Handling B2B Pricing challenges

How would you respond if your customer says any of these below?

  1. I will buy the product provided you discount 30%
  2. There are other players who are giving 20% less, why should I buy from you?
  3. If you increase the price, I am planning to switch to another player

I just listed 3 questions but as a sales person you might face many price related questions as above. So, in this article I am going to give the 4 golden rules any B2B salesperson must follow to really win high paying clients and retain the same!

Before that, let me share the story Vijay who inspired us to write this article.

Buyer has too many choices

Today’s buyer has too many choices and won’t stick to any supplier! This is what Vijay a successful sales engineer of technology product company said in vain!.

Vijay has been in the company for almost 8 years and had a wonderful journey in sales so far. But off late, the business is becoming more competitive.

During our meeting, I asked, what is his single biggest challenge in sales today and he was quick to answer, it is competition from low-cost vendors. Vijay said the real issue he faces is every buyer asks for discounts and prices which are 20%-30% lower.

When asked about the demand for the product, Vijay said, demand for the company products still exists, but margins on sales are not what used to be.

Many new buyers are more interested to know what is our price compared to competitors and not willing to engage in dialog. Even after I give the best price, most don’t revert and those who revert, are demanding a further reduction in prices which are impossible to meet!

Vijay is for one very sure, his company solutions are far better than many low-cost competitors out there in the market, but somehow it seems buyers are ignoring this.

Earlier he used to let go of few accounts who said they will go with low-cost competitors, thinking they will come back! But that didn’t happen and seems buyer are sticking to low-cost competitors and surviving!¬† This is worrying!

And I could sense a sign of worry in Vijay when he said, I am doing same things as I did earlier and our company products are much better than earlier versions but we are not able to close more sales! I don’t know what can I do differently? 

Now, that is the case of Vijay, but I am sure many salespeople who are in B2B selling are facing challenges similar to Vijay and wondering how to not lose customers on pricing?

I will cover about that down below, but before that, let us understand what is changing in B2B sales? With easy access to information, today the B2B buyers are controlling the buying process. Buyers can demand any kind of information they want from sellers across a geography with a simple click of a button.

The traditional way of selling, where sales executive shows up to the buyer and promote his product or service is not going to work. New approach and process need to be adopted by salespeople to engage the buyers to communicate the value of the product and make him aware of why they should buy from their company.

In this article, we shall explain what is that which has changed in the market and how for B2B Salespeople can address pricing challenges by following certain golden rules.

4 golden rules to handle the B2B Pricing Challenges

In a B2B world, for the salesperson, understanding how the buyer is making the buying decision and arriving at his own price is very key.

And as per our studies, more than 70% of the buyers in B2B sales keep the price as their No.1 qualifying factor.

Most buyers are always on the lookout for vendors with the lowest price, but this doesn’t mean buyers are only price-conscious.

This happens in the B2C market as well as in B2B.

For example, you go to the vegetable market, and see 3 vendors selling Tomato. Now if all 3 vendors are new to you and you don’t perceive any difference b/w vendors selling tomato, how do you decide? Most buyers decide on the price! This is what product is commoditized!

Buyer resorts to price-conscious when he ends up having too many suppliers with me-too products with less differentiation. Market is commoditized!

Another key point is, as a vendor one might think their product or service is better compared to competitors, but if the buyer doesn’t perceive that, then it is being compared with similar products.

This is mostly due to the fact that Salesperson didn’t articulate the benefit properly to the buyer or buyer didn’t need that benefit.

Most businesses where pricing competition exists, the following 3 ways a buyer arrives at the best possible price to start bargaining,

  1. By engaging in discussion with multiple parties and collecting price estimates from competitor products.
  2. The buyer is already using a similar product and has the benchmark pricing details.
  3. The company allocate a budget and will explore the market to get the product/service that meets their budget.

Knowing how the buyer is arriving at his pricing helps the salesperson to negotiate better and plan your pricing strategy.

Let’s explore 4 golden rules every B2B salesperson must follow to negotiate on pricing

Believe in your own price

Accept or not! Most buyers will challenge pricing. So as a salesperson, the key to negotiate is to first believe in your own product pricing. Most salespeople when asked, why they are not able to sell, they say the cost of their product is high and many low-cost products exist!

As a salesperson ones you believe that your product is expensive you cannot sell to the buyer who is negotiating on price! Your company has employed you sell the value of the product.

If the product could be priced as lowes in the market, then the role of the expert salesperson is not required. The role of the salesperson is to sell the product at the price company decides!

To build a belief in the price of your own product or service, you must look beyond the product and look for why you deserve to charge a higher price. This can be done by,

  1. Understanding more about your own product and its features
  2. Understanding the competitor products and how you score better when it comes to customer requirements
  3. Ask different teams in companies why your product/service deserve a higher price over a competitor
  4. Understand what kind of customer service you provide which helps to command a higher price.

