Pricing Strategy: 5 Price Resistance Guidelines
How often do you experience price resistance from buyers in your business? In some businesses, this is a daily occurrence. When buyers push back on price there may be any number of factors that are driving their behavior including incentives, competition and personal bargaining needs. How we react to price resistance says a lot about our own company’s self image.
Just this morning I met with a machining company owner who told a $10 billion customer that he would not accept the customer’s demand for a price cut. What happened next? The customer moved the business to a different supplier, but only for a short time. And, later returned to pay full price.
Here are 5 guidelines to help you work through price resistance issues when buyers push back:
- Remember that even the smallest price discounts can have a dramatic impact on profit margins. The average U.S. company will see an 11% drop in earnings with an innocent little 1% price discount. Negotiate fiercely for every percent knowing that even the smallest amounts have a meaningful impact on margins. Learn more about pricing leverage with our profit improvement calculator.
- Discounting your price is only one response to price objections. Trade value by reducing deliverables in the offering. Look at delivery time, payment terms, product performance reductions and other value elements in order to make up for lower prices.
- Don’t assume that your price is too high. Competitors may be desperate at end of fiscal periods as they drop price to meet volume goals. This may be short lived. Or, perhaps the buyer’s price expectations are too low. I recently bought a car and after visiting three dealers I realized that my price point was lower than what the dealers would agree upon. In the end, I paid a little more.
- Buyers will first test your price. Then, they will test your ability to adhere to that price. Professional buyers are well trained to be persistent in their demands for lower prices. However, we find that when sellers resist price cuts the buyer will often move on to the next vendor in order to meet their cost reduction goals.
- Like the machining company owner above, just say no. With an effective value based pricing strategy, you can answer price resistance with confidence. It’s like what Warren Buffet said when emphasizing the distinction between price and value to investors; “Price is what you pay. Value is what you get.”
The key to handling price resistance is to be prepared. Have confidence in your pricing strategy, have a plan ready at all times and don’t be afraid to push back. For help developing a more profitable pricing strategy, or for value based selling training, contact our pricing experts at 330.342.0923, or fill out our contact us form and a price expert will get back to you.