“Price is what you pay; value is what you get.” Warren Buffett wrote those words in a 2008 letter to the Berkshire Hathaway's shareholders.
These words still ring true today. When sales reps think about price as an investment by the buyer, they are in a better position to focus the conversation on value, not price. However, if they communicate price before they understand how the buyer values the investment in their offering, they are disadvantaged. The key is to refrain from sharing price until you know what the buyer believes they will get in return from their investment.
Talking about the “P” word — price — can be scary, yet it is inevitable. This post shares techniques to understand what the buyer values, various levers you can use to demonstrate value along the way, and three strategies for when you need to negotiate price.
Uncover How the Buyer Quantifies Value
As salespeople, we want to completely understand the quantified value that the customer acknowledges in doing business with us — and understand if that quantified value is larger than the investment we’re asking the buyer to make. For a buyer with a million-dollar headache, my $100,000 aspirin is an excellent deal. If a buyer has a $10,000 headache, my $100,000 aspirin is probably absurd.
A solid understanding of business metrics is essential to lead a value-based discussion and create value for you solution. This means asking questions that address business value, ROI, and how your prospect will build the case to buy your solution. To get these answers, many sales reps recognize they need to uncover pain points or problems. Since not all problems are worth solving, you must clearly connect to the business metrics your prospect wants to address.
For example, let’s consider a prospect who is looking at an automation tool to integrate into their customer relationship management (CRM) system. The CRM plugin will help them better track and manage projects. The reason your prospect will potentially buy this SaaS-based software tool is because they recognize they are wasting too much time and money on manual processes, and things are falling through the cracks. This impacts customer service and their bottom line. As you uncover the business metrics, you realize the main benefit to the customer is not really about managing projects more effectively. Instead, the key to this value-based sale is the impact better project management will have on the business objectives of saving money and improving customer service.
Think about the personal value for your prospect, too. If the manager you are selling to will no longer have to ask team members to spend their time manually inputting data, they will likely be happier and more productive at their jobs, positively reflecting on the manager. As you work through the sales process, try to uncover how the buyer may personally benefit from getting the deal done and use this to your advantage.
Differentiate Your Offering
The foundation of competing on value is to differentiate your offering in your prospect’s mind. Being different is not necessarily being differentiated. Differentiation is a process that happens with each individual prospective buyer. Even for buyers within the same company, individuals may value something different that makes the investment worth it for them. With this in mind, the conversations you have must lead your prospect to answer the question, “Is this particular product or service worth the investment?”
One obvious way to differentiate is with your capabilities. It is important that capabilities are not presented as a list of product attributes — instead, each attribute must solve a problem or address a need that your prospect recognizes. This is what creates the value in making the investment.
You can also differentiate on terms and conditions, customer experience, or by demonstrating how your solution mitigates risk. Solving a problem based on these intangibles, that a competitor has not addressed, also creates value in making the investment.
In addition, building a trusted brand is a long-term strategy to mitigate perceived risk and to differentiate. According to The Edelman Trust Barometer 2020, 70% of respondents say trusting a brand is more important today than in the past. The report shows that amid the seismic shocks of today’s world, trust is the make-or-break difference for brands; most of the people surveyed feel that brands should act to solve societal problems and advocate for change. When brand trust is earned through words and actions, it builds loyalty, engagement, and advocacy. If you represent a trusted brand with a strong reputation, consider the potential impact this may have.
3 Negotiation Strategies
When it’s time to talk price, it will result in a negotiation. We know it. We expect it. Let’s better prepare for it.
What defines a successful negotiation?
A win-win outcome. Both the salesperson and the people involved in the buying process feel good about the outcome. No one is taken advantage of.
Reached in an efficient manner. Some sales organizations have clear lines of empowerment and structured internal processes to ensure a smooth negotiation process.
Preserves the relationship. We never want to have a negotiation get overly confrontational and damage our ability to serve the client going forward. Unfortunately, not all clients believe in this relationship principle. In this case, make a conscious effort to focus on the issue and what they’re saying, not how they’re saying it -- screaming or typing in all caps. Maintain your composure to keep the relationship intact. A thoughtful response is better than a gut reaction.
These three negotiating strategies can put you in a better position to negotiate. Throughout the negotiation it’s important to keep in mind how the three categories of deliverables, terms and conditions, and price fit together to maintain pricing integrity.
Strategy #1 — Trade-offs
The lead negotiation tactic is the trade-off. It helps establish that your deliverables and terms and conditions (how you do business with your clients) are valuable. A trade-off is the process of exchanging one item for another item of equal value. Examples include offering a price discount if the buyer prepays for services, agrees to eliminate a deliverable, or allows your company to issue a press release announcing that your firms is their preferred vendor.
Strategy #2 — Embellishments
When trade-offs don’t work, try embellishment. When a buyer asks for a concession in one of the three categories, you can enhance or add value in another category. For instance, if a buyer asks you to drop your price by 10 percent, think of a high-value, low-cost deliverable you can give them in exchange for keeping the current price.
Examples of embellishments include offering training, technical expertise, or access to a webinar or expensive conference.
Strategy #3 — Compromise
If you don’t succeed with trade-offs and embellishments, turn to compromise. Embellishments and trade-offs take into account a mix of three categories: deliverables, terms and conditions, and price. Compromise looks at a single category. Can you find a way to split the difference with a buyer? Are you empowered to change the deliverables, the price, or a term to satisfy the prospect and reach a compromise that’s agreeable to them and you?
The best salespeople are really good at understanding the absolute value potential they can bring to customers. Just like good things come to those who wait, good things come to those of us who spend time and learn more about our prospects before we talk price. A salesperson is in the best position to talk about price after talking about value. It is very difficult to have a price conversation until you completely scope out the buyer’s need, configure the deliverables, and understand the terms and conditions of the overall agreement (what that customer might be willing to pay). This context allows you to best defend and position the price.