Practical Eloquence Blog

Get them while they’re hot!

There is a lot of discussion among sales experts about value-based pricing. It’s supposed to be better than more traditional methods such as cost-plus and me-too pricing. And it is, but it’s still not the complete answer to the question of what something should or could be sold for. To understand why,  let’s start with a really stupid question:

What’s the value of a bill?

This isn’t a trick question; the answer is clearly .

Now, let’s ask a different question: how much could you sell a $20 bill for?

Value is what something is worth, but the real number salespeople care about is what someone will actually pay for it, and the two numbers don’t have to match. In fact, they can be way different.

Let’s run a little thought experiment. Suppose you went out to try to sell the $20 bill. How much could you get for it? Imagine that you went out to the local mall or wherever people hang out and walked up to complete strangers and asked them how much they would give you for it.

I haven’t tried this myself, but I would bet that no one would pay you what it’s worth. Why should they? They are no better off, so why go to the effort or take the risk to make the exchange? At best, most people would offer you $19 (let’s keep it simple and assume there’s no change). It’s the highest price they would be willing to pay and still be better off.

But I would guess that you would find very few takers even at $19, at least not without some serious sales efforts. You would have to answer a lot of questions to allay the buyer’s suspicions. How do they know the bill is real? How do they know you will actually hand it over when they’ve paid? What’s wrong with it? Where has it been?

Let’s run a few more scenarios:

Do you think it might make a difference if you were wearing a suit and tie as opposed to a ragged t-shirt and shorts?

What if you had 20 ones instead of a $20 bill, and someone came up and said, “I’m baby-sitting 15 kids, and I promised I would buy them sodas, but the only place I can buy sodas is at this machine, which only takes dollar bills.” He may not be happy about it, but I bet he would sell you his twenty for fifteen ones.

The next guy comes up and has a different need. “My boss gave me a bunch of fives and told me I have to find a crisp twenty dollar bill for a promotion he’s running, and I need it right away.” He may not be happy about it, but I bet you could get him to fork over $25 for your twenty.

Maybe you have those new colorful counterfeit-protection twenties, and no one has seen them yet.

One guy listens to your pitch and says he would love to help you, but all he has on him is fifteen bucks.

Another person comes up and tells everyone gathered around: “There’s a kook at the other end of the mall who can’t stand the sight of Andrew Jackson, and he’s willing to trade his twenties for one Hamilton or two Lincolns.”

Or another vendor sets up shop ten yards away and tells all comers he will beat your prices by a dollar. How much could you get for your twenties then?

You’ve been given a stack of twenties and told you must sell them all before closing time as a condition of employment. It’s ten minutes to closing time, and you still have a few left, with just one or two people walking by. And one of them is the nice guy who only had fifteen bucks on him.

On the other hand, do you think it’s possible to sell the $20 bill for more than $20? Actually, it’s not that difficult, and I can say this because I have done it in real life—many times in fact—just to prove a point. The highest price I’ve received is $51 for a $20 bill. (It involves a special type of auction, which you can find in some negotiations books, but I won’t divulge it here for obvious reasons. The first five callers get the secret for free.)

So What?

While these scenarios might be a bit contrived, any salesperson can recognize credible analogies in their daily sales efforts. And that’s for a product that has an exact, measurable “value”, which almost never is the case in real-life sales.

The point is that value may be a precise number, but willingness to pay is personal, situational, and psychological. That’s the world that salespeople live in, and that’s why value is an inadequate guide to determining what something can be sold for. In our next article, we will examine the anatomy of willingness to pay.

My neighbor had a plumbing problem last week that partially flooded his house. When the carpet installer quoted a price of k to replace the carpet, Rocky simply asked him, “can you do it cheaper?” The installer knocked off k without even blinking.

One question, one grand.

On the face of it, this story seems like a victory for the buyer. Simply by asking, he saved himself a ton of money. But, what if the “fair” value of the carpet replacement was k? In that case you could say that the carpet installer was the winner, because by asking for k, he was able to earn an extra grand, with the small possibility of actually doubling that.

