Train Your Sales Team: Well Worth the Price

This article is based upon a conversation with and materials provided by Robert Nadeau, managing principal of the Industrial Performance Group, a company that provides sales training and consulting for manufacturers and distributors to increase sales volume and profitability. He can be reached at Industrial Performance Group.
Tel: 1-800-867-2778
Web: www.indusperfgrp.com

In today’s difficult economic climate, customers are more price-sensitive than ever before. Unless you can justify, in terms of dollars and cents, the economic value of your offering, you leave the customer no choice but to view your offering as just another commodity. As a result, you’ll end up competing on price, and whoever discounts the most – whether it’s you or your competition – will get the business. You might get the sale with the lowest price, but it will hurt your company’s bottom line, and it will also give the customer a false perception of what your offering is worth.

However, if you can show how your offering uniquely creates economic value, buying from you can become a key element of your customer’s strategy for coping with an economic downturn. In that case, the price of your offering becomes unimportant compared to the economic value that your offering creates, and your offering can easily command a premium price.

Why Customers Focus on Price
In order to defend your price, you first need to know why customers focus on it. Customers make purchases to solve problems, but they become obsessed with price because they’re not aware of the true cost and scope of these problems. 

In some firms (typically start-ups), decision makers are often more interested in working in their business than on their business. They would prefer to avoid the difficult labor of examining cost structures in favor of doing what they love to do. 

In other firms (typically midsize), decision makers have too much information and not enough time to understand it. When they make recommendations on what to buy, they know they’ll get less flack if they propose the lowest price.

In still other firms (typically large enterprises), buying decisions have been moved to purchasing, which is specifically mandated to purchase things at the lowest price, even if the low price turns out to be a false economy.

Unfortunately, many sales professionals have been trained in sales techniques that keep customers focused on price. Sales training typically focuses on features and benefits that are to be presented to the customers. But because customers lack the perspective to understand the true cost of their own problems and the underlying causes, they glom onto the one number that they can easily understand, which is price.

Therefore, if two companies are offering similar products, and the customer believes that the product will solve a problem, it only seems logical to the customer to bargain down and play the competitors against each other to achieve a price that is as low as possible.

Why Price Is Often Irrelevant
When the true cost of a problem is fully uncovered, the price of the solution frequently becomes irrelevant. For example, there’s no question that the price of a motorcycle is less than that of an automobile, although both will get you from here to there. However, if you’re transporting children, the importance of the lower price dwindles into insignificance when compared to the safety of the children.

The same is true in B2B sales. On the surface, it often seems as if two B2B products perform an identical function. However, no two competitive products are exactly alike, and those differences always have the potential to reveal different cost issues with the customer’s operation. It is the job of the B2B sales rep to uncover the cost issues that will cause price concerns to dwindle into insignificance.

For example, imagine two order-processing systems that have the same features and benefits, but one has a price that’s half as much as the other. The price-focused customer will naturally purchase the lower-priced system. However, if the lower-priced system goes “down for maintenance” three times more often than the higher-priced system, sales reps will experience a greater number of times when they can’t cut an order. If that causes them to lose million-dollar sales, the lower price of the less reliable system is a false economy.

Use Value to Defend Price
Almost every product offer has some economic value above and beyond the acquisition price of the core product. Your job is to uncover this economic value in such a way that customers easily understand why a higher price is justified.

What is economic value? It is the total monetary worth of your offer from the customers’ perspective. It stems from your core product in addition to the information, services, and support that are provided to the customers before, during, and after the sale. However, because the customers do not realize the economic value of your offer, you must help them to understand how your offering improves performance, reduces overall costs, and/or reduces exposure to risk and liability. Value-based selling is about focusing customers on this economic value.

The majority of business purchases are made to solve some sort of problem, e.g., productivity problems, delivery problems, quality problems, etc. These problems consume resources and drive costs within a customer’s organization. Depending on their size and sophistication level, customers may – or may not – be aware of the true economic impact of these problems. Therefore, the first step in the economic justification sales process is to identify the problem the customer is working to resolve, then to determine how much this problem is actually costing. You want to uncover accurate dollars-and-cents information in order to quantify the total economic worth of your offer.

Next you need to determine the root causes of the customer’s problem. This will enable you to provide a long-term solution that will create more economic benefit, and it will also allow you to increase the total economic worth of your offer.

You must then look for opportunities in which you can help the customer address these root causes, either with your product offering alone or with a combination of your product and additional information or services and support, such as problem solving, application engineering, start-up assistance, etc.

How to Uncover Economic Value
You uncover economic value by asking questions that gradually reveal the true cost of the customer’s problems. This is very different from the traditional sales process – a sales pitch intended to present features and benefits, overcome objections, and then close the deal. Instead, you research your customer and craft questions that will uncover areas in which the customer does not yet understand the cost of a problem:
REP: Do you have downtime as the result of inventory problems?
PROSPECT: Yes.
REP: What is the economic impact of those problems on your firm’s bottom line?
PROSPECT: I don’t know exactly.
REP: May I help you figure that out?
PROSPECT: That would be useful.

You then work with the customer to flesh out the economic cost of the problem, limiting the discussion to those costs that your offering addresses, with an emphasis on those costs that your offering uniquely addresses.

If you do this correctly, the customer will focus on the costs of the problems you’re solving, rather than the price of your product. In many cases, the costs will be so great that the difference between your offering’s price and those of your competitors will become irrelevant.