How To Survive a Price War

As the recession churns on, price warfare is on the rise. You have a choice: drop your prices or defend your prices by selling value. Unfortunately, the old approaches to selling value don't always work. Customers are focused on cash -- they don't have enough of it, they can't easily borrow it, and they're spending as little of it as possible. To sell value during a recession, you must speak "the language of money." Here's a story (authored by Robert Nadeau, managing principal of the Industry Performance Group) that explains how to do this...

Let's face it: price warfare can destroy a business.

Here's the scenario: a sales manager named Mike manages 25 salespeople for a U.S. manufacturer. During the last recession, his company slashed prices. This kept customer orders flowing in and kept the plant running.

But then things got ugly. Competitors offered deeper discounts, and Mike's sales team reacted by negotiating numerous "special pricing" agreements with customers.

The company held onto customers, but they lost sight of profitability. They suffered large losses and required major financing to stay in business.

After the economy recovered, the message from Mike's senior management was loud and clear: No more special pricing!

Mike sent his sales team to a training session on "value-added selling." They learned to crush price objections by stressing their products' quality and reliability. They learned to emphasize their company's 50-year history of innovation, integrity and dependability.

In the years that followed, value-added selling appeared to work. Mike's salespeople talked about value, and customers seemed convinced.

But when the current global financial crisis hit, customer demand dried up. Customers delayed even necessary purchases for as long as possible, and when they were finally ready to buy, they demanded lower prices. Mike had never seen it this bad.

Still, his upper management insisted that he and his sales team defend their prices. The company could not start going down the slippery slope of special pricing again.

In his weekly conference call with his sales force, Mike tried to rally their spirits. "Let's get back to the basics," he said. "Remember your value-added selling skills. We can make it if we emphasize our value."

But as the weeks wore on, they were losing business to lower-priced competitors. Morale was sinking.

Something had to give.

Mike wanted to know why value-added selling had stopped working. He decided to call several customers who had switched to cheaper competitors.

One former customer told him, "I'm under huge pressure to cut costs. I have to show my boss what we're getting for our money."

"I understand," Mike said. "But weren't our higher quality and reliability what you were getting for your money?"

"Your product is definitely better," she said. "But we need to see what we're getting for our money."

Mike suddenly realized the problem. He wondered if his salespeople had realized it, too.

During his next conference call, Mike posed a question to his sales force. "We quote our price as a dollar amount," he said. "But how do we describe our value?"

One salesperson replied, "We remind customers of our quality, reliability and long reputation."

"Right," Mike said. "So does anyone see the problem here?"

"Yes," another salesperson answered. "We're quoting them the price in dollars, but we're not presenting our value in dollars."

Mike arranged an on-site training session for his company's next sales meeting. This training guaranteed that it could teach salespeople how to calculate value in dollars.

During the session, the trainer explained, "When customers are focused on cash and you only offer them promises of value, they will seek the cheapest price. You need to describe your value using the language of money."

Working in teams, Mike's salespeople figured out how the quality and reliability of their products reduced costs for customers. It turned out that these cost savings far exceeded any discounts offered by competitors.

They discovered that for each of their products that a customer was using, the customer had average annual maintenance costs of $9,500. But for those who purchased a competitor's product, these costs averaged $15,000.

So even though the competitor's product was $700 cheaper, it cost the average customer $5,500 more per year in maintenance costs.

Mike's team also learned how to ask questions that would help customers understand their own costs and how much they could save.

Mike and his salespeople had learned to speak the language of money.

When they put their new skills to work, the results were dramatic. Their higher price became less important when customers saw, in real numbers, how the product saved them thousands more in maintenance costs. For the first time, customers could see what they were getting for their money.

Mike's salespeople won back most of the business they had lost. They even took new business away from competitors.

Are you like Mike, trying to survive price warfare?

What is your product's value in dollars? Does it help customers lower costs? Increase sales? Reduce risk? What are your customers getting for their money?

Salespeople can defend prices, if they learn how to describe value in words customers want to hear: the language of money.

READERS: I think Nadeau is right on target with this story. Any of you want to share some success stories when it comes to selling value?