Price vs. Value
If you ask the average person, what’s the difference between price and value, many people might say that price and value, and perhaps even cost, are all essentially interchangeable. Of course, anyone with minimal business or sales experience will likely know, or at least should know these are not synonymous terms. Why is it then that many salespeople, especially early in their careers are challenged differentiating between price and value, even though they say they understand the difference?
I think part of the challenge today, exacerbated by the internet, is that it is virtually impossible for companies to keep their pricing secret. In fact, it’s quite common today for companies to post pricing for many of their products or services on their website, especially commodities or lower priced solutions. The prevailing theory is that most buyers today, retail or B2B, do much of their own research, product/solution comparison and price shopping before they reach out to a prospective provider. As a provider you feel compelled to provide this information more freely, so you’re not immediately disqualified in the initial review process.
The challenge for companies selling more complex solutions in a B2B environment is how to avoid getting into the “how much does your stuff cost” conversation before you’ve had a chance to establish your value proposition and your differentiated solution to solve the customer’s problem(s). Invariably, inexperienced salespeople let the buyer control the conversation and therefore get drawn into defending, or even worse, negotiating on price before the exact need or corresponding solution is determined. This empowers the buyer, diminishes the value of your company’s solution and makes it difficult to maintain control of the sales process, in most cases resulting in a lost deal or a bad deal for your company.
How do you avoid this situation, especially if your company’s pricing may already be known (or at least perceived) before you’ve talked with a prospect? Your organization and your salesperson must begin two distinct, but simultaneous and critically important conversations. The first is around qualifying the prospect/opportunity using a method of deep discovery, and the second is to begin seeding the value proposition (of the solution and company), meaning to demonstrate a clear understanding of the customer’s problem and establishing your ability to solve it in their mind.
Needs analysis (deep discovery) and qualifying opportunities
More sales are lost early in the sales process than when trying to close a deal. Most people think sales are lost at the end, meaning when you find out after a lengthy sales process your prospect selected another provider. That is certainly when you confirm the bad news. But upon closer inspection, in most cases, the deal was already lost earlier in the process, you just didn’t know it, or weren’t willing to recognize it. This aspect is one of the key contributors to low sales productivity, a bloated sales pipeline with a bunch of stalled or dead opportunities.
Most salespeople are positive, confident, and persistent people. They earnestly believe they can win every deal in which there is interest by a target prospect, and if they get a chance to present their company’s solution. As a result, many salespeople are reluctant, or perhaps don’t know how to ask the hard questions, which in most cases, will quickly and clearly identify whether there is a good fit between your customer’s needs and your company’s solution. Every company’s sales organization should know like the back of their hand, the 3 - 5 questions to work into a conversation with a prospect, such that depending on the answers, will either move the opportunity forward, or flash big red flags to pass on this prospect or very cautiously move forward. Whether purposely or subconsciously, many salespeople, especially younger and inexperienced, focus on presenting features and benefits and try talk their way into prolonging the sales process, earnestly believing that with enough time, they will overcome objections and convince the customer that their solution is the best. Unfortunately, much of the time this just inflates a salesperson’s (and your company’s) sales pipeline with worthless opportunities, which may feel good when looking at the pipeline, but ultimately wastes resources and misleads management with inflated sales forecasts.
An old and proven approach used by many seasoned sales managers is, which I also subscribe to: “get to no as fast as you can”. As counterintuitive as that may first sound, organizations who practice that philosophy and instill that in their sales training and sales processes often enjoy higher close rates and more efficient sales processes. Many sales training books and other commonly used guidelines regarding sales pipeline management, preach that salespeople should have a pipeline with a ratio of four-to-five times as much as they need to achieve quota. In some cases, that may be entirely appropriate. However, over the years my experience has been that the most successful salespeople have around 3 times their quota or goal. One reason for this difference is that they know their market and their territory very well and perhaps have a good reputation among prospective buyers in their market segment or territory. But the bigger reason why successful sales professionals have higher close rates is that they know how to quickly qualify and laser focus on real opportunities, consequently not wasting time trying to advance low percentage opportunities in the sales process.
Talk with almost any CEO, senior sales, or marketing executive at companies that sell complex solutions, and they will immediately focus on their company’s value proposition. Once an opportunity is qualified, it’s vital to immediately ensure conversations focus on value vs. price. What I am referring to is how a company builds the case that their product/service/solution will add more value or better solve a problem than doing nothing at all, or compared to other options. I imagine when you read that, your reaction is, “Duh, of course that is important”. But there is still a price associated with your product, right? Of course, unless your company works for free, a prospective customer will ultimately pay something. The key is when and how you have that conversation.
If I told you that I could sell you a house for $450,000 without any context, your reaction could vary greatly, from that sounds great, to that sounds horrible. You would immediately have lots of questions. Where is this house? How many bedrooms does it have? Is it in the city, a suburb, is it a good neighborhood, and many other questions – before you could begin to form an opinion of whether $450,000 seems reasonable. It’s no different for your prospective customer. Yes, maybe they’ve done some research, looked at your website, and perhaps have some general knowledge of what’s available in the market. But if you haven’t discussed their specific needs, the problem, or problems they are trying to solve (assuming they’ve even identified those entirely), what’s important to them in terms of timing, decision criteria, budget, etc., they will not have the context to fully understand what your price conveys, similar to the example of the $450,000 house.
So, back to the question about when if your prospective buyer hits you right off the bat with, “what is your price”? There are several ways to address this, depending on your company’s offerings, how much is generally known about pricing in the market for your type of solution, and to what extent the solution requires customization. However, in almost any case, I would suggest not to answer with a price, understanding that avoiding giving one immediately might create a bit of tension or “crossing of arms” by your prospect, because they think you’re trying to avoid the question entirely. One way I recommend handling this is to say, “I am absolutely going to give you a price, however, is it OK if I ask you a few questions to make sure I’m giving you appropriate pricing for exactly what you need.” In most cases, people will agree to this request. If they’re not, it’s likely not going to be a good fit, and you should probably move on. If they agree, this will enable you to ask some of your qualifying questions to determine if this is even a valid prospect, and to what extent they understand what they need, therefore having a context to understand your pricing. But just as importantly, you are beginning to build credibility with your prospective customer that you’re not just trying to get a quick sale by giving him or her a price, which could likely end the conversation.
As someone who has generally worked with companies who were not the low-price provider, I have always had to build the case for why my product or solution “cost more”, but in the end, was a better value. As I move further into the sales/buying process in any given sales campaign and begin to zero in on pricing, there is a tactic I have used over the years to help me, as well as my prospective buyer, to decide to move forward or shake hands and move on. Assuming I have established a solid rapport, I will ask the person(s), “would you or your company use my product/service/solution if it was free?” If the answer is no, then it doesn’t matter what our price is. Conversely, if they answer with yes, then I’ve established value in the customer’s mind, and we have a foundation to start or to continue a pricing discussion.
In conclusion, anything that is purchased by a person or an organization has a price. Very rarely, if ever, does a person or a company buy anything if they don’t perceive there is corresponding value for that price. This is true whether something costs ten dollars or a million dollars. The length of the sales/buying process is proportionate to the price and complexity of the transaction, but establishing value must occur, or there will not be a sale.