October 2011 Business Improvement Tip

This is the twelfth in a new series of monthly business improvement tips - the next will be published in November 2011 - click <here> to view previous tips or get on our mailing list.

Around sixty five previous improvement tips plus other appropriate or useful information are being added to an e-book which will soon be available to download - we will let you know when it becomes available.

How can you sell when you are not the lowest price?

In the September 2011 improvement tip I suggested that businesses should stay away from trading on price and avoid regular discounting at all costs. I have since been asked what alternatives there are in a difficult market.

People tend to look to buy on price simply because that is what they have been conditioned to do by their experiences. Yes, price is important, and when everything else is equal is likely to be the deciding factor. However, only rarely is everything else equal and so, given other factors, few people will buy solely on the basis of low price.

I can confidently say that you personally don't always buy on the basis of low price, so why should you think that all of your customers would? The truth is - they don't.

So what are the alternatives? My primary answer is always to sell on value rather than price - if your prospect can see the value in owning your product or using your service then any concern over price will instantly disappear. However, there is a third reason for hesitating in buying from you - that is "risk" - either actual, perceived or both.

What is risk? Risk in this context is the potential short and long term costs to the prospect if he/she makes a buying mistake. It's not just the money, although that is a big part of it, it is the social, psychological and emotional costs that your customer will have to pay if their choice isn't the most appropriate, best or right one for them. The lower the perceived risks surrounding the buying decision, the more likely your customer will say "yes" to buying from you - regardless of the price, regardless of the actual or perceived value of what you offer.

In order to really understand risk in this context, you must first see this issue from your customers' perspective. Try to put yourself in their shoes and calculate the amount of risk that you expect your prospects to take when you offer them the opportunity to say "yes" to you.

To help you understand this concept. Imagine that you are having lots of friends round for a barbeque and you have been told by your spouse or partner to pick up some disposable plastic drinks tumblers. You call into a local supermarket where they have three brands A, B and C and so you will need to select between A, B and C. You choose brand A for no other reason that they are the cheapest.

When you arrive home you unpack the tumblers and fill one with beer (or lemonade) - suddenly you have a wet feeling on your leg. The liquid is leaking out of the tumbler through a small hole in the bottom. You pour the drink into another tumbler and that also leaks. In fact, many of the tumblers you bought are similarly defective.

What are the consequences of your buying decision? I don't know about you, but my wife would be very annoyed and I would get the blame - I would certainly be getting some negative emotion and being called a few choice names, and that might not be the most painful cost of your decision. You are going to have to fix the problem immediately and may have to go back to the supermarket to replace the tumblers with one of the more expensive brands. So, in addition to the emotional costs, you will also have to pay in terms of extra time, effort and money. And all because of one bad buying decision. The negative emotions, wasted time and extra money spent, all combine to form the level of risk that you consciously or unconsciously accepted when you made your decision to buy brand A solely on price.

On a scale of 0 to 10 where would you have originally put the risk of buying the tumblers? You would probably have said it was close to zero. Where would you put the risk in hind sight? Certainly higher than zero. Now, let's apply this concept to your prospects. Remember that every time you ask your prospects to say yes to you, they are consciously or unconsciously accepting some level of risk. And each of those decisions you ask of them could carry a different degree of risk.

Imagine you are an engineering company offering a new item of process equipment to a prospect for the first time. Now, put yourself in the prospect's shoes or see the situation through the prospect's eyes. On a 0 to 10 risk scale, how much risk will your prospect be accepting when he says "yes" to you?

Ask yourself what would happen to that particular individual or his business if either you or your company messes up or fails. If a customer buys that equipment and it doesn't do what you claim it will do, what sort of trouble will that make for that customer? What are the consequences? What are the risks? Don't just say that there is minimal risk because you will take care of any problem that might arise. You may think that, but your prospect or customer may not be so assured. You may not be around twelve months from now to sort out any problems. Remember that you are trying to see this from your prospect's point of view, not yours, and the level of risk is what your prospect perceives it to be, not what you perceive it to be or what you think your prospect perceives it to be.

Suppose the process equipment you provided didn't work the way it was supposed to? He may have to shut down production lines, spend weeks trying to put things right causing all sorts of havoc and loss of business. Potentially his business could fail as a result of the equipment you sold him. Now that really is risk. If you were that prospect, how much more would you be willing to spend in order to reduce the risks? It wouldn't be hard to justify twice the price.

Worry less about selling on price and do more about lowering the prospects perceived risks.

Here are four strategies to reduce perceived risk ...

1.    Build solid, deep relationships with key decision-makers because relationships increase trust and reduce or mitigate risk. The deeper the relationship, the greater the trust, and the lower the perceived risk.

2.    Wherever possible make ample use of third party recommendations, testimonials, customer lists, case studies and similar. All of these tell the prospect that someone else, or many "someone else's", have successfully used your product or service. That means that your prospect sees less risk in buying from you and so is much more likely to buy from you.

3.    Try to get your prospect as physically involved with the product or service as possible. For example, if you're selling a piece of equipment, try to get them to trial the equipment, or at least visit somewhere that it is successfully being used. The more your prospect can experience, see and feel the actual thing, the less their perceived risk.

4.    Finally, create offers that reduce the risk. Try before buy, on-site guidance or training, money-back guarantees, delayed billing, warranties, support desks, and similar - all of which reduce the perception of risk.

The winners in today's highly competitive market are those who are the low perceived risk, high perceived value providers, not those who sell on price.

Contact me on 01778 345990 now to talk about it.