I recently posted the following on my Facebook page:
“When you sell on price you are a commodity.
When you sell on value you are a resource.”
One person suggested: “So let’s lower the price and raise the value.”
I replied that in certain very specific situations, that works. Not too often, though.
By and large, when you “compete” on price, it’s a losing proposition for everyone involved.
Yes, everyone. Obviously for the one who didn’t get the sale because…they didn’t get the sale.
But, also for the company that did get the sale. After all, by lowering their price, their profit margin shrinks. It is harder to service the account, invest money in other necessary areas and, if they do this too often, perhaps even to remain in business.
Key Point: And, when someone buys from you only because you had the lowest price, they will be “loyal” to you only until someone comes along with an even lower price than yours. This is commonly known as “the race to the bottom.” Again, it’s a race that everyone loses.
Everyone? But, what about customer; they certainly didn’t lose.
Actually, especially the customer. When their vendor can not afford to service the sale, they lose. When their vendor goes out of business, they lose.
On the other hand, when you sell based on value (not just the intrinsic value of your product or service, but the entire customer experience), you have added much more in “use value” to their lives than what they paid, while also making the substantial profit you deserve.
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Bob – I agree that there are different tactics depending on what you sell to SOME degree, but I agree with Bob Burg on this – fundamentally it has to be the value of what you are selling to an individual not the cost. You mentioned you are in IT Hardware and I am aware of the high level of competition and repetition in that space. Cost definitely plays a factor, but if you take steps to create a relationship with a potential customer then you are creating something with a much longer life cycle. The value could simply be YOU and your interaction with that potential customer. If 8 IT Hardware companies price a product the exact same, what differentiates one from another? The sales individual creating VALUE by establishing a relationship with that consumer….
Great advice, Diane. And, yes, it’s key to be able to find a way to communicate the additional value. In a basically commodity-based business (and these days, due to technological advancement, there is often not much difference in the quality and functionality of a particular product), it’s the salesperson/business that must “be” that extra value. Often, this is communicated via excellence, consistency, attention, empathy and appreciation, among other ways. Not always easy to communicate it, especially in RFP situations. It’s also a reason why referrals are so important in most situations. Thank you for sharing with us!
Thanks Bob. We can not hear this enough. Especially today, when everyone is focusing on saving a dollar on everything, be it products or service. I have heard this a lot and it never gets old, look at the “Value” you’re gaining, not the “Price” you’re paying. Yes, I know, we all have to cnsider the price, but the Value is what matters most. Thanks again Bob. Always relevant.
The CARE Movement
This is very good stuff! I hope you do not mind, I added it to my “swipe” file.
Great points, Bob!
I’ve also observed that there’s a direct correlation between the customer’s level of investment, financial or otherwise, and their commitment to and cooperation with the solution you offer to make it work. Make it too cheap and they won’t even believe in it enough to give it a real shot.
Great blog, Bob. I can never be reminded enough to sell on value! In my clothing business, great quality/well fitting clothing has to be a ‘given’. The personal service, convenience, …my expertise are the added value that result in loyal clients/friends. The recession tempted me to go down that “lower my price” road. I have no reason to become “a commodity”! Thanks, again. All my best.
The question that follows then is how to determine the price to use… maybe another post 😉
Awesome points! We all face this…here is what I did starting on June 1 to combat the fact that we were not getting sales for Offices that only had a few people in them. We rarely had price objections for other sized offices.
So on June 1, I launched a 2 Tier Pricing program…1-15 people in a office and there is a menu of prices…16 and more…same thing. We immediately saw results and now are gaining weekly traction in that 3 person Insurance Agency…2 person Chiropractors Office…etc.
That slight shift and personal pricing tiers really helped us access that segment.
Thank you, Al!
Michael, not at all. Just link back to from where thy swiped it. 😉
Mary, thank you. And, you are correct. In your business, it’s a definite. And, personally being one of your customers, I can vouch for the high quality and value you provide!
Great idea, Jen. Of course, that’s always the $64,000 question (and, please don’t discount that) 😉
Rich, terrific idea, my friend. Good (Great!) for you!
Marc, my apologies; did not see your comment until now. Yes, you make an excellent point. That is quite often the case. Along with actual value, there is also the perception of value. Price something to cheap, and that’s just how they might see it’s value, as well!!
Yea, great, sounds good in theory. Looks great on a blog. But it’s so far from reality. The first disclaimer on this should state: IT ENTIRELY DEPENDS ON WHAT YOU ARE SELLING.
I sell IT hardware. It’s all about price. Customers buy on price. Public RFPs go out and price wins. Corporate purchasing agents buy solely on price.
For those who can sell at a higher price, 9 times out of 10, it’s based on fear (Example: You have to buy my product, because otherwise the World is going to explode and you are all going to die (see: Cisco)).
