The great temptation when your sales volumes are low is to lower your prices.
Last week I was talking to a company, whose business could be loosely described as selling media services to other businesses. Sales volumes are low and the business owner had, like many business owners before him, lowered prices in the belief that sales would increase if he made the service more affordable.
But will it work?
Price has much in common with a misfit child. It is routinely blamed, rarely responsible and largely misunderstood. Whether or not a lower price will result in an increase in sales depends (among other things) on who your buyer is.
There are four types of buyer and, as you will see, the price button doesn’t need to be pushed with all of them.
The value buyer
These are the guys who want to know how your product can add value. They are very analytical and when you meet them they can come across as cold.
If you are selling something that will enhance the efficiency of their business they will want to know exactly how many dollars they will save if they use your product. And if you can’t give them that detail then you are wasting your time.
These guys don’t care how cheap your product is, they just want to know what it is going to do for them
The relationship buyer
These customers want to be taken care of. They are looking for a supplier who they can trust to bring them the right products because they don’t have the expertise to do the evaluation themselves.
If you work with these guys they will want you to love their business just as much as they do.
These guys are friendly but cautious and it takes a long time to earn their trust.
The worst thing you can do to a relationship buyer is to give them the hard sell. Talk too much about price and they will flee.
The price buyer
These guys care only about price so you can forget tempting them with value-adds or trying to build a relationship. They are very aggressive and see everything as a commodity. The trouble with these guys is that they have no loyalty, when a lower cost provider comes along they will drop you instantly.
The teaser
These guys just love to play games.
They will flirt with you to make you think they are a relationship buyer, then they will get all price conscious to make you think they are a price buyer. Just when you get close to agreement on price they will start asking you to add bells and whistles into your service because now they want value.
For these guys purchasing is sport and one of their favorite games is pitching top quality businesses against lowest cost players just to see what happens!
The media business I mentioned earlier slashed their prices before doing their homework.
A business of their size simply doesn’t have the right internal cost structure to make money out of selling to a price buyer, and, to be honest, the team is hopeless at playing games and so should avoid the teaser buyer.
What the business is good at though is selling to relationship buyers and it can learn how to better sell to value buyers.
My advice to the business was this, when targeting a:
And my last piece of advice was to put their prices back up!
Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses: Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of “How to Bake a Business” and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).
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