by Mark Hunter
Posted on November 9, 2009
In today's marketplace, offering discounts seems to be the number one technique people are using to try and get business. Management has bought into the age-old argument that the only reason their salespeople can't sell more is because their price is too high. It's time to put this to rest. This argument of cutting prices actually reveals the lack of selling skills by the salespeople who are using it. It also indicates a management team failing to provide necessary strategic planning and direction for the company.
Rarely does a salesperson say that the reason for a lost sale was their inability to uncover the customer's true needs or to create a sound price/value relationship. Salespeople are by nature confident people, so they automatically assume the loss of a sale couldn't have anything to do with their own skills. The natural progression in their logic is that "it is management's fault" or "the price is too high."
I am not offering specific steps a salesperson can do to alter a customer's behavior. Rather, I'd like to focus on the steps a salesperson must take in how they view their role in the sales equation. It starts with the salesperson no longer going into a selling situation believing they are all-knowing in terms of how they will handle any situation. Too often they walk into a situation and within 30 seconds believe they've summarized how the sales call will go, and that their incredible selling expertise will allow them to close the sale. Here is where I start to laugh, because the solution the salesperson always comes up with is the exact same process they used yesterday. In fact, it's the same sales strategy they use on nearly every sales call. Then, as if on cue, as soon as the customer starts to show any signs of resistance, the salesperson immediately starts to think the only way to save the sale is by cutting the price.
Behavior modification on the part of the salesperson is the only way to get around this problem. Many people believe if they just give the salesperson some new marketing materials, some really great testimonials, or a proven list of questions they can ask, they will be able to overcome the urge to offer a discount. Yes, I agree that each of these do help, but the problem is they tend to be short-term solutions.
When a salesperson is given new tools like these, many times they will go out and find some success in closing more sales and doing so without offering a discount. Eventually, however, the newness of the sales tool wears off. The salesperson before long is facing a hesitant customer, and they fall back into their old habit of offering a discount.
Long-term behavior modification comes only when the salesperson truly believes in their pricing strategy. This seems obvious, but I have often found that salespeople don't believe in their company's pricing strategy. This perception is then reinforced (sometimes subconsciously) by emails from management about the state of the business and the pressure to make a number. A key behavior killer is when management puts out a report detailing sales results. Many companies release reports stating why certain sales did not occur. When companies do this, they encourage (or expect) the salesperson to provide reasons. The salesperson is often going to point to price. Do you see the vicious cycle that occurs? Price cutting becomes the "go to" method to keep bringing in sales (but quantitatively, profit is going down).
In my 10 years of sales consulting, I've watched this single report do more to kill the behavior of salespeople than anything else. There is a stigma that prevents the salesperson from admitting that the reason they didn't get the sale was because of their own doing, not because of price. To eliminate the effect of this stigma and the "price is too high" excuse, management needs to stop compiling reports that require a salesperson to say why they didn't get a particular sale. There are other far more effective ways to measure the value of a salesperson than by creating a report that encourages a salesperson to not state the truth.
A second matter that requires management's attention is to stop cramming every cost reduction technique into the laps of the sales team. When the majority of correspondence a salesperson sees from management has to do with how and why they need to cut expenses, it only winds up reinforcing in the minds of the salesperson that they too need to cut the price they're charging customers.
Yes, this is a challenge – finding ways to hold down expenses without deflating the pricing perception of the sales team. It might be a challenge, but this is what management gets paid to do – to make the tough decisions without impeding the end goal of making quarterly sales and profit numbers. This is no different than a parent/child relationship. There are many times a parent will make a decision that impacts the child but doesn't tell the child in a way that leaves the child feeling upset or scared. For example, a parent tells their child to fasten their seat belt while in the car. They do this to protect the child, but they don't go into detail about all of the things that could occur to them should there be in an accident. An approach like that would leave the child feeling scared about riding in the car. When we apply this same concept to the environment of sales, I think we would all agree that management doesn't want their sales team "scared." Fear is not the greatest motivator for long-term positive results.
