The Fair Price Phenomenon

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When I was a young teenager, one day, my dad came home with four huge trays filled with beautiful flowers and small plants. He helped one of his clients at the famous Flower Auction in Aalsmeer (NL), and when leaving, they gave him these trays as a thank you. He gave them to me and my brother with the message; “Here you go, now you can earn some extra pocket money.” We went in our neighborhood from house to house, selling the colorful products for 2,50 Dutch Guilders each (the currency before the Euro). That’s where I learned the fair price phenomenon.

What happened was, most people answering the door were amazed by the beautiful colors and quality of what we had to offer, but nearly everyone started to negotiate and offer 1.00 Dutch Guilder only. Or, they would say, I take three plants for 3.00 Guilders. Well, you can imagine my disappointment. We stopped after two of our four trays were half empty. That evening we asked our dad for advice; after all, he was in Sales.

He said:

  • Nr.1: Expect that people want a discount, so be prepared to have an answer
  • Nr 2: Tell them that for the quality of your offer, 2.50 Guilders is a fair price
  • Nr. 3: Be quiet for at least three seconds and wait for their response

The next day we sold all of the remaining flowers and plants at full price. In fact, most neighbors bought two to four plants at a time.

In Sales, you come across discounting requests nearly every day. How do you handle these at the moment? When customers ask you to sharpen your pencil, what do you say? There is no magic bullet answer, but there are things to be aware of, consider not to do, and…there are more effective responses.

Be aware:

  • Discounting can be a slippery slope. Be aware of where you enter the customer’s buying process. If you come late in their process, they may already have other candidates and use you as a price comparison.
  • Consider what type of customer you are talking to. Lowest price hunters are the lowest loyalty givers. To them, your price stays as long as no one else is offering a lower price.
  • Discounting more than your company’s pricing structure means giving in on expected profits. That model was built to deliver the results your prospect needs. The right investments have been made. Your prospect talks to you because, so far, they have not received the value they need.
  • Before going into a discounting discussion, know your quality/price ratio compared to what is available on the market. Believe in your offering and the difference you can make.

Consider not to do:

  • Realize that the moment you say, “Let me talk to my manager to see what we can do,” you indirectly communicate that you agree your original price was too high.
  • This reaction will also lower your perception of being a Trusted Advisor and a value creator. Your prospect does not perceive enough value for the price that you are asking for. So you have to think about where you went wrong and failed to deliver greater perceived value.

More effective ways:

Your prospect’s business is changing, their customer base is changing, and the demand is changing. That is one of the reasons your prospect is talking to you. Most likely, they have discussed their challenges with the incumbent supplier. But they cannot fix it. Something has to change. Customers are not price-sensitive. They do not like to pay too much. Grab a discount request as an opportunity to increase the perception of value. They want to know what they get in return for the delta between your offering and what they are currently paying. A conversation about price needs to be a conversation about cost. It would be best to address the real cost the prospect will endure when staying with the incumbent supplier. Then position your offering as the model to deliver the results they are after. Turn the discount request into a conversation of strategic value. If all that fails and your prospect reacts with: “You are very expensive,” you say: “Yes, we are more expensive than others – it is, however, a fair price.

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