In our April webinar, Jim Geisman, Founder and Principal of Software Pricing Partners, talked with us about how the nuances of complex sales negotiations and ideas that can save you valuable time, money and aggravation. Click here to watch the recording or to download a copy of the slide deck and here to read part 1.
This is part two in a two-part series in which we review some of the questions which came from the audience. In the first installment, we focused on the general negotiation tips. Now, Jim addresses questions related to the negotiation of price.
Q: I often find myself competing on price when the competition offers a similar service for 1/2 the price. This is very difficult to negotiate against, and when the ultimate decision comes down to price, I often lose the deal.
Jim: I think the key is how your service really compares to the competition. If you often lose, look at the times you win and see if there is a pattern. There may be certain customers that appreciate your differences relative to your competition. Otherwise, if your service is similar but not identical, you might be able to emphasize the value of the dissimilarities or you may be able to strip things out to make your service more similar and charge a lower price.
Q: I understand you don't want to begin the negotiation too early. But how do you delay the price discussion early in the dialogue so that it allows you to differentiate?
Jim: Price levels are important at two stages of a sale: first, getting a ballpark figure to qualify a vendor; and then at the end, when the field has been narrowed to a couple of qualified vendors. When the prospect asks for a price early on, give them a range and tell them what determines the spread. If your offering is in the ballpark and the prospect continues the discussion, you then have an opening to differentiate your offering.
Q: We have not lost a sale against a direct competitor that we have submitted a formal quote to. Does this mean we charge too little, although we are far more expensive (1.5-2x that of our competitors)?
Jim: This is strange... Winning every deal despite a premium of 50-100%. First I would make sure that your knowledge of the competition is accurate. If so, I would figure out why customers are willing to pay the premium. You may be more reliable, produce more or higher quality results but you ought to find out what is going on. You may uncover reasons as part of a post-deal customer satisfaction survey or as part of a broader research effort of which pricing is just a part. This is really suspicious and I suggest finding out why this happens – carefully.
Q: How does one determine price when the value to the customer (based on risk) is anything from $1K to $100M?
Jim: Given the wide range of value, it sounds like you may have a segmentation issue. The wide range is often caused by a "spray and pray" sales and marketing effort. If you do serve a wide range of customer needs, consider re-packaging the offering so a lower price point is available to the folks that get lower value from your offering. It sounds like this is a time when one price does not fit all, a pretty common problem.