A third behavior change is one the salesperson must do themselves. It starts with removing from their thought process that offering a discount is even an option. If a salesperson knows a discount is an option, they'll take it. I call this the "last-dollar principal," which says it's amazing how fast your money will go until you suddenly find yourself down to your last dollar. When you have only one dollar left, it's amazing how far you can stretch it. You could have handled your money more frugally when you had more, but because you had more money at the time, you didn't feel the same pressure to save and protect it. When you get down to your last dollar, you sense that pressure more acutely.
Management can help their salespeople steer clear of discounting price by not allowing salespeople to have control over price discounting. In my years of sales consulting, I've worked with many companies that have taken away from the field all pricing flexibility. After the sales force gets over their whining about the loss of control and their proclamations that the world will end, it's amazing what happens to the bottom-line. In each case, the bottom-line profit has gone up. Many times profit has increased not because of more sales, but because the sales that are made are more profitable (no price discounting has occurred).
Finally, a salesperson needs to believe in their pricing as much as they believe in their selling skills. Management and a sales team need to work together to continually reinforce why their pricing is correct. It's no different than a coach and team working together to achieve the highest potential possible. Discounting is for losers, and there's not one person out there in sales or management who wants to be a loser. We all want to be winners, and that means we are proud of what we provide our customers. In the end, it's not the price that matters. The quality of the salesperson will determine the outcome.
Rarely does a salesperson say that the reason for a lost sale was their inability to uncover the customer's true needs or to create a sound price/value relationship. Salespeople are by nature confident people, so they automatically assume the loss of a sale couldn't have anything to do with their own skills. The natural progression in their logic is that "it is management's fault" or "the price is too high."
I am not offering specific steps a salesperson can do to alter a customer's behavior. Rather, I'd like to focus on the steps a salesperson must take in how they view their role in the sales equation. It starts with the salesperson no longer going into a selling situation believing they are all-knowing in terms of how they will handle any situation. Too often they walk into a situation and within 30 seconds believe they've summarized how the sales call will go, and that their incredible selling expertise will allow them to close the sale. Here is where I start to laugh, because the solution the salesperson always comes up with is the exact same process they used yesterday. In fact, it's the same sales strategy they use on nearly every sales call. Then, as if on cue, as soon as the customer starts to show any signs of resistance, the salesperson immediately starts to think the only way to save the sale is by cutting the price.
Behavior modification on the part of the salesperson is the only way to get around this problem. Many people believe if they just give the salesperson some new marketing materials, some really great testimonials, or a proven list of questions they can ask, they will be able to overcome the urge to offer a discount. Yes, I agree that each of these do help, but the problem is they tend to be short-term solutions.
When a salesperson is given new tools like these, many times they will go out and find some success in closing more sales and doing so without offering a discount. Eventually, however, the newness of the sales tool wears off. The salesperson before long is facing a hesitant customer, and they fall back into their old habit of offering a discount.
Long-term behavior modification comes only when the salesperson truly believes in their pricing strategy. This seems obvious, but I have often found that salespeople don't believe in their company's pricing strategy. This perception is then reinforced (sometimes subconsciously) by emails from management about the state of the business and the pressure to make a number. A key behavior killer is when management puts out a report detailing sales results. Many companies release reports stating why certain sales did not occur. When companies do this, they encourage (or expect) the salesperson to provide reasons. The salesperson is often going to point to price. Do you see the vicious cycle that occurs? Price cutting becomes the "go to" method to keep bringing in sales (but quantitatively, profit is going down).
In my 10 years of sales consulting, I've watched this single report do more to kill the behavior of salespeople than anything else. There is a stigma that prevents the salesperson from admitting that the reason they didn't get the sale was because of their own doing, not because of price. To eliminate the effect of this stigma and the "price is too high" excuse, management needs to stop compiling reports that require a salesperson to say why they didn't get a particular sale. There are other far more effective ways to measure the value of a salesperson than by creating a report that encourages a salesperson to not state the truth.
A second matter that requires management's attention is to stop cramming every cost reduction technique into the laps of the sales team. When the majority of correspondence a salesperson sees from management has to do with how and why they need to cut expenses, it only winds up reinforcing in the minds of the salesperson that they too need to cut the price they're charging customers.
