Remember the old game? You'd aim your bike or your car at another bike or car and barrel towards each other. Whoever swerved before the collision was "the chicken."
Lots of businesses play the same game with their pricing. They lock on with a prospect and offer up their price. The prospect says something to the effect of…."we really want to buy it, but that's a little expensive. What can we do about the price?"
The metaphorical headlights are in your eyes. You want the sale. You know you can do the job well. So maybe if you knock a few dollars (…or hundreds, or thousands) off, you can earn their business and prove to them how good you are.
Stop right there.
If you do that once, you'll be asked to do it every time. By playing chicken and being the one to swerve, here's what you've communicated to the potential buyer:
- My prices aren't firm — you should always negotiate
- I wasn't being as fair with you as I could have been…I had some pad in my pricing
- I don't have enough confidence in my product/service to sell it for full price
- We don't believe in our own brand — we're willing to compete on price
Do you really want to communicate any one of those things to your clients and prospects? I doubt it.
Instead, here's how to handle price objections.
First — price fairly. To them and to you. Be confident that you can over deliver on the price paid and be a genuine value. Don't price to be a loss leader or get in under the other guys. Charge what you are worth but with a nod of consideration to the market and being competitive.
Second — never apologize or over justify your price. You can't do either without sounding defensive and you have nothing to be defensive about. And once you've lowered your price — you will never be able to charge full price again.
Third — acknowledge their concern by helping them stay within budget. Try something like…."I completely understand your budget constraints. If you only have $5,000 to spend, let's look at our proposal and see what we can modify (# of options, turnaround time, features, add ons, etc.) to get you down to your ceiling." In other words….take something away or somehow modify your proposal to accommodate their budget.
This is you respecting your original pricing AND respecting their checkbook. In our experience, 90% of the time, you will not lose the sale. They'll either opt for your modifications at their reduced budget (if their budget constraint are real) or they'll end up accepting your original proposal (if they were using budget as an excuse to try to get you to reduce your price.)
Fourth — recognize that sometimes this is your brand's way of helping you recognize that this is not a good customer for you. If you just can't make the numbers work for them — they aren't your customer. Be gracious and if you want, even suggest some lower cost alternatives.
Bottom line is — don't de-value your work by playing chicken with your pricing. If you are good at what you do, about 20-30% of the time — people should push back on your prices a little.
I have a very successful friend whose philosophy is…"I want them to gulp a little when they hire us. We're an investment, not a commodity. Then it's our responsibility to make sure they come to believe their investment was a wise one."
Agree. I once worked at a technical software company where we used the introduction of a major revision of our products to double our prices. We had everyone beat on quality and results, and management decided to try pricing the tool appropriately. The third-party reps initially squawked, but saw the light after sales quadrupled, and went to 5x what they were the previous year. We found that people simply weren’t taking our products seriously before because the price was too low! Moral: price your tools appropriately.
Terrific post, and an important topic for business owners to understand. The place to have the discussion is over scope of work, not the value of your work. Because the prospects who want to nickel and dime over dollars will never value you–even if they give you the work. (And it’s the reason no one buys gifts anymore until the day before Christmas. We know the price today isn’t the price we’ll get tomorrow.)
I wrote a similar post a couple of months ago (Top Tier or Bargain Basement?). Pricing is a tough topic for lots of people; but getting it wrong is really bad for business.
I totally agree with what this post is trying to say, if you are confident people will have confidence in you. If you know your worth so will the people around you.
Excellent point not only for consultants but for all businesses. Think of the message being sent by all the major retailers right now… “Don’t pay full price. Just wait long enough and we’ll be scared enough to offer up deep discounts.”
Drew, I love the ‘playing chicken’ analogy. I agree wholeheartedly – each and every sale is a series of negotiations. Fortunately the word negotiation doesn’t relate to the price and nothing but the price. When price is slapping us in the face every day, it’s hard to see the real values behind the dollar signs. Blessings, Bev.
This is so true. I worked as a production manager at a plant nursery this summer and the owner continually discounted the plants he sold because he thought it was nice. By the end of the year, we must have sold over half the plants at a discounted price. Next year, his customer base will consist mainly of the less-than-loyal bargain hunters. Not only did he make his plants seem inferior to the competitors, but by de-valuing the plants he insulted our teams’ hard work and some employees didn’t take it too well.
Great post Drew. My comment on pricing when people challenge it is this..
“I can’t give XYZ widget to you at that price, because that would mean you don’t understand the value of what your getting, and it would be a dis-service for me to give you something you don’t understand the value of.”
Then I pause, sometimes for a while until the person says either… ‘OK’ and signs up, or walks away. Either way I’ve won.
As consumers, we use price to help determine quality. There’s a fine line…but if you undercut your own value with your own pricing strategy — you are literally stealing from yourself.
I’m pretty sure there’s a more than healthy margin in a Jaguar automobile. But, would people aspire to own one (or covet the one they do own) if it cost the same as a chevy malibu?
Nice…scope of work versus value of work. For many service oriented businesses, that’s a tough one to understand.
It’s why lawyers and others still charge by the hour. They can count those.
This pricing strategy also assumes you’re reasonable and honest. If a company tries to take advantage of the customers with price gauging etc. — the market won’t tolerate that for too long.
But…when you are confident in your value, you should stand firm in your price. You and I are in complete agreement on that one!
That’s the danger of recession pricing. The retailers are teaching consumers to wait for deep discounts and the upshot of that mentality is prices that are going to stay rock bottom.
Businesses needs to recognize that there are other ways to demonstrate value. Rampant price dropping serves no one in the end.
And you and I both know that when you let someone beat you up on price — they don’t value you quite as much.
It’s better to stand firm, knowing that you’ll lose a sale now and then. Easy to say but tough to do, I know.
Excellent point. Constant price dropping also sends a message to the employees and often it’s not one they want to hear. (Or deserve to hear!)
I think we’re saying the same thing, just using different language. We opt not to be quite as blunt as your wording.
I suppose that’s a brand choice as well…how do you deliver the information, eh?
Good point. A sale is not a negotiation, it’s a mutual agreement. Any serious businessman/woman priced his/her product/service with due caution and there should be no room for justifying him/herself about it.
Don’t forget your business is also personified by your customers: you have the right to deny a sale; it won’t hurt if the reason is right. What kind of referrals do you want for your business?