparation. Understanding the customer’s critical issues,
dissatisfactions, and frustrations, plus recognizing the business
opportunities that arise from them, takes research, time, commitment,
and dedicated work.
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Make sure your people can help the customer calculate the cost of the absence of your solution.
Before your salesperson can offer a remedy, he must be able to firmly
establish the absence of your value. He must help the customer identify
physical symptoms of his problem and show him that multiple departments
are suffering. Remember, if there is no perceived lack of value—no
“measurable discomfort”—there will be no sale.
Pain is the most basic human change. It is the natural
defense mechanism that tells people that if they don’t change and deal
with a problem, they will face consequences. And of course, change
itself is painful. Therefore, change will not occur until an individual
or company recognizes that the pain of change is less than the pain of
staying the same.
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Make sure they can articulate the impact of your solution over those of your closest competitors. We're
talking specific figures here, not common and vague generalities. This
is where your salesperson should be able to pre-empt all but the most
irrational objections. If he can get the customer to recognize that
your product will provide a specific financial impact, such as cutting
the cost of a critical process or increasing desired revenues, she will
surely realize that your premium pricing makes solid business sense.
It’s very difficult to argue with hard numbers. When you quantify the
impact of your solution, it will quickly become obvious to your
customer that your solution, at your price, makes for a solid business
decision.
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Link salespeople’s compensation to profit, not gross revenue.
One of the major reasons that salespeople give discounts is because it
pays off for them personally. If you base your salesperson’s
compensation on gross revenue rather than net margins, he will see
little negative impact if he gives the customer a 10 percent discount.
That 10 percent discount may mean the difference between “winning a
sale” and “no sale.” But if that 10 percent discount causes your margin
to go down by 100 percent . . . well, what are you really winning?
Your compensation plan should impact the salesperson’s commission as
much as it impacts your profits. Money talks. If your people are
coasting by and digging into your profits rather than doing the due
diligence it takes to sell a complex product in a complex environment,
changing the way someone gets paid encourages him to rethink his
approach. The game will now be about “winning big”—not just winning.
When organizations allow discounts as a way to grab sales, it often
means they don’t believe they can control their sales organization.
Companies have established very sophisticated processes and controls in
their operations, but waffle when it comes to applying the same
expertise to their sales strategy. Such organizations are handicapped
and not structured for profitable growth.
The bottom line is: when a customer says, “Your price is too high,” the
salesperson needs to look to himself as the likely problem, not the
product. There are two possibilities: 1) the customer is not
experiencing a significant absence of value and the solution should
never have been offered; therefore, the price is too high. Or 2) the
absence of value is there and the customer does not recognize it. The
burden of proof is on the salesperson, and he hasn’t done his job.
There’s one more critical point to consider. Your salespeople must get
over that burning desire to “get the order at any price.” Not every
sale is a good sale, and not every customer is right for you.
Salespeople must not only be comfortable with hearing “no,” they must
actually “go for the no and move on to more profitable opportunities.”
When all possibilities for “no” are eliminated, all that’s left is a
confident yes—from a customer who’s willing to pay a fair price. That’s
the recipe for strong and profitable margins.
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