B2B selling is not getting any easier. Competitors are as aggressive as ever, customers are under pressure and are passing those pressures on to you, and your quotas are certainly not getting any lower. In this environment, the price battle is getting ever harder to win, and it’s extremely tempting to default to a lower price to win that big deal.
But if you’re armed with the right knowledge you can still win the price battle and preserve your margins. That’s because the key objective in this war is not your dumbest competitor’s pricing; it’s not some specified percentage over your costs; it’s the buyer’s willingness to pay (WTP). WTP is not a number—it’s a range, and you can strongly influence the extent of that range through your mastery of two topic areas: finance and psychology.
WTP is a function of (economic utility and psychological factors.
Economic Utility: In business to business sales, utility is the unquestioned number one factor that determines willingness to pay, because it is the fundamental reason that customers spend and invest, and it is often the factor over which you have the most objective and tangible control.
In economic terms, an asset is worth the present value of its differential cash flows. In plain English, that means that business buyers pay dollars in the expectation of getting more dollars in return, or preventing a greater loss.
The expectation of future cash flows is based on how the buyer uses what you sell to either increase cash inflows or reduce outflows. In sales terms, that means that your effectiveness depends on a) an intimate knowledge of how your customer can increase revenues, cut costs, or reduce asset investment, and b) being able to quantify and gain agreement in measurable financial terms.
That in turn requires financial and business acumen, and in my wholly unbiased opinion the best source for that is my own book: Bottom-Line Selling: The Sales Professional’s Guide to Improving Customer Profits. It’s a “mini-MBA” that is specifically written for salespeople, which means there is nothing in it that does not pass the so what test.
Psychological factors: While economic utility sets the anchor from which the buyer perceives value, there is still a lot of room for perception (subjective factors), especially for products or services that the customer does not buy on a regular basis. If they’re buying supplies or raw materials, their expectation of the regular price is firmly set, but if they’re buying consulting services or a complex production system, they have very little experience with what things “should cost.”
What things “should” cost is a fascinating field in psychology. Here are just a few of the more important factors that affect the psychology of WTP:
As Amos Tversky said, we don’t choose between options, we choose between descriptions of options. For example, you probably would not consider it fair if a store told you that you had to pay a surcharge for using a credit card, but what if they offered you a discount for cash? The point of all this is that how the decision is framed has a significant—often decisive—effect on the final decision.
One of the most important frames in pricing psychology is loss aversion, where potential losses are weighed more heavily than potential gains. Highlighting the risks of buying a cheaper product through well-designed questions can shift the focus away from price during your sales conversations.
Psychologist Dan Ariely describes an experiment in which participants are first asked to write the last 2 digits of their social security number, and then to submit mock bids on items such as wine and chocolate. The half of the audience with higher two-digit numbers would submit bids that were between 60 percent and 120 percent more. The simple act of thinking of the first number sets an “anchor” that strongly influences the second, even though there is no logical connection between them.
Suppose you are proposing a solution to a problem, which will require a $500k investment. In your presentation, it’s helpful to show that you looked at several options, but be sure to list the most expensive option first. $500k will seem less if you first tell them you considered an option that would cost $700k.
Psychologist Robert Cialdini in his book Influence, relates the story of a jeweler in Arizona who was stuck with a batch of slow-moving turquoise jewelry. Before she left town, she left a note for her assistant to mark down all the prices on it by ½. The assistant misunderstood and doubled all the prices. The entire lot sold out within days.
The old idea that you get what you pay for is so strongly ingrained in our minds, that our perceptions of value and even utility can become self-fulfilling prophecies. Studies show that the price of an aspirin can actually affect the level of reported pain relief , and even experts’ opinions of wine quality are swayed by the bottle price. Think about this before you decide to lower your price to win business. If you’re proud of having a higher price, that confidence can be contagious.
These three factors barely scratch the surface of the vast and fascinating topic of price psychology. Here are three excellent books for learning more:
Priceless: The Myth of Fair Value (And How to Take Advantage of It), by William Poundstone
Negotiating Rationally, by Max Bazerman and Margaret Neale
Predictably Irrational, by Dan Ariely
Wells Fargo Bank has given sales culture a bad name.
As someone who believes in the worth of the sales profession and strives to promote professional sales practices, I’m outraged and saddened by the actions of Wells Fargo Bank. They have tolerated, encouraged and incentivized a culture of outright fraud, and I believe responsibility extends to the highest levels.
I also have a personal connection to the banking industry: I was a commercial banker for ten years before getting into training. I was in lending, and our unique challenge was that we first had to sell the product, and then immediately begin trying to get it back! Back then, there was always tension between sales and sound banking practices. When business slowed down, we were urged to go out and find more businesses to lend money to, and the strictness of our underwriting seemed to be inversely correlated to where we were relative to quota.
But we had checks and balances, and I never saw an instance where ethical lines were crossed just to make a sale. In fact, we found that if we did a better job at selling, we had full pipelines and we could afford to be more choosy. That’s how a good sales culture works.
CEO John Stumpf’s response reminds me of the line from Casablanca: “I am shocked- shocked– to find that gambling is going on in here!” They act like they did not know what was going on, but when at least 5,300 employees were involved over five years, don’t you think anyone would notice? When accounts are systematically opened and then immediately closed after the person received quota credit, when many of the email addresses of the “account holders” used the wellsfargo.com domain name, don’t you think anyone would notice? When the person who ran the program is punished by receiving $124.6 million as she leaves, don’t you think responsibility applies to the highest levels? (And it’s not as if they’re actually taking responsibility for their actions, as this analysis shows)
Bad sales cultures don’t just happen—not to this extent and for this length of time. When a sales culture goes this wrong, there has to be responsibility and repercussions all the way up to the CEO. As the old saying goes, the fish stinks from the head first.
