Your customer tells you your price is too expensive.
There are only two options (in a fair market):
- Either you are priced outside the market
- You have not demonstrated that your product delivers the value he is paying for
You are outside the market boundaries
The only way to know if you are priced outside the market is to know your market well. How are positioned the competitors? What do they offer? What price structure do they have? How is their business model built?
It is possible that the price is unreasonably high, and you have acted recklessly. This may be the case in 5% of the deals if you have been around for a while.
The client does not see well the value in your product
What is most likely to happen in a normal condition, is that you have not succeeded to demonstrate the value the client is getting for the price.
Example 1: product in a larger production process
Let’s say you sell an important part for a client, and he tells you that your price is 50% higher than your competitor? Will you align, or dare to lose the project?
You have a meeting with your team, wonder what happened that your product was so far high the competitor. You decide to go back to your client and investigate.
From the interview, the client indicates that her plant will stop production if your product fails. Currently, they stop the production for 30 minutes every month.
You discover that your product fails every 6 months for 10 minutes and your competitor fails every 3 months for 20 minutes.
The gain for the client is completely disconnected from the market price. Stoping the factory costs millions, whilst buying your product cost thousands.
Buying your product will dramatically save cost to the client, much more than it will cost her to buy your product.
The value is clear. The price is disconnected to the material cost.
Example 2: similar product for professional use
Let’s say now that you sell a professional product. In terms of features, it is similar to the competitor’s, and the price is 20% higher.
You go back to your team, analyze and do not understand where that difference can come from.
You discuss with the client and realize that the payment terms are much more favorable for the client on your offer.
You will have to finance the costs of the project for a longer period than the competitor.
The client does not provide such a good after-sales technical support than you do. You can mobilize a team quicker, and the competitor will send you to some local mechanics that are not trained on your product. When there will be a failure, you will fix the client issue in no time, your competitor won’t.
This service has a cost that is built in the cost.
You calculate the total cost of ownership (TCO) of the product for yourself and the competitor.
The customer will have:
- fewer failures: lower maintenance cost,
- fewer failures: lower loss of income,
- more component durability: longer life span for the system.
The TCO is therefore 20% lower for your product.
The client is outside the budget
If the client claims that he is outside his budget for your product, after demonstrating the value, that means he is not ready to commit or has decided to go to the competitor.
If we offer the right value, and the client is not willing to pay for the right price, we can in last resort offer fewer features to match his price.
The right question to ask ourselves
The moral of the story is that every time a customer asks for a discount, we have to understand: what am I missing so that he does not see the full value of the product I am offering? What can I do to better demonstrate the value?
Most of the time, there is a way to discuss the offer without sacrificing the price.