Are you selling too cheap?

I observed a role-playing sales exercise at a recent national business conference.  One person was assigned to be the buyer, one person was the salesperson.  After exchanging pleasantries the buyer asked “so, how much do these widgets cost?”

“The list price is $1,000,” the seller replied quickly “but if you’ll buy today I can discount that to $600.”

Wow, that didn’t take long.  And that’s exactly the way it unfolded.  We had gotten two sentences into the meat of the discussion and 40% of the potential transaction value had been taken right from the seller’s  bottom line and dropped right into the buyer’s pocket.  Why?

Because the salesperson rushed to get a deal done before he figured out WHY a deal needed to be done.

This exercise was devised by my friends at ZThree in Austin, and they set it up to make a great point.   Prior to exercise they had briefed the “buyer” that he was to assume that no matter what, he had to buy those widgets.  The price didn’t matter.  So far as the exercise was concerned, the only way he could fail was to come away without a deal, no matter what the cost.  Failure would cost him his job.

The salesperson, on the other hand, had been briefed that widgets sold for $1,000 each, but his sales manager had given him discretion to discount the product up to 50% — or in our example, down to as little as $500.  He would make the same commission for any sales price over $500, and no commission for any price under $500.

See how the dynamics worked?  As soon as the buyer mentioned price the salesperson immediately tried to leverage the perceived value of discounting.  He left himself a little room in case he needed it, but his first reaction was to slash price to get a deal done.

Of course the salesperson didn’t need leverage.  He only needed widgets.  He had plenty of those, and rushed to sell them far below list price without ever knowing whether price for the buyer was an issue or not.  It wasn’t, but it still cost the seller a ton of profit.  Not the salesperson – whose flat commission was not price dependent – but that’s an issue for another blog.

The lesson here is that buying and selling involves people.  And different people are motivated by different things.  This exercise could have gone really differently if either side had chosen to do some probing for those motivations.  That’s not about manipulating or taking advantage of someone, it’s simple logic.  Don’t assume that you know what someone else needs or wants until you ask them.

So ask yourself…if you’re a salesperson, do you rush to discount your product in hopes of making a deal happen?  If you’re a buyer, do you jump at initial discounts just because you know you need a product but don’t necessarily know the best deal you can make on it?

You can do better than that.

Business is tough.  Hang in.  If we can help you, just let us know.

Jeff Whittle is Managing Director of Whittle & Partners Consulting, and the President of The Alternative Board – Metro Dallas.  We also talk business on our Facebook page and we tweet @jeffwhittletx.

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