The Dirty Truth About Price

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.

Sales Efficiency Can Hurt Your Marketing

It seems like an irrefutable truth—improve your sales efficiency, and you’ll get more sales for less cost and you’ll squeeze more results out of the same number of hours in the day. What could possibly be wrong with that?

Believe it or not, quite a bit; that’s because efficiency savings rarely come out of nowhere. Like pushing on an inflated balloon or playing a game of Whac-A-Mole, what you save in efficiency can cost you in effectiveness. Put another way, what you think you save in sales may actually cost you in marketing.

There are two main ways this can happen: One is by looking for cheaper lead generation, and the other is by looking for sharper lead qualification.

Cutting Your Cost per Lead

You can always reduce your cost per lead; just find a medium that offers lower cost exposure. Ah, but it’s not that simple. There’s a reason Mercedes dealers don’t advertise on Craigslist, and it’s not just cost per lead—it also has to do with marketing and the messages you want to send.

Buyers of a Mercedes (or any other high-end product) view themselves as very particular people. Their sense of self is reflected in a thousand ways, ranging from the restaurants they frequent to the shoes they wear—and most certainly their buying habits.

Your average Mercedes buyer may use Craigslist—just not to buy a Mercedes. How you sell is a big part of marketing who you are. You wouldn’t wear a pair of faded jeans on a sales call to a bank; it sends the wrong marketing message. Using the wrong kind of lead generation does the same thing; it sends the wrong marketing message.

Cutting Your Sales Cost Through Better Lead Qualification

Most of us get why not to wear jeans on a corporate sales call. Not nearly as many of us get how tighter lead qualification can actually hurt marketing. After all, what could be wrong with saving time, focusing on high-quality leads and quickly eliminating wasted sales effort?

Well, remember Julia Roberts’ famous shopping scenes in the 1991 movie Pretty Woman? At first, she’s snubbed by the salesladies in the fancy Rodeo Drive stores; later, of course, she returns in triumph. Those salesladies were simply doing lead qualification, screening out a low-probability sale.

You might say “What are the odds of a customer returning in a week with millions to spend?” Well, the odds are vastly greater than they were in 1991. Not every snubbed buyer will be worth a fortune, but everyone has friends—and they all have Facebook pages and Twitter handles—and they talk. A lot.

Every time you screen someone out—especially if it’s in a way that can feel hurtful—you’re poisoning your own well, taking away your own brand equity and personal reputation.

Suppose you visit a financial planner only to be politely but clearly told you don’t have sufficient assets to qualify for their advice. What would you tell your friends about that planner? Don’t make your customers feel that way.

Suppose you go to a jeweler to buy something special for a loved one, and the jeweler makes you feel cheap for not wanting to look at something far more expensive than you can afford. Would you refer your friends to that jeweler?

The truth is, great lead qualification can actually improve your marketing as well as cut sales costs. When you screen someone out, take a few minutes to explain clearly why the fit is not right (if you can’t explain why, you have a bigger problem). Offer them some free advice on where else to look, if you can. Do something to make them feel glad they came to you, even if it didn’t work out as they planned.

It costs you but a few minutes, and the impact can be huge. That’s not bad selling; that’s great marketing.

How Social Media Are Ruining Your Lead Qualification Strategy

This article was first published in Customer Collective

You may have noticed it already, or it may be lurking in background. You’ll see it soon enough.

Your traditional lead qualification methods are under attack from new social media. And that is not a bad thing: it’s a good thing. As long as you recognize it.

Traditional Lead Qualification

Traditional lead qualification strategies are based on two implicit assumptions. Firstly, that there is an unlimited number of leads. Secondly, that those leads are largely independent of each other.

The combination of those assumptions leads most businesses to think of lead qualification as an exercise in efficiency. Here’s a sample quote from one lead-qualification vendor’s website:

…your selling assets can spend their valuable time “selling” to prospects that have the need, the budgets and the necessary decision making ability to purchase. No longer will your sales arm have to waste time flailing around trying to find the gold nuggets within an inquiry pool.

In other words: the goal of most approaches to lead qualification is to get rid of those least likely to buy, in the least costly manner possible. And as long as the two implicit beliefs hold true—there is an unlimited number of leads, and they are all independent of each other—no problem.

How Social Media Changes the Game

Enter new social media. Suddenly assumption number one looks naive. It always was naive; we all knew in the back of our minds it was naive, but we could afford to ignore it. But now that you can slice and dice data about potential customers in infinite ways, the finite nature of that number appears much more clearly.

Yet the real killer is assumption two. The whole point of all social media is that they are, in fact, social. Your customers do in fact talk to each other. In a nutshell, that’s the revolution.

