A sales consultant shares how to cut a deal without cutting price
BY Monica L. Rausch, Associate Editor
What was that figure on the trip to Austin?...You charge how much for one hour in a 152?...I can get a better deal from your competitor across the fieldÉ
These sticker-shock reactions from customers can batter the confidence of almost any salesperson. But the knee-jerk response — slashing prices — could mean going out of business.
According to Larry Steinmetz, a sales and management consultant and former professor at the University of Colorado's School of Business, 16 out of 17 businesses that open in the U.S. fail, and the majority of those failures come from cutting prices, in the mistaken belief that profits can be made up in sales volumes.
"If you cut your price by 10 percent, you will have to sell twice as much products in the same period of time to break even," says Steinmetz. "It is precious difficult to cut price and make it up in volume. It is even more difficult to do it and make money."
On the other hand, he adds, if a company hikes its prices by 10 percent, the company would have to lose some 28 percent of sales before losing any money. Those salespeople who fear losing sales over high prices — and worry about getting the sticker-shock response — can follow some simple sales techniques, says Steinmetz.
Stand Behind a Price
When customers hammer a salesperson on price, it's usually because, whether a salesperson realizes it or not, that salesperson is encouraging it, says Steinmetz. Steinmetz points to car salesmen as examples. With phrases like "Let's make a deal," "We will not be undersold," and "We'll give you a bargain," he says, "Car dealers have trained you to beat them up on price."
"Our research shows clearly that if you feel your customers really hammer you on your cost, there's a pretty good chance you're inviting and encouraging that to happen," says Steinmetz. He points out two ways salespeople encourage price negotiations:
1. Wowing: A salesperson opens the door to price negotiations when he or she "wows" in front of customers, as in "Wow! Can you believe these prices?"
"Wowing is when
you communicate to the customer that you feel your prices are high,"
says Steinmetz. He notes that most salespeople do believe their prices
are too high, which causes many of them to wow. When salespeople wow,
they use phrases such as:
• "Are you sitting down?"
• "Man, can you believe these prices?"
• "Do you think $200 would be too much?"
• "These prices may look a little high."
What a salesperson avoids saying can also be a form of wowing, says Steinmetz. When salespeople evade talking about price, they are telling the customer that they are not comfortable with it or are afraid of the customer's reaction. According to his research, 94 percent of salespeople won't bring up the issue of price until the customer does, and then 46 percent will change the subject when the issue is raised.
"You have to present the price credibly, comfortably, and confidently," says Steinmetz. "If you don't come back credibly, comfortably, and confidently when talking about your price, then you just wowed big time."
In fact, the way a salesperson handles his or her price largely determines the probability of that salesperson getting that price. Adds Steinmetz, "If a customer believes that you don't believe you're going to get your price, you're not going to get your price."
2. Cracking: Salespeople "crack" when they let the customer know that they are willing to negotiate on price, says Steinmetz. Some phrases they use when cracking include:
• "Now you know I want to work with you on this."
• "Tell me where I need to be."
• "Let me talk to the boss and see what we can do for you."
• "What do I need to do to get your business?"
Putting an adjective or adverb in front of the word price, calling it the usual, standard, published, regular, normal, or advertised price, can also mean the salesperson cracked. "Any word you put in front of price other than the word ’the' leads customers to believe you can make them a deal," says Steinmetz.
What works for the best
While cracking and wowing don't work, Steinmetz discovered some strategies on what does work when he did a study on the sales techniques of certain jewelry salespeople who were known to sell more high-priced merchandise than their coworkers. These successful salespeople have three approaches in common:
1. They build credibility
and gain the trust of customers.
2. They realize a customer pays a premium price because that customer has a different, higher set of expectations from the product or service. Therefore, the salesperson has to deliver a product or service that meets those expectations.
3. They do not feel their prices are high; they feel that their products have more value and are therefore worthy of the price.
Says Steinmetz, "You have to see the value in what you're selling. A lot of salespeople have a hell of a time with that because they don't see their own value. If you don't feel your product and your services are worth it, you're going to have trouble."
Fighting "the same stuff" argument
Once a salesperson manages to present a high price to a customer, the typical response, says Steinmetz, is "I can get the same stuff down the street for less money." He has several responses salespeople can make to this statement.
1. Never concede that the product is the exact same product as a competitor's. "It
may be possible that (the customers) can get the same product, but it's
not possible that they can get the same service," he says.
2. Learn how to tell when a customer is willing to negotiate and eventually pay the higher price. Listening to a customer's language can give the salesperson a clue, he notes. If a customer uses the imperative, or command form of speech, he or she is not willing to hear the sales presentation. Most likely the customer has a product or service with which he or she is completely satisfied.
But if a customer uses phrases that start with "if," "unless," or "Either youÉor," such as "Either you lower your price, or there's no deal," then there may be hope, says Steinmetz. And, the sale can still be made without cutting prices.
"Consider the difference between ’Get out and don't come back' — that would be the imperative — and ’If you don't cut your price, you're out,'" explains Steinmetz. "If he's getting the same stuff down the street for less money, what does he need you for? He doesn't, and he can throw you out. But if he doesn't throw you out and gives you an option of cutting prices, then he's not getting the exact same product."
"If they do have a sweeter deal, then they wouldn't be telling you about it; they're telling you because they want to see if you'll match or cut your price to get their business," adds Steinmetz. "They want to do business with you, but they're trying to get their (a competitor's) price."
3. Acknowledge the fact that the price is higher than competitors' prices. This straightforward approach can be accomplished in several ways, says Steinmetz, including:
A) The "So?" technique: When a customer says a price is high, the salesperson just says, "So?" Then the customer will most likely come back with "So what makes you think I'm going to pay you that kind of money?" That is an invitation for a sales presentation, according to Steinmetz.
Other affirmative words that work in place of "so" include "sounds right," "reallyÉ", "no doubt about it," and "absolutely." "It is a very tactical and diplomatic way to challenge that customer," says Steinmetz. "That forces them to go into the imperative. And if he can't go into the imperative, he's clearly telling you he doesn't have that sweeter deal."
B) The "Why not?" technique: When a customer asks why a product is priced high, the salesperson can respond with "Why not?" This prompts the customer to respond with "because" and all the information on what he or she is already receiving from a competitor at a lower price. The salesperson can then use this opportunity to point out the differences in his or her product.
C) The Keep-on-selling approach: Just acknowledge outright, "That's right our prices are higher," says Steinmetz, and then state reasons why this is so. "Prices make a credibility statement," he adds. "Low prices makes a negative, derogatory, diminutive statement about a product or service, while a high price makes a positive, salutary statement about a product or service."
For example, he explains, if a salesperson offers to sell a Rolls Royce automobile for only $1,000, the customer's first response would be, "What's wrong with it?" But if a lower-end vehicle was marked at a higher-than-normal price, customers would be curious about why. "High price can be decidedly to your advantage because fundamentally most people believe that you get what you pay for," notes Steinmetz
D) The use testimonials and/or name-dropping: Customers don't want to think that they are the only ones paying a premium price, says Steinmetz. Point out why other customers do business with the company.
Listen and learn
Steinmetz also recommends taping sales presentations to find out what salespeople do when the pressure is on to clinch a deal. "You will find there are things you said and did that you don't remember saying or doing, or you can't imagine you did."
Also, go to a seminar on teaching buyers methods of buying, to get a look at sales from the other end. "Find out what they talk about," says Steinmetz. Having gone to some 20 of these, Steinmetz says salespeople should be aware; the first lesson buyers are taught is to challenge a seller's price.