Selling Your Price: You’re Never Outside the System – The commodity trap, and how to avoid it
Selling Your Price: How to escape the race to the bargain basement
You’re Never Outside the System – The commodity trap, and how to avoid it
Christine rose and walked to her desk. She grabbed a document from the cluttered desktop and returned to the conference table.
“Scott, you mentioned that a salesperson can develop relationships with customers that the Internet and direct mail can’t match,” she said. “Here’s some research that agrees with you. This is a white paper from The Sales Board, the company that created the Action Selling system. It reports the results of a nationwide study of salespeople and sales executives about the very problem you’ve got: price competition.”
She turned to a page of summary findings. “Sales executives say that the Number 1 reason customers buy from their company instead of the competition is due to the customer’s relationship with a salesperson.”
That sounded encouraging. Scott leaned forward attentively.
“But there’s a little more to it,” Christine warned. “Eighty-six percent of sales executives agree that top salespeople generate higher margins than average ones.” She looked him in the eye. “That suggests to me that top salespeople must handle price conversations differently than average ones. Wouldn’t you agree?”
No longer encouraged, Scott just nodded.
“Here are two more findings about the difference between top sales reps and average ones,” she said. “Eight out of 10 sales executives say that most of their salespeople are ineffective at dealing with price objections. And they say that the No. 1 reason why average sales reps fail to get their price is because they fail to differentiate themselves from the competition.
“It seems to me,” Christine continued, “another way to say that is that an average sales rep’s customers see his products as undistinguishable. Which means that the only difference customers are likely to see between his products and the competition’s is the price. Which means there actually isn’t a whole lot of difference between that average salesperson and a direct-mail flyer.”
Scott’s self-image as a talented, veteran sales rep was taking a beating. One word kept ringing in his ears. Average. No, not even average, he thought. It’s my territory that’s dragging the average down.
No. 1 reason customers buy from one company instead of another: relationship with the salesperson. Top salespeople generate higher margins than average ones. Most salespeople are ineffective at handling price objections. No. 1 reason for discounting: failure to differentiate.
* Study of 722 Sales Professionals, Sales Managers, and C-level Executives by The Sales Board, 2004. More information at www.thesalesboard.com
He straightened his shoulders. “Christine, you don’t have to convince me I’m doing something wrong,” he said. “The fact that our other reps are getting better margins — and that I’m working harder for less money — is all the evidence I need.”
Christine liked his answer. He’s ready to make a change. And maybe there’s an opportunity here, she thought, her mind racing ahead to the call she expected from her regional manager. If I can straighten out Scott, I’ll be on top of my branch’s margin problem when Gary calls about it. And if Scott can do it, why not all of our Scotts, nationwide? She began to picture her conversation with the regional manager in a new light: “Gary, I’ve got something I think you and I should take to corporate…” She realized that Scott had begun talking again.
“The problem is,” he said, “we’re mainly a reseller. Most of the things I sell to dentists on a regular basis are commodities: disinfectant, cotton rolls, latex gloves, X-ray film…”
“Deciding whether to buy is always the sum of a combination of factors.”
“All right, stop,” Christine said sharply. “Here’s the first change we’re going to make: I don’t want to hear the word ‘commodity’ again in connection with Partner Dental. Scott, nothing you sell is a plain commodity. Every time customers choose to buy from you — or not to — they aren’t choosing in a vacuum that contains nothing but your product. The thing they’re deciding whether to buy is always the sum of a combination of factors: your product, your company, and their personal relationship with you. For better or worse, that combination of factors is always unique. It is never a plain commodity.
“You just told me about the five major buying decisions every customer makes,” Christine continued, “the ones that form the basis of Action Selling: salesperson, company, product, price, time-to buy. How can you turn around now and tell me that you’re selling undifferentiated commodities?”
“Okay, I get what you mean,” Scott said. “But it’s one thing to use Action Selling when I go after a new prospect. I guess I don’t see how it works as well when I’m making my regular route calls.”
“What’s the big difference?” Christine asked.
“Well, with a prospect I can take more time, and I can present myself and Partner Dental as a new opportunity. I can do a more thorough needs analysis. I ask to see the invoices from suppliers they’re currently using, and I work up a presentation that shows us as a comprehensive solution to their specific needs. I signed up three of my new clients for our Partner Plus program,” he added, referring to Partner Dental’s program for regular, high-volume buyers.
“Partner Plus protects our margins while streamlining the dentist’s inventory and ordering procedures, right?” Christine said.
“Right. I love Partner Plus.”
“What about your other five new clients?” she asked.
Scott’s gaze shifted to her office window. “Well, Partner Plus wouldn’t have worked for them.”
“You got that business by beating the competition’s prices, didn’t you,” Christine said. It wasn’t a question.
“You’re right in there leading the race to the bargain basement.”
“Well it was more than…,” he began. Oh, what the heck. “Yeah, essentially that’s what I did,” he admitted.
“So you say the competition is murdering you on price, but in fact you’re right in there leading the race to the bargain basement.”
I’m not a salesman, I’m a skunk, Scott thought, miserably. I stink. Just shoot me now.
“Let’s talk about your regular route customers,” Christine said. “What do you usually do when someone like Susan the office manager tells you she’s found a lower price on something like disinfectant or cotton rolls?”
“Usually I match the price,” Scott said, no longer attempting to disguise his failures.
“What happens when you don’t match the competitor’s price?”
He smiled bitterly. “Last month I told a dental assistant that I couldn’t match a price on latex gloves. I went back the next week, and there in the storage room was a year’s supply of latex gloves from SaveMore Dental. That’s about par for the course.”