As I heard SAP put it a few months ago, CRM systems used to capture all the dialogue—between seller and customer. Only now, they’ve realized that was only 5% of the real dialogue. The other 95% of the real dialogue happens between customers.

What Social Media Does to Lead Qualification

Now we can see the impending collision. If your attempts at lead qualification are based solely on sellers’ efficiencies, then they are likely to be fast, impersonal, machine- and bureaucratic-driven, and low on customer sensitivity. Phone sales reps will be incented to get you off the phone ASAP, impersonal website forms are designed to shunt you off to another machine as soon as possible. Massive efficiency-driven lead qualification programs are practically designed from the outset to cut relationships off as soon as possible, keeping just a few high-potential opportunities.

But now customers—and potential customers—and and do talk to each other. And the more they talk, they more they build impressions. In the old days, the rule of thumb was that a good experience would be relayed to 5 people, a bad experience to maybe 20. In the days of social media, you can add several zeros to those numbers. And the elapsed time can be days, even hours.

Suddenly, efficiency-driven seller-centric lead qualification programs can be seen as brand-name destroyers; marketing-killers; and a fast route to downgrading the company’s reputation.

Suddenly, the old approach to lead qualification is destroying marketing effectiveness.

The New Lead Qualification

The implication is that no longer can we separate lead qualification from marketing. The way you handle potential customers is intimately bound up with the creation of the company’s image—every bit as much as customer service, or existing marketing programs.

From here on, lead qualification has to take its cue from the inbound marketing movement. How you treat people affects how they treat you—and word gets around. Lead qualification now has to be viewed in a longer time context, and as part of an integrated approach to branding, image enhancement, and demand creation.

In simpler terms: take 10-20% more time to help your leads, offer them value, make a positive impression, create future demand—call it what you will. Just don’t treat them as unlimited, unconnected, blank faces to be harvested; how you treat them is how the world will treat you.

Objections Are Not Your Enemy

This article was first published in Entrepreneur.com

One of the many disturbing scenes in the 2000 movie “Boiler Room” is the alpha-salesman-speak of Ben Affleck’s character, who concludes:

There is no such thing as a ‘no sale’ call. A sale is made on every call you make. You either sell the client some stock or he sells you a reason he can’t. Either way it’s a sale. The question is, who’s gonna close, you or him?

If you’ve taken sales training courses, or read books on improving selling skills chances are you’ve heard lots about “handling” objections. Usually with objections represented as obstacles to your ability to close a sale.

At the risk of appearing arrogant or even heretical, let me offer a radical suggestion to you; the whole idea of objections is misguided—you need to re-think most of what you’ve learned.

To start, what are you really thinking when you talk about handling objections?

Most internal monologues fall into one of two categories:

  1. “All right, I’m getting close to closing the sale; I saw the buyer, I’ve got them to agree on the problem. I’ve got them hooked on some features and I can see light at the end of the tunnel. All that’s left is to jujitsu flip a few objections, and we’re home free. Bring it on, let’s see what you’ve got—I can handle your objections!”
  2. The other version probably sounds like this: “Omigosh, it’s gone well so far, knock on wood. I hope they don’t throw me some curve ball, this is the part I hate. I really want to close this one, if I can just get past the objections.”

You may notice the first version sounds optimistic and positive while the second sounds fearful, even defeatist. But what people don’t usually notice is how much alike those two versions are.

Both versions envision a battle between buyer and seller—one of whom shall “win” by subduing the other. Think of all the metaphors salespeople use when talking about this situation: Can you hit the curveball? Can you get it back over the net? It’s third and goal, can you get the first down? Are you tough enough to go the last round?

This combative way of thinking is baked into most approaches to sales. That’s because nearly every sales model is a model of a transaction, not a relationship. Other than the occasional arrow that says “go back to Step B and repeat,” the models are the equivalent of a business one-night stand. If closing the deal is all you’re looking for, you won’t get much customer loyalty or repeat business. Where is it written that you should be your customer’s enemy?

Here’s the other, better, way to think.

An objection means the buyer cares enough about you and the sale to want to explore it with you. They’re telling you about a concern they have, in the hopes you’ll help them resolve it. Your enemy is not the customer; your enemy is disengagement. And an objection demonstrates that the customer is very much engaged.

When you get an objection, recognize it as an opportunity. If you and your customer can resolve it, great, you’ll get a sale. And if you can’t resolves it, well it’s almost certainly because it’s just not the right thing for your customer just now.

Amazingly, you get even more credit if you back out gracefully when your offer isn’t right. Your customer will be surprised, and appreciative. And you’ll increase the odds of getting the next sale, and the one after that.

Anyway, people vastly prefer to buy what they need from people they trust. So help them resolve their objections and be secure in knowing you’ve improved the long-term relationship—and your long-term sales.