Yes, this is a challenge – finding ways to hold down expenses without deflating the pricing perception of the sales team. It might be a challenge, but this is what management gets paid to do – to make the tough decisions without impeding the end goal of making quarterly sales and profit numbers. This is no different than a parent/child relationship. There are many times a parent will make a decision that impacts the child but doesn't tell the child in a way that leaves the child feeling upset or scared. For example, a parent tells their child to fasten their seat belt while in the car. They do this to protect the child, but they don't go into detail about all of the things that could occur to them should there be in an accident. An approach like that would leave the child feeling scared about riding in the car. When we apply this same concept to the environment of sales, I think we would all agree that management doesn't want their sales team "scared." Fear is not the greatest motivator for long-term positive results.
A third behavior change is one the salesperson must do themselves. It starts with removing from their thought process that offering a discount is even an option. If a salesperson knows a discount is an option, they'll take it. I call this the "last-dollar principal," which says it's amazing how fast your money will go until you suddenly find yourself down to your last dollar. When you have only one dollar left, it's amazing how far you can stretch it. You could have handled your money more frugally when you had more, but because you had more money at the time, you didn't feel the same pressure to save and protect it. When you get down to your last dollar, you sense that pressure more acutely.
Management can help their salespeople steer clear of discounting price by not allowing salespeople to have control over price discounting. In my years of sales consulting, I've worked with many companies that have taken away from the field all pricing flexibility. After the sales force gets over their whining about the loss of control and their proclamations that the world will end, it's amazing what happens to the bottom-line. In each case, the bottom-line profit has gone up. Many times profit has increased not because of more sales, but because the sales that are made are more profitable (no price discounting has occurred).
Finally, a salesperson needs to believe in their pricing as much as they believe in their selling skills. Management and a sales team need to work together to continually reinforce why their pricing is correct. It's no different than a coach and team working together to achieve the highest potential possible. Discounting is for losers, and there's not one person out there in sales or management who wants to be a loser. We all want to be winners, and that means we are proud of what we provide our customers. In the end, it's not the price that matters. The quality of the salesperson will determine the outcome.
Mark Hunter, "The Sales Hunter," is a sales expert who speaks to thousands each year on how to increase their sales profitability. For more information, to receive a free weekly email sales tip, or to read his Sales Motivation Blog, visit www.TheSalesHunter.com. You can also follow him on www.Twitter.com (TheSalesHunter) and on www.LinkedIn.com (Mark Hunter).
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Varun Pratap writes: From what I understand Mark Hunter is trying to criticize the "instinct of cutting price" in sales people. The moment customer complains about the price, sales guys often gives them a discount.
The moment you cut down and discount your product, it says bad thing about "Your sales skill" and "Perception your product".
Frankly speaking, I believe it's your skill and your bad judgment of customer's situation (and problem) which will lead you to cut down on your prices.
Varun Pratap
3:39:37 Tue Dec 22 2009 CST
Schmidt writes: Joshua, I would not refer to other views with "utter rubbish" as it this attitude is ... "utter rubbish". ;-) Allow me to give my point on your second part of your message. For an item that was worth $100.00 is a confident economy, if price drop significantly afterwards, then that item don't worth that price, no matter the economy. The idea is to offer "just / fair prices" no matter the economy is and not decrease prices because ... economy is bad. Otherwise a huge margin is made and customers are very correct to request even in a brilliant economy to cut off your prices. Of course, all is not simply like that. Customers also cut off in some of their expenses if the "economy is bad". Some items ( mostly not necessarily items ) drop as number of sales if the economy is suffering, no matter the final sale price is. Could you imagine in bad periods that a customer who don't really have the means even if in a good economy, purchasing a new cell phone worth $100.00 as before, while he has no food ? No, basic needs first, then other needs are satisfied. Take a look of that "needs pyramid". Food is first. If the item purchased in a good economy by this customer is not anymore purchased in a bad economy, then -> you must look for other "customer base who can allow your product instead of cutting prices". Re-orientate, look for customers who has the financial capacity to purchase your items no matter the "economy type". Dropping prices in bad economy will teach a customer who is attracted to purchase by