Would your prospects and customers pay to talk to you?
The only way that’s likely to happen is if they know you will bring them useful ideas to improve their business outcomes without wasting their time!
One of the recurring memes in the B2B sales world is the idea that salespeople are an endangered species, because buyers have so many alternative sources that they can tap to get the information they need to make an effective purchase decision. And with all the other demands on their time, it’s no wonder that buyers put off talking to salespeople for as long as they can.
When quantity is unlimited, quality counts more than ever. Precisely because there is so much information available and so many voices clamoring for the attention of your dream buyer, they will welcome a trusted voice who will give them just what they need when they need it without wasting their precious time.
My new e-book, Lean Communication for Sales, will help you to become that trusted voice, by showing how to communicate more value in fewer words—and become a valuable asset to your customers. As a B2B sales professional, your role is to deliver the information buyers need to make the best possible decision.
Lean Communication for Sales will help you communicate higher value with less waste by applying the principles of lean thinking to your sales communication process. You will be able to apply 9 powerful ideas as simply as ABCD:
- Add value: Leave your customers better off by Answering the Question that is on every buyer’s mind, and using Outside-in Thinking to communicate what they value the most.
- Brevity: Save time and boost credibility by putting your Bottom Line Up Front, and use the So What filter to eliminate clutter.
- Clarity: Ensure that your message is heard, understood, and remembered through Transparent Structure, Candor, and User-friendly Language.
- Dialogue: Co-create value with your buyer through effective dialogue, using Just-in-time Communication and Lean Listening.
Talk less, sell more: improve the quality of your customer conversations with Lean Communication for Sales!
Are you planning an overseas vacation this summer? If so, have you picked up a phrase book to learn a few useful phrases?
We Americans are probably the least likely to do so. When we visit a foreign country, we expect that everyone else will speak English, and very few of us make the effort to pick up even a few words. We find that it generally works OK as long as we stick to the crowded tourist spots where the locals have learned English so that they can sell things to us. So, we take the path of least resistance and miss out on so much of the country.
But if you do venture out to areas where English is less common, at some point you’ll probably have to communicate with someone who does not speak your language. You’ll notice that you speak louder and slower, as if shouting will get the meaning across the language barrier. What happens instead is that both sides get confused and annoyed, and communication fails. In the end the other person either walks away or if they are polite, they direct you to someone who speaks your language.
While this can make for a humorous scene in a comedy, unfortunately it’s all too common and far more serious when it happens in a sales call—except that usually the language barrier is not between English and Spanish or French, but across different “languages” that salespeople and customers speak.
Most salespeople speak the language they are most comfortable with—it’s called “product-speak”. This is natural, because they know their product better than anything else, they’re well-trained in its vocabulary, and it’s the language they speak with each other when they talk shop. So, when they venture out into a new prospect’s decision process, they expect that everyone else will speak the same language. If they find someone who understands the language, they stay in their comfort zone.
The problem with staying here is that they miss out on so much potential value, and they jostle with every other competitor who is also spending time here. The bolder salespeople venture outside the comfort zone where the real value is—but if they go unequipped to speak the language, it’s not much better than staying put. When they begin spouting product-speak at senior decision-making levels, they run the risk of a communication fail, and end up getting sent back to the “appropriate” level. As the old saying goes: in sales, you get sent to who you sound like.
The ones who venture out successfully are the ones who make the effort to learn and speak the local language. Depending on the level, the right language is either process-speak or business-speak.
Process-speak means understanding the nuts and bolts of the actual business processes or operations that your customer uses to add value to their customers, and which your solution impacts. It requires an intimate understanding of the inputs, steps, operations, and outputs. Can you help your customer make their processes faster, cheaper, better, or more reliable? Can you express those improvements in measurable terms? If so, you have the language skill to succeed at this level, and it’s usually higher and more influential than the product level. In some ways, process-speak is the hardest language to master, because every industry is different and has its own specialized processes.
Of course, some processes are complex enough that you will always benefit from having a sales engineer to translate, but it’s always useful to know enough so that you know what you don’t know.
Business-speak is spoken at the highest levels in the decision process. It’s the most intimidating for product-speak salespeople, but it’s actually easier to learn, because all businesses use a common financial language. It’s not that difficult to learn: once you pick up the terminology of financial statements, most of it is simply basic arithmetic. The first step is to get a copy of your customer’s latest annual report. You can get an excellent basic education from reading the Management’s Discussion of Financial Results section. If you get stuck on some of the terminology and concepts, I would highly recommend my own book, Bottom-Line Selling, which explains what they mean in SO WHAT sales terms.
There’s a big difference between a tourist and a traveler. The tourist flies in for a few days, a week or two at most—and spends time only where everyone else is and just skims the surface of the experience of being in that country. A traveler stays longer, ranges wider, and invests time and effort to read about the history and culture of the destination, as well as to master a few words and phrases. Tourists expect others to adapt to them, travelers adapt to others, and they know that making the effort conveys respect and opens more doors than a sense of language entitlement.
If you are going to have long term success in high-end complex B2B sales, there is no alternative to becoming fluent in more than one language.