Paul shares three reasons why buyers focus on price.
Are buyers really the ones focusing on price? Our research shows that sellers make a bigger deal out of price than customers.
Salespeople shouldn’t have pricing authority because they will agonize over what price to charge.
“Customers focus on price because sellers train them to focus on price. Buyers know if they ask for a discount, there is a 75% chance they’re going to get it.”
Buyers are fearful of misusing their finite resources. They all have limited budgets or limited funds. Show the buyer how your solution leads to more of the resource they’re fearful of misusing.
Buyers object on price when there is a perceived lack of equity. It must be fair!
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Why do buyers focus on price?
(Transcribed from podcast)
On today’s episode, we’re going to answer a question: Why do buyers focus on price? This is a common question that I hear from salespeople all the time. This question, though, came from a public seminar, actually, I conducted at my training center here in St. Louis, Missouri. Last week, I had a group of salespeople in the training live. It wasn’t a virtual event. It was live, face-to-face training. It was awesome to have people in our training center again in the midst of this pandemic. We’ve all been forced to do some virtual training, so it was really refreshing having a group of salespeople here. We were interacting, answering questions. It was great. One of the salespeople asked about price and why buyers really do focus on price. So, that’s what we’re going to talk about in today’s episode.
Before we get into that, though, a quick shout-out to our sponsor, Andrea, and The Creative Impostor Studios. This month, we are going to have a record number of downloads. The podcast has been downloaded in over 50 countries, and we’ve only been doing this for about a year. A lot of the credit goes to Andrea and her team. I know several of you might be thinking of starting a podcast or you have one. If you’re trying to do all this stuff on your own, you don’t have to do it. You can reach out to Andrea. Her team will help you out. They do a wonderful job. We’ll have a link to her website on this episode’s webpage.
Also pick up your go-to guide of Value-Added Selling. It’s available on Amazon or wherever you get books. This book is filled with content that will help you become a better, more professional salesperson. If you’re dealing with price objections; if you’re struggling to compete on your value, you’ve got to pick up the book. Pick up the book wherever you get your books. And also, some of the data we’re going to talk about today in reference is available in the book as well.
Let’s get back to the question. Why do buyers focus on price? The way I always answer this question is with another question: Are our customers really the ones that are focusing on price? Our research continues to show that salespeople make a bigger deal out of price than customers do. In fact, one of the studies we conducted, we asked a group of salespeople, “On a scale between 1 and 10, rank how important is price; 10 being the most important. And then we asked customers the same question: On a scale between 1 and 10, how important is price; 10, again, being the most important.
For salespeople, they rated price a little bit above 8. Customers ranked price closer to seven. So salespeople ranked price as more important. So again, who’s making a bigger deal out of price? As salespeople, we need to realize that. We need to understand that maybe we are putting too much time and attention and effort and we’re agonizing over price. I remember one of my very first sales jobs, I sold propane. And we had some level of pricing control. I remember when I was putting together a proposal, I kept thinking to myself, “Okay, where do I need to price this? What’s the price I can get? How low do I need to go?” I was obsessing over the price versus trying to figure out, “How am I going to add more value?”
Then I went to go sell it or a tool manufacturing company, and we had no pricing authority. So I couldn’t change the pricing. I couldn’t do anything. They told me, “Hey, here’s the price Go out and sell it.” It was so much easier having someone tell me the price that I had to get. When salespeople are given too much control, they agonize over price. And because they make a bigger deal out of price than the customer, that’s one of the main reasons why salespeople shouldn’t have pricing authority. So, keep that in mind that sometimes we, as salespeople, we make a bigger deal out of price than our customers.
But our customers do focus on price. Right? That’s the question. Why do buyers focus on price? So we’re going to give you a few reasons why that is. The first reason buyers focus on price is because they’ve been trained to do so. Our research shows that when salespeople are given a price objection, 75 percent of them will cave in. A buyer knows this; buyers expect it. So, don’t be shocked when they do ask you for a discount.
I remember, earlier this year-2020, I was in San Antonio for a speaking engagement working with a group. One of the VPs… We were talking on break about discounting. He said, “You know, I used to work for one of the bigger automotive manufacturers, and our purchasing team, we were taught to continue to ask for a discount until the salesperson says no.” You think about that. That is hearing it from the other side of the table that, yeah, buyers are going to ask for discounts until you tell them no. Every time a buyer asks for a discount and we cave in and we make some sort of concession, you’ve got to realize, we’re training them to continue to ask us for more concessions. It’s like that Pavlov’s dog experiment. Once they ask for the discount, we give it to them. That rewards the behavior. So we’re going to continue to experience it. That’s why price objections are self-inflicted wounds, because we continue to reward that behavior. Keep that in mind. That’s one of the primary reasons customers focus on price is because we can train them to.