the only factor of price that "the item was overpriced previously". Thus, even if a "brilliant economy" is coming back, that item will not "worth" as at the beginning of the circle. Take a look with China textiles process appeared in a crisis period also. Even in a brilliant economy, nobody was so full to pay for a "t-shirt" the same price as when it was manufactured locally ... Of course, some changes in the comportment of purchasers is also involved due to the society change. I.e. : not no change their cell phone every 3 month for instance, prefer the quality to the quantity ...etc. etc. In my opinion, I think ( but this is my opinion ) that every entrepreneur must have some money kept aside in order to survive during a bad economy period ( if re-orientation fails, if his customer base is shrink significantly and, very important, if his product will be still desirable ). The long term result of this manner of thinking is that at the end of the bad economy, this entrepreneur will still be on the market and customers will be back to him and his "unchanged prices". There are companies who never make "sales" or "drop prices" of their products. The message to the customers is : "this is the price, we cannot cut prices off". As opposite, if the price was cut off, then will be impossible to increase prices at the previously level even in a very brilliant economy. The "dropped price" will become the "new reference price". Think for instance to that products who offer very often "special price sale". Who will purchase that product on the basis of the "normal price" when quite often you can find "special prices" ? You wait till next "special price" period and only then you will make your purchase, even if you need it meanwhile. However, this issue of "cut prices" has to take into consideration many other factors and must be analyzed according to every case. For very fashionable items, like a trendy clothes, cutting prices allows to minimize the loss, while for more "classical" products or services, cutting prices is a very bad idea.
4:24:52 Fri Nov 20 2009 CST
Sandra writes: You are completely correct. The people commenting who disagree are the exception and not the rule. What is needed to understand your argument is Financial Accounting I, Macroeconomics and Microeconomics. For instance: It seems Joshua is in an industry that does not go with current trends. Are you controlled on the cost based on the supply side economically? You would more likely be controlled by suppliers and not "demand" (customers). You would just be at the mercy of them. Joshua since inflation is uniform it affects ALL across the board similarly unless you are in specific industries (which economically we hope you understand the cycles). Rick all you did was price your product competitively. It was overpriced to begin with. You need competitive advantage. This worked for you.
I have worked in the losing sales AND telemarketing jobs with these methods. It is a slaughter generally. Educating the sales person this way may help them bargin with unreasonable managers for people stuck in these jobs. On the surface the losers are the salespeople because of less commission and reinforced bad self esteem. Usually it is management that lacks the communicatory skills to do their job of inducing good morale on a consistent basis (babysit & hand hold).
14:53:41 Thu Nov 12 2009 CST
rick writes: I think this is right. Besides, who wants to discount their profit away. I'm in a very competitive business; If I can't sell my product on quality discounting isn't going to help. I get so sick of everyone saying "it's the economy" People make purchasing decisions based on emotion and logic; if you can emotionally & logically capture your buyers, price doesn't matter - value does.
22:26:02 Tue Nov 10 2009 CST
Mark writes: Depends what your selling I guess.
In our field= rafting Japan we found cutting our price to be competitive made a huge difference to our sales.
18:09:59 Tue Nov 10 2009 CST
Schmid writes: Joshua, in today economy, customers and prospects expect to have prices cut off. If a company is doing that, then, in a customer eye is a proof that their margin is too high. And every customer in the world is fully conviced that a company gain too much money on their back, even if in some cases such e-commerce, is not the reality.
5:21:52 Tue Nov 10 2009 CST
Joshua Edwards writes: What complete and utter rubbish. The market dictates the price, particularly in my own industry. The simple fact of the matter is that a depressed economy means that buyers have less money to spend, and as a result, values drop. An item that was worth $100.00 in a soaring confident economy will not be worth the same in one that where confidence is low and interest rates high. Calling those who understand this basic economic principle 'losers' is one of the most absurd things I've read in quite some time.
17:30:32 Mon Nov 9 2009 CST
Jan writes: What if prices are already set to wholesale?
Do you suggest raising them?
16:54:14 Mon Nov 9 2009 CST
Doug writes: That is a good point, lowering the price of the product may increase sales slightly, especially in a bad economy. However in the long run the increased sales are still usually offset by the decreased price. Plus, if the perceived value is lowered sometimes sales are still not increased, especially online sales.
14:24:09 Mon Nov 9 2009 CST
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