The conversation always seems to be on how to lower a price to allow more sales to be made.
Let’s turn this around and ask the question a different way. Can a cheap price hurt your sales?
We need to first eliminate from the discussion items sold in a commodity environment or items sold in mass quantities such as consumer package goods, because these fall into a different line of discussion.
Let’s look at this question in the perspective of a service being sold or a moderate to high price point item. These could be either B2B or B2C.
When we lower our price and are seen as cheap, we are doing two things. First, we’re changing how customers view and feel about the price-to-value relationship on what we sell. Second, we’re changing our sales process, because we’re working on a lower gross margin.
Let’s look at both of these.
First, with regard to how customers view us — Many times when we alter the price-to-value relationship, we wind up altering the customer profile, which then raises the question, “Are you attracting the right customer?”
Sure, arguments can be made that any customer who can pay is a good customer, but I’ll contend that there is a group of “cheap customers” who will only buy based on price. These are the type of people who will then fight with you on everything else.
If this is the segment you are attracting, then not only are you selling at a lower gross margin, but you’re also increasing your cost of servicing customers at the same time. In my book, that is a lose-lose type of situation.
Second point is the one of changing your sales process because of lower gross margins. If you’re selling at a lower price and now have to complete “x” amount of additional sales to make the same total profit number, then what you’ve done is decreased the quality of your selling time.
The most important asset for any salesperson is their time and how they use it.
If the salesperson no longer has the ability to develop prospects and work with them to understand full value, then they can quickly wind up being nothing more than order-takers.
Yes, the argument is much more extensive on both sides of the fence than what I laid out here, but my objective is simple.
Before being so quick to cut your price, you need to understand what the implications can be — both in the short-term and long-term.
Copyright 2013, Mark Hunter “The Sales Hunter.” Sales Motivation Blog.