Another thing to consider, when buyers are operating with a scarce resource, they’re always fearful of misusing it. That’s another reason why buyers focus on price. And this is true for any of us. Think about it; put yourself in the position of a buyer. If you’re given a limited quantity of something like money (they all have a limited budget or there’s a limited amount of money), they don’t have an infinite amount of it. So, they have a scarce resource. Anytime the resource is scarce, you’re fearful of misusing it, whether it is money, whether it is time. You, as the salesperson, you have to alleviate their concern of misusing that resource.
The best way to do that is by simply showing them how your solution will help them gain more of the resource they’re scared about misusing. If they’re fearful of misusing money and they think, “I’d better focus on price. I better try to beat up the salesperson and get a discount because I’m fearful of overpaying and misusing my resource,” then we need to show them how our solution will help create more money for them. Keep that in mind. When you’re analyzing your customer’s objection and the response, ask yourself, “Is this because they’re fearful of misusing their resource?” If so, respond accordingly.
The number-one reason—this is the number one reason why buyers object on price—it is because of a perceived lack of equity. They just don’t believe it’s fair. They don’t believe that what you’re charging, your price, is fair for the value that they receive. This creates what we call the equity gap. The equity gap. Now, to close this gap, you have two choices. You can either lower your price to where they believe it is a fair exchange, or, you can increase your value. Increasing the value is the way we teach in Value-Added Selling. It’s not just about cutting your price to get it equivalent to what they expected in the way of value. No, it’s about increasing the value to match the price that you’re paying. This is rooted in our sense of fairness. We believe things have to be fair, and that includes when we’re spending money. We’ll pay for something if we believe it’s a fair exchange.
I’ll give you an example of this. This was several years ago. My wife and I, in our first home, one of our drains was completely clogged in the kitchen. I called up my father-in-law because he’s kind of like MacGyver. He loves to fix things. So I thought, rather than calling a Roto-Rooter-type company to come in there and actually unclog the pipe, I’m going to call him first.
My father in law shows up. He’s got one of those snake things that you put through drains. We spent hours taking apart the pipes and trying to feed this snake-line thing through the pipe to unclog it. We probably spent four hours trying to do this. Eventually… we didn’t unclog the pipe. We got to about four hours and I’m like, “This is crazy. I just need to call someone.” So I ended up calling, I think it was actually Roto-Rooter. They came out. They unclogged the pipe. They sent me an invoice. Now, they were there for less than 30 minutes. Me and my father-in-law, we spent four hours combined. That’s eight man-hours trying to unclog this pipe, and we couldn’t do anything. And then, this guy shows up with his tools. He’s in and out in 30 minutes, and he sends me an invoice for a few hundred dollars. To me, it didn’t really seem fair because I was comparing our effort to his effort. My father in law, and I, we spent four hours, eight hours, total of labor, trying to fix this pipe. And yet, this guy does it in 30 minutes. And that includes the time to set up, unplug the pipe and clean up. So really it was about 10 minutes-worth of work of him actually unclogging the pipe. Now at first, that didn’t seem fair to me, because I spent all this time and energy and effort, yet he was able to do it in just a matter of minutes.
I focused on the price. I thought this just doesn’t seem fair. The price just seems too high, and it’s because of my perception. I wasn’t thinking about the total value of it. That’s one of the reasons that we object on price is because of a perceived sense of fairness.
So, when a buyer does offer you a price objection, rather than just saying, “Let me see what I can discount.” Instead, challenge the customer and say, “Is it really a matter of what you’re getting for the price? Let me explain the real value here. Let me explain how this is going to impact your business or impact you personally.” Focusing the time and attention back on the customer and the value they receive and how it impacts them, that’s one way to close that equity gap.
Again, we had three reasons why buyers focus on price. Number one, we train them to do it because when they ask for a discount, we give it to them. The second reason is because they’re fearful of misusing a resource. And, our research shows the number-one reason why they focus on price is because of a perceived lack of equity. They want it to be fair.
Make it a big day.