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
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!
Recently, I had the privilege of working with the global sales team of a large manufacturing company based in California. They are in a very competitive industry that is dominated by a tough, savvy Goliath, and they have to scrap and scrape every single day for every single fraction of a point of market share. Their CEO kicked off the meeting with a phrase that resonated with me and led to the idea for this post. He said, “Every morning when I wake up I thank God for ____. They force us to become better and better in almost every way.”
Competition has a way of doing that to people. Having a tough competitor reminds you every day that you have to give your best or you will lose. It also makes you realize that when you have done your best and prevailed, that tomorrow your best will not be good enough. Competition is what fuels your motivation to step out of your comfort zone and push your perceived limits. Competitors keep you hungry by constantly striving to take the food off your table, and they supply just the right amount of fear that keeps your edge and drives your growth.
Deliberate practice, which is the only way to achieve mastery of any field, requires an expert coach who can quickly spot what you need to improve, get you out of your comfort zone, and supply immediate meaningful feedback on your performance. In this sense, a tough competitor can be your most effective coach.
Every area of life contains examples of competitive rivalries that made the participants greater: Ali and Frazier, Jobs and Gates, Adams and Jefferson. Who knows if each of those would have achieved the same heights if they did not have the other constantly pushing them harder and harder?
As salespeople—and just plain humans—we prefer for things to go as easily and smoothly as possible. We like it when our competitors aren’t too tough and our customers are not too demanding. When that happens, it’s easy to settle into cruise control and take life easy. Unexpected challenges are viewed as problems to be overcome so that we can get back to our comfortable lives. But that’s a sign of a fixed mindset that mires us in mediocrity.
When we have a growth mindset that views challenges as feedback that clarifies the path to improvement, there are very few limits to what we can achieve. How do you know when you truly have a growth mindset? When you thank God every day for your toughest competitors.
Any salesperson has had this experience: a prospect or existing customer ignores your efforts to engage for months, and then suddenly one morning you get a call or an email when they need something right away. In an instant, you go from a total nonentity to the most important person in your prospect’s life. Or maybe you’re giving a presentation about your product, when suddenly an audience member perks up and says “tell me more about that,” and what you thought was a minor detail might be the missing piece to the big sale.
These familiar experiences underscore the importance of the pull principle in lean communication for sales. In lean thinking, pull is the idea that the customer dictates the rate at which the product is produced and delivered. You need it in selling as well, because no matter how well prepared you are, you will never know exactly how the customer is going to react.
Using pull in selling is about three things: timing, credibility, and responsive listening.
Timing. In lean thinking, pull means that the customer dictates the rate and timing of production, and the goal is to produce only what the customer needs when they need it. Transferring that idea to communication, it means that you provide just the right information the listener needs when they need it. Of course, to make this work, you have to be extremely responsive. When they want their questions answered, they want them answered right away. As Andy Paul says, responsiveness = information + speed.
Extending that idea to sales conversations, it means that you don’t “sell” until the customer is ready to buy. For example, if you lead with a description of your product and the benefits it brings, the customer may not be ready yet to hear that. What Churchill said about learning, “I am always ready to learn, although I do not always like being taught” applies equally to buying. Most people don’t like to be sold, but they do like to buy. That’s another way of saying that they like to be in control of the rate of information they receive which helps them arrive at a decision. Give the customer the sense of control that will make them comfortable with their decision by using pull. Don’t “Always Be Closing”, but always be ready to close.
Credibility. Pull is not simply about passively responding to your customer’s questions or requests for information. You can use pull in the other direction as well, by asking questions to gently pull the customer’s thoughts in certain directions. Who does your customer find to be the most credible person in the world? Themselves. Whose opinion does the customer trust above all others? Their own. How do you get them to express that opinion? By asking questions.
That means that if you can get them to tell you the story you want them to hear, they will believe it because they told it. For example, if they acknowledge they have a problem but don’t seem to recognize the impact that problem has on their business, you have a perfect right—even an obligation—to ask questions to focus on the costs. In fact, questions can be more lean that direct statements. If you tell them directly about the consequences and they accept your statement, of course that is extremely efficient. But more often than not, you tell them about the consequences and they don’t believe you, or they push back, or they ask for clarification, or they agree superficially but don’t stick to their agreement later when they’ve had a chance to think about it, in which case it can become very inefficient. But ask someone a question, watch the lightbulb come on in their mind as they ponder the answer, and you not only get the effect you want faster, but it’s stickier.
Responsive listening. Just being a good listener is not enough. You can be the best listener in the room but it won’t do you any good unless the customer realizes it. In other words, your listening has to be real, and it has to be perceived by the customer as real. That means that in addition to listening closely to what the customer is saying and not saying, you also have to indicate physically that you are paying attention, reflect what you’re hearing and probe when appropriate.
But more importantly, you have to respond meaningfully, which in lean communication means that you actually do something with what you’ve heard. Responsive listening is about sharing the second conversation that is going on inside your head, so that they know they are being heard and their words are having an effect on your thinking. For example, if the customer mentions a concern, don’t simply use that as a cue to deploy your objection-handling algorithm; tell them how you will handle the issue or how you will accommodate that need. When they know their words are having an effect, they will likely open up even more.