“You’re actually teaching them to object to your price.”
Christine felt a pang of sympathy. “And episodes like that have taught you that if a dentist wants a discount, you’d better give him one?”
Scott just nodded.
“But that becomes a vicious circle, doesn’t it?” Christine asked. “Pretty soon your customers figure out that if they want a lower price from you — and they always do — all they have to do is ask. In fact, they’d be fools not to ask. You’re actually teaching them to object to your price. When Susan waved that flyer from Discount Dental at you, she was only doing exactly what you’ve encouraged her to do, wasn’t she?”
“You gave away almost $50,000 in profits last year, a buck at a time.”
Scott had never looked at it that way. “I guess you’re right,” he said, thoughtfully. “It’s as if I’m helping to create a system of discounting — a culture where price-haggling is normal. I took a vacation last year, and it really struck me how different the whole concept of shopping is when you go to a resort or deal with a beach vendor. Nothing has a set price. You’re expected to haggle. The vendors think you’re an ignorant jerk if you don’t haggle with them. Geez, have I managed to turn myself into one of those guys who sells straw hats to tourists?”
Christine laughed. There’s a line for my national training program, she thought. “So you agree that when you fall into the discounting habit, you only encourage your clients to ask for more discounts?” she asked.
“Yes,” Scott said.
“And thanks to that discounting habit, you gave away almost $50,000 in profits last year, a buck at a time?”
This just keeps getting worse, he thought. Help! “Yes,” he said aloud. “How do I break the habit?”
“It seems to me you already know,” Christine said. “When you were explaining the nine acts of Action Selling, you said that in Act 7 you Ask for Commitment. And you said that if you hear an objection instead, Action Selling offers you a great way to deal with it.”
“Sure,” Scott protested. “But that’s when I’m working inside the Action Selling system. I’ve built momentum, I’ve made a presentation, I’ve asked for commitment, and I hear a price objection. That’s different from when I walk in the door on a route call and Susan shows me a flyer with a cheaper price on the same commod… on the same product I sell.”
Christine’s head was shaking before he finished. “Scott, with Action Selling you’re always inside the system. There’s no such thing as ‘outside the system.’ What you got from Susan was an objection — a price objection. What does Action Selling tell you to do when you hear an objection?”
Scott sighed. “I go back to Act 3,” he said.
“With Action Selling you’re always inside the system.”
“In Act 3 you Ask the Best Questions, right? How does that help you?”
“When I hear an objection, I’m supposed to ask questions that let me do three things: understand the objection, quantify it, and identify options. But Christine, I already understand Susan’s objection. She has been ordered to cut costs, and somebody else is offering her a lower price on the same disinfectant I sell.”
“Scott, didn’t you say that listening is a critical skill in Acts 2 and 3?” Christine asked. “When did Action Selling ever tell you that you can stop listening to customers whenever you aren’t in the middle of a formal needs analysis?”
“You heard Susan say, ‘I can get a lower price on this disinfectant.’ But you didn’t really hear the part where she said, ‘I’ve been ordered to cut costs on consumables.’ Doesn’t that sound like the kind of customer need you’d be looking to uncover if you were in the middle of Act 3? Isn’t the whole point of Asking the Best Questions to discover needs like the one Susan just handed you on a silver platter?”
That’s when the light bulb clicked on in Scott’s head. Christine saw the realization hit him. That’s right, Buddy, she thought. You know how to do this. You just haven’t been applying it to everyday selling situations.
“Sometimes you don’t take the customer to Act 3,” she said softly, as if reading his mind. “Sometimes the customer takes you.”
“Sometimes you don’t take the customer to Act 3. Sometimes the customer takes you.”
For several seconds Scott looked vacant, as lost opportunities ran through his mind. Finally he spoke again. “You said I was going to kick myself.” He made a “clunk” sound with his tongue. “Did you ever see one of those old Looney Tunes cartoons where Yosemite Sam or somebody has a big boot on a stick with a rope attached, and when he’s done something stupid he yanks on the rope to kick himself in the butt? I wish I had that contraption right now.”
Another line for my national training program, Christine thought. Thanks, Scott.
She grinned at him. “I also said that you were going to come out of this a happier guy. Now, when Susan objects to our price on a particular item like disinfectant, and she happens to mention that she has been ordered to cut costs on consumables, how do you think we ought to respond?”
Scott’s dejection lifted as his thoughts turned from the lost past to a far more promising future. “We go straight to Act 3, and we start asking questions to let us understand Susan’s objection, quantify it, and look for options,” he said excitedly. “Why has Dr. Wright told you to cut costs? What specific target did he give you, like a percentage of overall consumable costs you’re supposed to cut? Which products are a special concern? Let’s see…”
“With an Objection, we go straight to Act 3, and ask questions.”
Christine joined in. “Who else are you currently buying from? How much are you buying from each supplier? Who else in the office is supposed to be helping to cut consumable costs?”
Scott grabbed the thread again. “How will Dr. Wright know if you’re successful? Will you give him some kind of report?”
“And I believe you said something earlier about ‘leverage questions,’” Christine said. “Aren’t those supposed to get at the customer’s personal, emotion stake in the issue?”
“Right you are,” Scott said, happily. “How does Susan herself win if she is successful at solving this problem? The problem she and I are now working on together, as partners, because I finally had sense enough to ASK HER A QUESTION!”
Christine leaned over the table to give Scott a high five. “Now you sound like an Action Selling pro,” she said.