I think the more important piece here is standing firm on your price and not dropping your pants at the first sign of an “I’m not sure…”. Re-assuring proposed value. Being strong. That’s the most important piece of maintaining prices and profits.
Hi Bob. First, please notice that the very first part of my response within the article does cover the disclaimer. And, while indeed, it does depend upon the situation, it’s far less dependent upon that than most people think it is. And, yes, there’s a time and place for everything.
None the less, while I understand your concern, I respectfully disagree with your premise. I also take some exception with the way you phrased it. Your first three paragraphs didn’t simply disagree with me (which is totally acceptable as well as very welcome) but were stated in a disagreeable way. So, one thing you might want to do is consider how you might be communicating with your prospects, as well (just a thought, of course).
Now, regarding your feeling that it is all about price, the RFPs, etc. I understand what you’re saying. My experience has been that, while that is the way the prospects might desire to control the situation (and, sometimes, while they don’t want to, they are pressured to do so), that is not the only way for you to transact business.
In terms of your fourth paragraph, I think you make an excellent point.
Wow! This is just a phenomenal post. We don’t hear this a lot these days when buying “cheap” is considered as buying “smart”. I fully and absolutely agree with you and this is the reason your books are so interesting to read.
“When someone buys from you only because you had the lowest price, they will be “loyal” to you only until someone comes along with an even lower price than yours.” – This is just the bottom line which many times gets overlooked.
I am still reading your book GO-GIVERS SELL MORE. Awesome book!
Snigdha, thank you for your always kind and encouraging comments. And, I’m very grateful that you are enjoying GGSM! 🙂
Great article Bob!
I used to have a dear friend named Tom Zorn that often presented on this FACT. I hope I’m remembering his value formula correctly when I say: “value = cost + benefit”.
He did a great talk using the example of providing value by supplying coca cola to office building employees.
(He loves his coca cola. 🙂 )
I’m grateful to both of you for shinning light on the topic.
Hi Kelly. I like that. Yes, I’ve seen similar formulas and it’s a great way to look at it. Tom sounds like an excellent teacher. I’d have to put my Dunkin’ Donuts Coffee up against his Coca Cola though. LOL. Seriously, thank you for your kind comment. My regards to Kris. Hope to see y’all again soon!
Such a pleasure learning from your vast experience and wisdom Bob.
In my own process of learning how to add value, much of it has been learning to effectively communicate the value. This is SKILLS 101 for me.
I’m learning from one of the best of late, and that is my greatest gift to myself and my own value at this point.
Exciting learning process!
Thank you, Jennifer. i see you doing it better and better all the time. By the way, terrific job in the interview series you did recently. Awesome!!
Bob, as a consumer, I totally live this. I’ve been burned a few times from the cheapest or lowest price, and what you describe ends up happening. Costs more money than if I would have just gone with the value offering anyway.
What is hard as a business owner is getting potential clients to see that perspective. I have taken the approach of building on the relationship, trust, offering information and insights for free, believing that at some point that strategy will pay off and I will have as many clients as I want. Time will tell. Any insights you have are always appreciated!
Bob (the commenter),
Perhaps you haven’t yet observed or experienced that there are customers for whom certain propositions are more valuable than the money saved. Quality that can reduce the number of costly future replacements is one example. Service would be another – whether that means they are better at fulfillment, delivery, and installation as others might be, or that they offer a service no other company in their field offers, such as regular maintenance or even training for the end-users to make the most out of the equipment.
You’ve probably opted for quality and service over price yourself many times in your own lifetime as a customer but haven’t made the mindset shift necessary to truly empathize with their needs rather than sympathize with their demands.
Marc, I think that is an excellent point you raise. And, I do empathize with Bob (the commenter). What I’d like for him to do is to find a way to develop a relationship with someone within the company so that he is not left having to submit an RFP where, because of either the prospective company’s laziness (“it’s just how we do it”) or ignorance they buy strictly on lowest price. This is one reason why referrals are so important, but this can also be done without referrals and with a focus on research and creativity.
Again, I love what you wrote. And, I believe that – in general – the higher priced a product or service is, the *less* they will buy on price. Most products or services of any substance are simply too important for price to be the determining factor. I also really appreciate your last sentence. Terrific!!
Hi Remy, indeed, I think that we have all – or at least most of us – learned this lesson the hard way at one time or another. It is illustrated beautifully in these two sayings by John Ruskin. The second one is one of my all-time favorites in this regard: https://burg.com/ruskin.html.
