In my previous job, I’ve been responsible for the pricing strategy for quite some time, and consequently, I’ve had many discussions with people in the business about the ‘size of our price.’ No matter what we changed – it always seemed too high for one, and too low for the other. My key take away: Lowering your price is a sign of weakness. It’s the easiest way out. You’ve failed to make a difference.
The software you need, and software you want
Honestly, being responsible for pricing strategy taught me a lot, but it’s been a love/hate relationship. Fact is, your price determines the value of your business and as such you’d better master that art. We were selling the commodity of commodities: Back-office software. As our CEO always said: There’s software you need, and there’s software you want. ERP / Finance/ HR and so forth, are in the first category. It’s a necessary evil. A cost of doing business.
That doesn’t mean there is no value and that the price needs to be low. We were competing against the big guns of the world – SAP, Oracle, Microsoft Dynamics, Workday, you name it. Doing business in +26 countries around the world our position was sometimes ‘market leader’ and sometimes ‘entrant.’
So here’s the odd thing: no matter where we were selling, the argument we always had was: ‘We need to gain market share, so we need to lower our price.’ Alternatively, ‘We are the market leader, our competition is undercutting our price, so to get the business we need to lower our price.’
Ignore the pricelist
No matter what happened, many people thought we needed to be cheaper to sell something. It drove me nuts. That said, there was one thing that kept me sane – some parts of the business proved that we could sell at twice the price of our nearest competitor. They promised we could sell at ‘list price,’ or even sell above that. These teams took our latest 2016 pricelist, saw the ‘new’ prices and either ignored it completely by keeping their ‘higher’ 2015 version or raised the 2016 edition with at least 20%. They knew they could sell higher value.
So that’s what it’s about – are you selling value or a commodity. As Seth Godin once said: ‘When you are the cheapest you do not promise change. You sell the same, but cheaper.’ There’s so much truth in that.
People told me that ‘local government was the toughest to sell to. They even had their own rules about how much something was ‘allowed to cost’ per year. The central government cut its budget every single year. They had no money, but always were expected to do more and more.’
To me, that’s a value signal of its best kind. They are not a sad bunch; they just have a business pain that’s screaming to be solved. If you can convince them about the shift in value your solution will bring, I guarantee you; they will be happy to pay a premium. However, it means you have to sell your difference. You have to sell change. Once you do that, you’re able to not only sell at double the price of your competitors; you’ll also start to win more. That’s where you’ll gain momentum.
Here are some tips that will help you make the shift
Sell the idea, not the product
For your prospect, it’s not about your product or the price of it. If there’s actual value, they are always prepared to pay a premium. To arrive at that, you have to sell the idea, not the product. You do that by selling the change you’ll create and the shift in value that comes with it. Although your customer might think they are coming to market for Accounts Payable or Procurement or CRM, at the end what they are ‘buying’ is control, cost leadership or competitive advantage, the confidence they can grow triple digits every single year.
By selling the idea you bring in emotional aspects, and they have a completely different value than the cold facts. You want to move away from those hard facts. The only thing you’ll do is to make the deal a calculation. Your customer will love that especially if they are in Finance or Procurement. They want to compare apples with apples. Moreover, it might even be that they’ll still decide on their apples to apples comparison but guaranteed – the vendor that has sold them on the idea will be awarded the deal, at the highest price.
Understand the urgency
Urgency impacts the size of the price. First of all, if there’s no pain, there’s no urgency. Your prospect might buy, but only at the lowest price, simply because it’s a bargain, they could not resist. That’s a situation you want to avoid at all cost.
Fact is, sometimes there is obvious pain, but the urgency isn’t there (yet). Your difference here depends on your ability to create that urgency for them. That could be by selling the idea, like described above. However, there are more techniques. It comes down to truly understanding their aspirations and fears.
• Spell out how your solution will not only address the project’s requirements, but also how it impacts on the larger company goals and vision.
• Articulate the external pressures they don’t control but have to deal with one way or the other. Good chance you are bringing in new perspectives that will give you credit.
• Address the risk of doing nothing. What could happen if they buy an inferior solution, or worse if they buy nothing? If you credibly do this, it will help to win them over.
Again, we’re all humans – but the mix of blending the hard facts with emotion is a formula for obtaining the highest price.
Focus on the lowest common denominator
Steer away from the big ACV number. It’s this price your prospect is always going to attack. Moreover, the risk is, you might even believe yourself that the end price is a ‘good on.’ That’s especially dangerous. If it’s an ACV of $500K that doesn’t mean it’s a good price just because it represents 30% of your annual target. You could very well get your customer to feel happy about paying triple that price.
Instead, bring your price down to the lowest denominator that makes the most sense to your customer: If you’re selling to local government, make that not price per user, but for example price per citizen per month. If it’s to Schools & University – make it ‘Price per student per month.’
If your able to sell them on the idea and create a real sense of urgency you’ll have an easy job of selling them on this, It all boils down to the value perception in the eyes of your customer. If the value shift you bring is compelling, the price will never be an argument. They’ll likely feel it’s a bargain, and won’t even tell you.