Pricing is usually set by the boss and salespeople are just there to get out and sell at that designation. The provenance of that price point can be quite varied. In some cases, there is a careful calculation involved. It determines the necessary return to cover direct and indirect costs, plus make a specified margin of profit. In other cases, a moist index finger is lofted skyward and a price magically appears. The services industry, in particular, has a lot of skyward finger waggling going on. The trouble though is salespeople are not convinced by any price setting methodology.
They only believe in the reality of the market . The way they know the reality is the degree of pushback they get from clients, when they are trying to sell. It is also a function of the nerve of the organization to defend the price point, when there is the threat of no deal. If the boss tells the salespeople to “go out there and sell” at that price point and then the boss folds immediately, every time there is buyer resistance, then the salespeople’s belief in the validity of that price point is precisely zero. The bosses have to hold their nerve and hold the line.
When you have no belief in the value backing up that price point, your ability to sell at that rate is simply squashed. You default to discounting to get a small piece of something, rather than a very large piece of nothing. Now the boss is cranky because you are undervaluing the brand and the company’s market positioning. So around and around we go on the merry-go-round of price setting.
The crunch point is the sales price negotiation with the buyer. If you have gotten into the death spiral of last minute discounting, in order to move the product or service, you have now trained the buyer to extract the biggest possible discount every time. When ever I have been sucked into price discounting with Japanese buyers it is like quicksand. You can’t get out and are stuck now at that price point or lower.
I sometimes get asked to make an unbudgeted purchase by a salesperson calling me. The discount they are offering from the normal price can be significant. As the buyer, I then counteroffer a third to a half of their already lowest proffered price. Why am I doing that? This is called “decimation negotiating”. I am testing their nerve to see how desperate they are. I want to know how low I can push them down. Is that mean spirited on my part? Well they called me, not the other way around. I also teach negotiating, so as an instructor, I want to see how good they are? Do they do anything interesting in the negotiating process? I usually do buy from them and I usually get a very good price. Good for me, bad for them.
Now, as your sales instructor, I advise that if you are the seller, then don’t accept their ridiculous number. If you feel you are now in the decimation negotiating arena, give them an ultimatum on price and a very, very short fixed time to take it or leave it. In the meantime, call tons of other potential buyers. If you have not built up a solid pipeline for your sales, then you are always going to be vulnerable to price decimation.
If you discount once, then imagine that by telling the Japanese buyer this was a once in a lifetime opportunity, a spectacularly rare alignment of the planets, which will never happen again in their lifetime, a never to be repeated offer, you are kidding yourself. The Japanese buyer doesn't hear any of that. What they hear is, I get it for this smaller amount this time. They think “I can probably push harder next time and maybe I will get it for even less”.
Don’t miss this. In Japan, as soon as you drop the price, you are now locked into that price point with that client forever. It is not impossible to go higher but it is very, very hard to pull that one off. You have to be ready to drop the buyer entirely, to restore your price point validation.
The equation here isn’t just with the buyer, it is with the salespeople as well. By dropping the price we tell them that this is all this is worth and they believe it. They cannot push the price back up, because they don’t see it at that level either. Now we have the buyer and the seller, in furious agreement, that the price is a fiction. The company leadership has to intervene and say “burn that buyer if they won’t accept this price”. Be prepared to lose their business. If we do that, then the salespeople will get religion about the pricing validity.
We will continue in Part Two on how to deal with price attacks from buyers.
