This article was first published in Entrepreneur.com
If you think you lost your last sale on price, you’re probably wrong. If you think you’ll win your next sale by lowering your price, you’re probably wrong. And even if your customer told you that you lost the last deal on price, and hinted that you could win the next sale on price, you’ll probably still be wrong if you think it’s about price.
The simple truth is price is overrated. It’s not irrelevant—you do have to be competitive. And it’s not trivial—your price does send lots of signals. But it’s overrated. Let me explain how and why that’s true, and what it means for you.
Why Price Is Overrated
If you grew up in a western economy, you’ve been bombarded with consumer messages about price your entire life. As you got older and more educated, you heard economists talk about supply, demand and price.
If you’re in a B2B business, or even a complex B2C business, price is what your customer talks about. You hear your competitors are undercutting you; you won’t get this new account unless you drop prices, and you have to address cost-cutting pressures. The talk is all about price.
The behavior, however, is not.
Customers Don’t Walk the Price Talk
In many of my training sessions, I ask attendees to envision their most recent competitive loss and tell me how often the customer said they lost on price. The answers range from 25 percent to 60 percent.
I then ask them to envision their most recent competitive win and tell me how often they won on price. The answers range from 0 percent to 10 percent—and it’s usually 0.
Think about what that means. It means that what customers tell you they do is not what they really do. It’s not that they’re lying; they don’t intend to mislead. No, what’s going on is about the relationship—or the absence of a relationship.
Price and Relationships
Put yourself in the position of a buyer. You ask for bids on widgets from Seller A and Seller B. You need good widget quality; if you have problems, you want prompt, responsive service.
Both sellers have a good product, but you feel better about Seller A—you get along with them, they seem sincerely interested in you, they’re responsive to your questions, they seem to get who you are and what your business is. Seller A is also priced 4 percent higher than Seller B.
It’s probably an easy decision to go with Seller A. The 4 percent price premium is worth it to you to sleep well at night. You might bargain them down, but you’d be willing to live with the 4 percent.
Now what do you tell Seller B? You don’t want to offend them—they’ve done nothing wrong. You want them around to bid again in the future. At the same time, you have no intention of getting into a fluffy discussion about organizational “fit” or chemistry with a losing bidder you don’t know well. What do you do?
You tell them their price was too high. It’s true enough; if their price had been 20 percent lower, you might have gone with them. And they can’t ask for data, because it would be illegal or unethical to share it. So you’re safe blaming price.
And that’s what happens. Price is the socially acceptable way of saying no. It’s the business equivalent of “It’s not you; it’s me.” It’s what you tell your suppliers the problem is. And if they don’t understand the real issue, that’s their problem.
The final proof: If the customer really did want you, but your price was too high, what would they do? They’d come back to you and say they want you, but that you have to lower your price.
Price does many things. It’s a cost to the customer, it’s a competitive signal and it’s your profit. But it’s also a signal about your relationship.
If your customer says you lost on price, odds are you have no relationship. Go work on that, not on your price. If you have a good relationship, you’ll at least get an honest discussion on price, not an excuse.