Paul shares five reasons why salespeople should NOT have pricing authority.
Under no circumstances should salespeople have pricing authority! Pricing is strategic because it impacts profitability.
Salespeople are emotional and irrational (So is everyone). Salespeople will feel the pressure and cave in and discount. Savvy buyers know how to make the seller feel the pressure.
Salespeople will also succumb to Stockholm Syndrome. They are more likely to side with the buyer’s need for a discount than their company’s need for profit.
Just like work expands to the time allotted, so will the discount expand to the parameters set.
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Should salespeople have pricing authority?
(Transcribed from podcast)
On today’s episode, we had a salesperson email us, and the question was about pricing authority. So, that’s what we’re going to talk about today is whether salespeople should have pricing authority or not.
Before we get into that question about salespeople and pricing authority, we need to talk about our sponsors. Andrea and her team, The Creative Impostor Studios, doing a wonderful job with the podcast. The podcast continues to grow and a big part of that is because of Andrea and her team. They help with guidance. They’re going to help you launch a podcast. Keep one going. Build an audience. If you need some help starting a podcast, reach out to Andrea and her team. We’re going to have a link to her website on this episode’s webpage as always.
Also, make sure you pick up your latest edition of Value-Added Selling. We’re now on our fourth edition. In the book, we actually give some pretty strong reasons as to why salespeople should not have pricing authority. So pick up your latest copy. It’s going to be your go-to guide for how to sell, especially during these uncertain times.
With that being said, we need to get back to this question. The question came to us… I don’t actually know where it came from, but it was from a salesperson named Ah-fee-lee-lay. I totally butchered that name by the way. I tried to Google it to see how to pronounce it. And I’m just lost. It’s spelled
A P H E L E L E. I’m sorry if I butchered your name, but it’s a great question.
The question is, “Should salespeople have pricing authority?” The short answer is no, absolutely not. And we’ll talk about why that is on today’s show. But when we think about pricing… as salespeople, we live in the tactical world. We shouldn’t have to worry about, “Do we need to discount here? Do we need to lower the price here? Do we need to raise the price here?” Salespeople need to be told what the price is, and then they go out there and they get that price. They sell on value.
Let’s look at the reasons why salespeople should not have pricing authority. The main reasons why is because pricing is strategic. Pricing impacts overall profitability of an organization. And the question is, do you really want a salesperson who is fearful of losing the business—who is fearful of not hitting their quota—do you really want that person deciding whether your company is going to be profitable or not? The answer’s no. Pricing impacts profitability. Remember, every single dollar that is discounted is pure profit that is leaving your company. So for that reason, salespeople should not have pricing authority.
Another thing to think about, salespeople can get irrational when it comes to pricing. As soon as a buyer gives a price objection to salespeople, our research shows that 75 percent of the time they’re going to discount. Also, the number-one reason they will discount is because they fear losing the business. A savvy buyer knows this. They know that a salesperson will get emotional, that they are not really thinking. And when that happens, they’re more likely to discount.
I’ll give you an example of this. We had a group that we were doing some training with. This was an in classroom-style training a number of years ago. We had a rookie salesperson who was getting several calls from one of their key clients throughout our training. The customer kept saying, “Look, we want to move forward with you, but you need to do something about your price. We’re getting close to making a decision. Can you please take a look at the price again?” This salesperson got three different calls like that in the span of one day. We used this as a training opportunity. When the customer kept calling that salesperson back, and they’re saying, “We want to work with you, but you’ve got to get your price lined up. We’re making this decision today,” as a group, we had to talk some sense into this rookie salesperson.
We said, “You don’t need to discount to win this business. This buyer keeps calling you back. They’re desperately trying to figure out if you’re going to lower your price. They’re trying to put some pressure to tell you, ‘We need to do this by the end of the day.’”
All the while, that rookie salesperson was forgetting one key aspect of the negotiation. The buyer kept saying, we want to work with you, and they kept desperately calling them. It’s not like the salesperson was calling the customer; the customer was calling him trying to get him to discount. And he did this in three different occasions in one day. So, finally we suggested, “You’ve got to live with the decision, but based on all the evidence, the customer’s calling you. They want to work with you. They’re trying to apply some pressure to get it done by the end of the day. My suggestion is you hold the line on pricing.” Sure enough, the salesperson held the line and they ended up winning the business.
But the whole time, you’ve got to remember, the salesperson was getting emotional about it. They were wondering if they were really going to lose the business. So that’s another reason why salespeople should not have pricing authority is because they get too emotional. They don’t use logic and reason when they’re in a negotiation.
Another reason that salespeople should not have pricing authority is due to the pressure that they’re feeling. A savvy buyer will make the salesperson feel pressure. And when salespeople feel pressured, they’re more likely to discount.
I remember one salesperson we had in our training. He would tell me how his one customer would always call on the last couple of days of the month. This same buyer would ask the same questions: “How’s your month been? Is everything going well? How are your sales figures looking? How’s the company doing?” And he said, “Whenever I mentioned that I was having a slow month, or I mentioned the company wasn’t doing all that well, the buyer would respond by saying, ‘Hey man. I’d love to help you out, but can you give me a discount? I’ll place a couple extra orders with you in the next day or two, but you got to help me out with the discount.’” And what that buyer was doing is they were using pressure. They were trying to figure out how much pressure that seller was feeling to hit their quota, to help out their company. And they’re trying to use that to gain discounts. Yet another reason why salespeople should not have buying [sic] authority.
Another thing to think about—we call this The Stockholm Syndrome—some salespeople, they build a room relationship with their customers. And sometimes those relationships become so close they forget to maintain that professional distance so they can make the tough decisions. Salespeople will often tell us, “I don’t know if I can charge that price,” or, “They asked me for a discount and I really want to help them out.” This is them basically siding with the customer instead of their own company. That’s another reason why salespeople should not have pricing authority.
And one last thing to think about, salespeople will often tell us, “We should be given some sort of parameters.” And sales managers we work with, they’ll say, “We give our salespeople parameters on how they can discount.” And what’s interesting about that, salespeople will discount to the parameters allowed. Parkinson’s Law shows that work will expand to the time that is allotted for the work. For example, if I give you a task and I tell you, “You got two weeks to do it.” It’s going to take you two weeks. But if I give you that same task and I tell you, “It’s going to take one week,” it’s going to take you a week. Well, the equivalent of that for salespeople is that if you give salespeople a discounting parameter, and you say, “You can discount 10 percent before you need to gain approval,” I guarantee you, they’re going to discount 10 percent.
I see this happen with all the companies I work with. They’ll tell me, “We give our dealer discount parameters between 10 and 20 percent.” And I always ask them, “What’s the most common discount percentage given?” And it’s always the maximum allowable discount before they need to gain approval. For that reason, salespeople should not be given parameters. They should not be given any flexibility. Salespeople need it to be simple. They are told what the price is and then they need to go out there and actually sell it.
If you’re listening to this, if you’re a sales manager, if you’re a business owner, whoever you are, take pricing authority away from your salespeople. When I think about this, I’m reminded of an old story when Caesar was going back to invade Rome, he was standing right on the edge of the city. They were getting ready to cross the bridge into Rome where they knew they were going to have the fight of their life. So as soon as they crossed the bridge, as legend has it, Caesar burned the bridge. That way there was no retreat. There was no way that they were going to retreat. How much harder do you think his soldiers fought knowing that retreat was not an option? If you take away pricing authority from your salespeople, think about how much harder they’re going to sell on value.
Again, the question was, Should salespeople have pricing authority? ABSOLUTELY NOT. Absolutely not.
Make it a big day.