| I recently saw a very engaging article called "Do | | | | customers. |
| Mercedes Salespeople Stay Up Nights Worrying | | | | Objections based on price are often false |
| About Low Kia Prices?". It's a very good question. | | | | objections, unless you have made price the rod |
| At a recent seminar I went to the presenter | | | | for your own back by disclosing price too early. |
| graphically demonstrated the risks, and the | | | | As the adage goes, never tell the customer your |
| potential, to impact profitability by changing prices. | | | | price until they have already fallen in love with |
| Let's say your business operates at a gross | | | | your product. |
| margin rate of 30%. Let's say you feel pressured | | | | Customers generally raise the price objection |
| for whatever reason to drop your prices by 10% | | | | because they know it is the easiest one to use. It |
| - maybe your client is playing hard to get or is | | | | is the objection that many salespeople convince |
| complaining about "your high prices", or maybe | | | | themselves is true and the one salespeople give |
| you're just feeling generous. Your profit is going | | | | up with the easiest. |
| to drop by 10% as well, isn't it? | | | | It is essential to understand who your customers |
| WRONG! Your costs aren't going to fall just | | | | are and above all which customers are your good |
| because you choose to charge less for the same | | | | customers. |
| service. The result of dropping your prices by | | | | Good customers are the ones that cause you the |
| 10% is to reduce your profitability by around | | | | least grief, that you most enjoy working with and |
| 33%. To stay in the same place and earn the | | | | which ultimately bring you the most profit. |
| same gross profit, you are going to have to do a | | | | According to the Pareto rule, they are probably |
| whopping 50% more business to cover your | | | | the 20% of your customer base that bring in |
| discount costs! | | | | 80% of your profits. They are also the ones that |
| In other words, you are going to have to be | | | | are least likely to talk to you about your price, |
| assured of some pretty dramatic increases in | | | | unless you bring it up first. |
| sales to justify that level of discounting. | | | | The ones that do talk about price all the time are |
| This is all well and good, I hear you say - but I'm | | | | likely to be the 80% of your customer base that |
| being told that I have to drop my prices to retain | | | | generate only 20% of your profit. |
| the customer. So it makes sense to drop my | | | | So do yourself a favour. Don't discount - raise |
| prices, doesn't it? | | | | your prices instead - it will force you and your |
| WRONG AGAIN! Studies show that no matter | | | | customers to reassess the value that you |
| what customers tell you, only 14% buy on price | | | | represent to each other and ultimately help you |
| alone and not on value. You rarely buy something | | | | to focus on the customers that really are the |
| for reasons of price alone and neither do your | | | | bedrock of your business. |