Regarding your second paragraph, yes, it can be difficult. Of course, that’s why it’s called “selling” and not “order-taking.” 🙂 Seriously, though…the key is to be able to communicate the value as it is seen as value *by the prospect.” This is why asking the right questions is so important. Only when we as salespeople can understand what *they* see as ultimate value rather than on what we the salesperson thinks is of ultimate value are we in a position to help them recognize that the value is far about the price they are being asked to pay.
Regarding the relationship-building part, absolutely, that is very important. And, it should lead to greater clarity and understanding. Remember, they can “know, like and trust you”…heck, they can LOVE you, but if they don’t see the value as being greater than the price, the chances are they are not going to buy.
Sounds like you are on the right track though. Keep working at it, Remy. And, remember, invest in some of the finer sales books out there such as by Brian Tracy (Psychology of Selling), Neil Rackham (S.P.I.N Selling – SPIN stands for “Situation Situation, Problem, Implication, Need-payoff) and others that will help you in this regard.
I enjoyed your article. I am learning that when you value yourself and the service/product you offer, you do not lower the price. You will attract clients who will value and appreciate what they are receiving.
Very nicely said, Carol. A huge part of it is the value you place on yourself and your product/service. Excellent, my friend!
Whenever the words “compete” or “competition” come up in my mind, I catch ’em right away and toss them out.
Those who know their true value never have to compete with everybody.
Sure, other people work in our fields, but if we are in harmony with a select group, and work with them, and release on folks who use silly competitive “dog-eat-dog” tactics, ignoring their resistance-forming ways, we are free from competition.
We work with high energy folks, eradicating the idea of competition.
The more you reside on a creative plane of thought, the more value you provide, the less you even dwell on the idea of competition, or lowering your price to look good next to the next guy.
Thanks for sharing Bob.
Thank you, Ryan. I appreciate your sharing your wisdom with us. And, yes, while we need to be aware of those also in our field, our focus is best and most productively placed on the competitive plane. This is not to say that we we don’t know who the “competition” is and even know their products, services, etc. inside and out (this is part of business and part of life). The key, however, is where we place our focus; and that is on how we can best add exceptional value to our prospect/customer. Thank you again, Ryan!
I have always maintained that everything has 3 potential prices –
1) The bargain the customer would like to get
2) The price the vendor would love to achieve
3) The real value of your offer
If you have a viable business trading at number 3 success is yours for the taking.
Hi Phil. Welcome our discussion. Yes, final value is ultimately determined by what the seller agrees to sell for and what the buyer agrees to buy for. So often (and, very unfortunately) number three is perceived by the seller to be so much lower than it needs to be.
Hey Bob! This is such an awesome post and such an awesome and valuable discussion! (And super timely as I’ve been raising my prices and dealing with some of the value issues/doubts/fears/worries that inevitably spring up.) Super appreciate all the different points of view/takes on this. I can’t tell you how much my business and personal life has grown and flourished thanks to your work. (I can’t believe this blog is free! Lol) And thanks to all who take the time to comment and share their hard earned wisdom/insights!
Sean, thank you for your extremely kind words. And, regarding your last sentence…absolutely; I’m so appreciative of the many people who consistently (or, even just sometimes) contribute their thoughts, wisdom and insights!
Hi Bob, I can’t tell you how much I needed to hear that right now and mary’s response!! I’m a Fashion Designer and work one on one with clients from start to completion and follow up. I’ve been torn between lowering my price or increasing my price because of the value people get from EVERYTHING I do. Thank you Thank you Thank you! I’d love to connect with Mary too 🙂
Thank you, Camelle. That kind of feedback makes my day. And, yes, I loved Mary’s response, as well!
Some very good points here Bob, I think too many people think dropping their price will get them the sale. If your prospect is is balking at the price then you haven’t effectively communicated the value.
Thank you, Toby. While it’s natural for someone to want the lowest price they can get, you are correct that if – when push comes to shove – price is their objection, then the value has not been sufficiently communicated. I appreciate your sharing!
I couldn’t agree more with the concept of selling value, not price. Like others who have responded, I’m also in the IT business and I have always sold on value. I’ve never tried to be the least expensive, but do make a commitment to my clients to offer exceptional value. Perhaps that’s why, the two times I’ve raised my prices in more than nine years of business, I met no resistance and lost no clients over the price increase. They understand the value I provide.
Good clients understand the difference between value and price (and some who don’t, can be educated). I generally try not to deal with people who are excessively price-centric, simply because, as a rule, they will always want more for less and continually try to beat me down for every nickel and dime.
This is not to say that I’m cold-hearted and turn down work outright from the genuinely needful. If someone calls me who is experiencing financial challenges, I try to work with them simply because it’s the right thing to do. In a service business, we’re here to help, and if that sometimes means making a bit less on a job, so be it. The upside is that I never have trouble sleeping at night.
Nick: Thank you for joining the conversation and sharing with us. Appreciate ya’!