There is no such thing as a commodity. Whenever I make this statement in a classroom, it’s usually good for an argument, and I expect to start one with this article.
First, a couple of definitions: A commodity is an offering that is only differentiated by its price, so that customers would be silly to pay a penny more for one offering over another. The word offering is also important, because no product exists by itself—it’s always part of an offering. Offering comprises every possible aspect of the buying and ownership experience that will affect your customer.
We’ll begin with your offering. For the price your customer pays, they get much more than the physical product itself. That’s why even products that are physically indistinguishable can command price premiums. When is the last time you bought bottled water? You can get it as much as you want from a tap for about three-tenths of a cent per gallon, or you can drive to a store and pay up to $4-5 per gallon. Is it worth it? Apparently people are willing to pay for the “difference”: global bottled water sales are expected to top $86 billion in 2011, about equal to the GDP of Bulgaria.
People are willing to pay the difference because sellers tout differences in purity, taste, packaging, and image—even when those differences are undetectable in blind taste tests. If they can do it with water, you should have no problem.
One of the most vexing issues facing salespeople is how to win a sale when their solution is not the lowest-priced alternative available to the prospect. Some of them positively dread the moment in the sales cycle when the buyer says: “We like your product, but we can get the same thing cheaper somewhere else, so you’re going to have to sharpen your pencil if you want the deal.”
Often when that happens, the salesperson goes into high-gear selling mode—but this time they target their manager, trying to get a pricing exception to win the business.
Although there are no foolproof ways to defeat the price objection, there are so many avenues available to you that discounts, if any, should be a last resort. It’s such a big topic that I’m going to break it up into a series of articles, but let me start the discussion by addressing the psychology of pricing, as it affects the mind of both the buyer and the seller.