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Are Your Salespeople Caving in Under Price Pressure: Four Ways to Stop Margin Erosion at the Point of Sale
by Jeff Thull, CEO and President of Prime Resource Group

What do you do when faced with a potential customer who is relentlessly insisting on a discount? Even though there’s no doubt in your mind that your product or service is worth every cent you’re asking, you also know that there is an army of competitors ready to cut their price and do whatever it takes to make the sale.

Being forced to cave in on price is frustrating, but you must admit, when faced with a customer determined to go with the lowest bidder, it’s winning the sale “at whatever cost” that’s most tempting. If you play the price game, you will ultimately cut into your profits, allow commoditization of your valuable solutions and watch margins erode away. The hard truth is, if your salespeople are already cutting a few percentage points off the price to make the sale, they are already failing their company and their responsibility.

To remedy discounting, an integrated, cross-functional approach to develop and deliver compelling whole solutions is required for thriving and winning in today’s complex business-to-business environment. If you transition to becoming this kind of solution provider, successful value achievement will be your future, and the desperate game of low bidding becomes history. So how can you ensure that your salespeople won’t cave in on price and compromise margins and profitability? What can you do to prevent margin erosion at the point of sale? Here are four key tips:

1. Make sure your salespeople know the value of your products and services and how it links to the customer’s business situation. This is the key to creating value and is at the heart of selling with integrity and credibility. A salesperson must understand the departments that are most affected by the solution, and the financial impact of his solution on various entities within the entire company . . .
   
   If this sounds like a lot of work, well, it is. But I like to tell my clients that spectacular success is always preceded by unspectacular preparation. Understanding the customer’s critical issues, dissatisfactions, and frustrations, plus recognizing the business opportunities that arise from them, takes research, time, commitment, and dedicated work.
   
2. Make sure your people can help the customer calculate the cost of the absence of your solution. Before your salesperson can offer a remedy, he must be able to firmly establish the absence of your value. He must help the customer identify physical symptoms of his problem and show him that multiple departments are suffering. Remember, if there is no perceived lack of value—no “measurable discomfort”—there will be no sale.
   
   Pain is the most basic human motivator for change. It is the natural defense mechanism that tells people that if they don’t change and deal with a problem, they will face consequences. And of course, change itself is painful. Therefore, change will not occur until an individual or company recognizes that the pain of change is less than the pain of staying the same.
   
3. Make sure they can articulate the impact of your solution over those of your closest competitors. We’re talking specific figures here, not common and vague generalities. This is where your salesperson should be able to pre-empt all but the most irrational objections. If he can get the customer to recognize that your product will provide a specific financial impact, such as cutting the cost of a critical process or increasing desired revenues, she will surely realize that your premium pricing makes solid business sense.
   
   It’s very difficult to argue with hard numbers. When you quantify the impact of your solution, it will quickly become obvious to your customer that your solution, at your price, makes for a solid business decision.
   
4. Link salespeople’s compensation to profit, not gross revenue. One of the major reasons that salespeople give discounts is because it pays off for them personally. If you base your salesperson’s compensation on gross revenue rather than net margins, he will see little negative impact if he gives the customer a 10 percent discount. That 10 percent discount may mean the difference between “winning a sale” and “no sale.” But if that 10 percent discount causes your margin to go down by 100 percent . . . well, what are you really winning?
   
   Your compensation plan should impact the salesperson’s commission as much as it impacts your profits. Money talks. If your people are coasting by and digging into your profits rather than doing the due diligence it takes to sell a complex product in a complex environment, changing the way someone gets paid encourages him to rethink his approach. The game will now be about “winning big”—not just winning.

When organizations allow discounts as a way to grab sales, it often means they don’t believe they can control their sales organization. Companies have established very sophisticated processes and controls in their operations, but waffle when it comes to applying the same expertise to their sales strategy. Such organizations are handicapped and not structured for profitable growth.

The bottom line is: when a customer says, “Your price is too high,” the salesperson needs to look to himself as the likely problem, not the product. There are two possibilities: 1) the customer is not experiencing a significant absence of value and the solution should never have been offered; therefore, the price is too high. Or 2) the absence of value is there and the customer does not recognize it. The burden of proof is on the salesperson, and he hasn’t done his job.

There’s one more critical point to consider. Your salespeople must get over that burning desire to “get the order at any price.” Not every sale is a good sale, and not every customer is right for you. Salespeople must not only be comfortable with hearing “no,” they must actually “go for the no and move on to more profitable opportunities.” When all possibilities for “no” are eliminated, all that’s left is a confident yes—from a customer who’s willing to pay a fair price. That’s the recipe for strong and profitable margins.

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About the Author:

Jeff Thull is a leading-edge strategist and valued advisor for executive teams of major companies worldwide. As President and CEO of Prime Resource Group, he has designed and implemented business transformation and professional development programs for companies like Shell Global Solutions, Siemens, 3M, Microsoft, Intel, Citicorp, IBM and Georgia-Pacific, as well as many fast track, start-up companies. He has gained the reputation for being a thought leader in the arena of sales and marketing strategies for companies involved in complex sales.

Jeff is a compelling, entertaining and thought-provoking keynote speaker with a track record of over 2,500 speeches and seminars delivered to corporations and professional associations worldwide. Jeff Thull’s work is published in hundreds of business and trade publications. He is also the author of the best selling books Mastering the Complex Sale: How to Compete and Win When the Stakes are High, and The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale. Jeff’s new book, “Exceptional Selling: How the Best Connect and Win in High Stakes Sales” will be released September 2006.

For more information contact: Prime Resource Group, support@primeresource.com, http://www.primeresource.com, 1.800.876.0378 or 763.473.7529, 3655 Plymouth Boulevard, Suite110, Minneapolis, MN 55446

Best Selling Books By Jeff Thull:
“Exceptional Selling: How the Best Connect and Win in High Stakes Sales” (John Wiley & Sons; 2006; ISBN 0470037288; $24.95).

“The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale” (Dearborn Trade Publishing; January 2005; ISBN 0793195225; $24.95 hardcover).

“Mastering the Complex Sale: How to Compete and Win When the Stakes are High!” (John Wiley & Sons; 2003; ISBN 047143516; $24.95).