Every dollar you discount is a dollar of pure profit you're giving away. Therefore, your efforts to remove discounts will be richly rewarded.
When buyers see list price, they expect discounts to follow. By changing the way you address the relationship between pricing and discounts, you can stop giving away heavy discounts and escape the commodity pricing pressures in your business.
Here are 4 simple techniques that you can use to wring every dollar you deserve out of your next sale.
Amplify the Pain
First, find and amplify your buyer's pain. Before any discussion of price, your buyer must be truly motivated to make a change. In other words, make sure the buyer understands just how much it is costing them to NOT implement your solution.
The life insurance business has used this approach for years, because nobody wants to think about dying. The agent asks the prospective insured to think about all of the effects of being inadequately insured. Do you have enough money set aside right now to pay for a decent burial? How will the mortgage be paid next month? Who will pay for the children's college? These types of questions heighten the awareness of the buyer to the gravity of their decision, which increases the perceived value of the solution as well as creating a sense of urgency to make a positive decision.
But wait, you say, not all buying decisions are pain-oriented. Very true. Many of our buying decisions are tied to gain of some sort, whether financial, power, prestige, or comfort related. Still, these gain drivers can be made even more effective by bringing in the pain elements. All you need to do is consider the flip side with the prospect.
For instance, if you are considering a new mattress on the basis of increased comfort, what will happen if you don't get the mattress? Will you, or do you now suffer from back or joint problems? Will you wake up tired, drag through your day, and be unproductive at work? Will you waste more time sleeping than you need to, because of lack of quality sleep time?
When you consider questions like these, the new mattress doesn't just become a luxury. Instead, it's a necessary tool that will cost you many productive hours at work and in your relationships if you fail to have it. With pain, we now have a motivated buyer with a sense of urgency.
Quantify the Problem
The next step for maximizing your selling price is to quantify the buyer's problem. Often the buyer will need a little help with this. Some things are easy to quantify. For example, what would it cost if a company's website goes down and visitors can't access company information or conduct transactions? That may be easier to quantify than putting a dollar figure on what a bad night's sleep might cost you the next day.
You can quickly quantify any situation by going through a best case/worst case/likely case scenario. For instance, the best case situation for your website to go down would probably be in the middle of the night, perhaps on a weekend. You'd loose some traffic, but only a very small percentage compared to overall weekly traffic. The worst case might be to lose your website right after your company is featured on CNN. While this could happen, the probability is rather small. Now it's easier for the buyer to understand that a likely scenario could be to lose their website during a normally-heavy traffic time, perhaps mid-day or early evening. With such a likely scenario clearly in mind, it's easy to understand how financially painful the loss would be.
Package Your Solution
A third tactic for maximizing your selling price is to package your solution. Don't price out components separately, but show a single price for fixing the buyer's problem. The price should include all of your offerings that are necessary to deliver the complete fix.
Once you've bundled your solution for a single price, it's hard for your buyer to shop elsewhere. The more of your offerings that your buyer needs, the more difficult it will be to find another source that can duplicate that same set of offerings. Buying them a la carte from multiple sources will almost always prove to be more difficult, if not more expensive.
I'm amazed at how many companies believe they have to provide line-item pricing because their buyers ask for it. Of course they ask for it! That's so they can nit-pick each item and squeeze out a bigger discount. Most companies are a little high on some items and a little low on others, but still offer a great overall value. Your prospect will never point out the under-priced items, but you can bet they'll grind you on the ones that are a little high.
Pick a Proud Price
As you set the price for your offering, the last thing to consider is the cost of the problem the buyer quantified earlier. Remember that you're presenting a neatly-wrapped solution package to a buyer who's motivated to solve a painfully-expensive problem. Their problem should be a lot more expensive than the price you want to ask, preferably by a factor of 3 or more. Feel free to name your price, and pick a good one!
It shouldn't be exorbitant, but it doesn't have to be the cheapest in town. You deserve to make a good buck relative to the problem you're fixing. This is no time to be shy and leave money on the table. And if you haven't been able to point out how their problem is costing them much more than the price of your solution, don't be surprised when you don't get the order.
To earn top dollar for what you offer, you'll need to amplify your buyer's pain, quantify their problem, package your solution, and make sure the cost of their problem is always much higher than the price of your solution. It's worth working a little harder to defend your pricing because another name for discount is pure profit. Use these techniques and you won't have to give either away anymore.
© 2005 Paul Johnson. All rights reserved.
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Paul Johnson of Panache and Systems LLC consults and speaks on business strategy for systematically boosting sales performance using Shortcuts to Yes™. Check out more salesforce development tips at http://panache-yes.com/tips.html Call Paul direct in Atlanta, Georgia, USA at (770) 271-7719.