For the record, I have no idea what the fair value was, but that’s not the point. The point is that the ask has a tremendous influence on the final number agreed on. Research shows that “final agreements in any negotiation are more strongly influenced by initial offers than by the subsequent concessionary behavior of an opponent.”[1]

To put the point as plainly as I can, those who ask for more, get more.

While most of this article is written from the point of view of the buyer, the exact idea works for even better for the seller, because they usually make the opening offer. Make it a good one. In my previous article, I wrote about salespeople who fly into the sales battle flying a white flag, prepared to retreat off the asking price at the slightest sign of the buyer’s resistance. In fact, many of them probably preemptively lower their asking price to make their offer more attractive. That’s a big mistake, because smart buyers will always ask for more. Why not? It doesn’t hurt, and it can pay off big.

Of course, bargaining is usually expected to a certain extent in B2B sales, but it’s far less common in retail. We look at a price tag and either pay it or not, or we wait for a sale. We don’t bargain in a retail store, because it’s just not done that way. But why is the list price so sacrosanct? Someone—a real flesh and blood person sitting in an office somewhere at corporate—decided that was the opening offer, and had an official price tag printed up to make it the “list” price. That doesn’t make the price any more fair than if you were negotiating with someone at a craft fair on a Saturday morning, or a souvenir seller in your cruise ship port. It doesn’t hurt to ask, “is that the best you can do?”

There are limits, of course, generally for questions of good taste and common sense. I went to dinner once with a colleague in Canada who tried to bargain with the waiter in a restaurant, “If we all order the prime rib, will you take 20% off the price?” I wanted to crawl under the table out of embarrassment, but to Don, that was just part of the fun he found in life. The waiter got permission to accept the offer, but to this day I still wonder what “extra ingredients” might have been added to our meal.

That’s why one of my personal caveats about negotiating is that I don’t like to ask for price reductions from people performing a service, because I think it will affect their motivation to do quality work, even if only subconsciously.

A big part of life for all of us is buying and selling. One of the easiest and quickest ways to get more out of life is simply to ask for more. Just ask.

Not the best weapon to carry into battle

One of the major reasons my clients hire me is to win the price war. They want weapons to help their salespeople win the daily battles for their customers’ minds, because they’re tired of losing deals to competitors who undercut them on price, or of winning deals that eat away at their profits.

Their target battlefield, the territory they want to dominate, is the customer’s mind, and their strategy is to create differentiated and quantifiable value. It’s not easy, but because of the inflated impact that even small price cuts can have on profitability, it’s a crucial battle.

But, for any sales professional to stand a chance in that battle, there is an even more important battle that has to be fought first. It’s the battle for the minds of their own salespeople.

Just about every sales class I teach contains a small group of doubters, the ones who have preemptively given up. They tell me that the only criterion their customers care about is price. They lament the deals they have lost—not because of anything they did wrong—but because their competitors came in with a lower price. They hurt their own companies with “friendly fire”, directing most of their sales efforts internally: trying to convince their managers to shave a few points off the margin to put the big deal over the top.

The problem with that type of thinking is that it’s self-fulfilling. If they don’t think they can compete, they’ll be proven right—even though they’re wrong. If they don’t think their solution is worth more than what the competitor offers, they’ll be proven right—even though they’re wrong. If they think there is no difference between what they and their competitors offer, they’ll be proven right—even though they’re wrong. And if they ride into every sales battle with the white flag already flying, they will lose.

There are two reasons I know they’re wrong. First, they haven’t tried everything: there are about fifty questions they haven’t yet asked, techniques they haven’t tried, and buttons they haven’t pushed yet[1]. Second, on occasion I’ve had the opportunity to talk to the salespeople from their competitors—and they’re saying the same thing they are!

My favorite question to those doubters is: “Would you take the deal the competitor is offering?” Most answer no, and those I can work with.

A few answer yes, and they are the ones who should find another job—just not in sales.