Ones you do above 4 steps, we guarantee you will be convinced of your price. Also, doing this exercise will let you know clearly that some customers may not suitable for your pricing, so you can focus on winning high potential customer who wants your product features, services and are willing to pay the price.

Differentiate from low-cost players

Most B2B businesses find it hard to communicate the differences of their product features, benefits which appeal to the buyer.

Buyers want to know what unique results or differentiation of the product or service exist which commands higher pricing.

The salesperson needs to really identify key features, benefits which can improve the clients business and gives significant ROI. A simple way to do is, whenever the client says your product is expensive compared to competitors you can ask “How much difference are they talking about?”

For example, if it is a 15% difference than explain how the additional value your product offers outweighs the 15% difference! But you need to clearly articulate with the ROI the buyer can see. Otherwise, most buyers brush aside the new benefits you mention!

The only way to lower that risk is to articulate the value in such a way that the buyer understands the ROI! Also, the salesperson must help the buyer to see that doing business with his company is safer, risk-free and profitable! As they used to say earlier time “No one got fired by buying IBM products”. So IBM symbolized that riskfree company for all B2B customers!

To make buyers realize this, you will have to explain clearly the value your product offers. Every product or service includes tangible and intangible value. The tangible means, there is a clear number you can attach showing the Value vs. ROI. This can be Increased Profits, Improved Productivity, Increase in Revenue, Reduced Manpower, etc.

Explaining this ROI can make a great impact on the buyers. Especially when you are promoting features, benefits which differ from competitors and command a better price, you will need to justify the ROI. If not buyer’s don’t get the point of why they should pay a premium to your services.

Similarly, things such as extended warranty, free training, additional support 24×7 are intangible values. These are best highlighted with stories like how these benefits have helped other companies and why any buyer should opt for these even a little bit of extra cost!

Finally one must remember, any new buying involves risk and as human’s, we like to avoid risk. The role of the salesperson is, if not eliminate, at least lower the risk for the buyer by deciding to go with your product over competitors! This requires you to build trust in buyer about your product, company as well as you as a salesperson.

Communicating the Value before Price

The B2B buyer is always keen to know what is the price of the product or service you are offering at the earliest. It is proven, revealing the price before explaining your value will result in the sale at a lower price.

So, whenever possible you should postpone revealing the price. This is a very important rule and practicing this alone can help salespeople to get better pricing for their product.

For this let’s first try to understand, how the buyer arrives at the price he wants to negotiate with.

  1. The buyer comes up with a budget and allocates the price.
  2. The buyer might do extensive research and identify competitor prices
  3. Invite for tenders and look for the lowest bidder
  4. Do reverse auctioning.
  5. Use existing provider pricing and set as some X% lower as a benchmark

As you can see the above points, the buyer has already a certain idea of the price. But this is based on not what your product offers, but based on his own research.

Because buyers have their own view of the product pricing (based on a competitor, their own budgets, etc) and when they hear the price without knowing your product values, they generally judge it as too high!

After they make a judgment about the price is high, even if you try to communicate the value and explain how your product is priced better compared what all features, benefits it offers it won’t help! He will try to negotiate to the price he wants!

Hence you, as a salesperson must postpone revealing the price. Only after understanding fully the customer requirements and customizing your offer which matches or exceeds his needs, reveal the price. This way it will have a better impact and you are in a better position to negotiate.

Learn to negotiate for win-win

Inspite of the above 3 rules of believing in price, differentiating from competitors and communicating values, you will still face resistance to the price you say from buyers.

That’s is the nature of the business. For this, you must be ready to negotiate with buyers. Now negotiation means it is for win-win. Negotiation in sales is big subjects, but for this article, we will cover the core concepts

You must understand buyers seem to project they are in an advantageous position, but if you have done your homework, then the chance at this stage both buyers and sellers are at an equal level

The key is to be ready for negotiation and enter the pricing discussion. Some of the common B2B pricing negotiation tactics are as below,

  1. Focus on non-monetary benefits (Free training, maintenance support). Here the key thing to remember is to identify a benefit whose value is considered very high to the customer but for you, it costs low price.
  2. Applying price vs volume technique. Some companies take commitments as below by offering,
    • Discount is given if the order is large for a longer contract!
    • Discount on annual subscriptions over monthly subscriptions
    • Discount if full payment with 30 days.
  3. Offer lower price in return of additional favor such as finance options, upselling, referrals to other units

There are many negotiation tactics can be applied based on business types and understanding the unique needs of customers and offering them additional values. The key is to know and prepare in advance.

Conclusion

Pricing is very complex in B2B sales and it is always difficult to predict what goes. As B2B sales, it is important to understand a few ground rules which can help you to navigate the complexity of pricing.

Hope the article has helped you understand the B2B pricing and inspired you to learn more about B2B Pricing. Feel free to share any comments.

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