Why Price is Often Irrelevant

By Geoffrey James | August 12, 2011

When the true cost of a problem is fully uncovered, the price of the solution frequently becomes irrelevant.
Here's an easily understood example. There's no question that the price of a motorcycle is far less than that of an automobile, although both will get you from here to there (i.e. solve the problem of transportation). However, if you're transporting children, the importance of the lower price dwindles into insignificance when compared to the safety of your children.
That comparison, of course, is between completely different products.  However, even small differences between similar products can make price irrelevant, providing they tie those differences directly to the multiple elements of the problem in a way that makes the product being sold seem like the only right solution.
This is especially true in B2B sales.  On the surface, it often seems as if two B2B solutions perform an identical function. However, in reality, no two competitive B2B solutions are exactly alike, and those differences always have the potential to address different cost issues with the customer's operations.
It is the job of the B2B sales rep to uncover the cost issues that will cause price issues to dwindle into insignificance and to do it in such a way that rep's solution is the only logical choice.
For example, imagine two order processing systems that have the same features and benefits, but one has a price that's half as much as the other. The price-focused customer will naturally purchase the lower-priced system.
However, if the lower-priced system goes "down for maintenance" three times more often than the higher-priced system, sales reps will experience a greater number of times when they can't cut an order. If that causes them to lose million-dollar sales, the lower price of the less reliable system is a false economy.
In B2B sales, almost every solution has some economic value above and beyond the acquisition price of the core product. Your job is to uncover this economic value in such a way that the customer easily understands why a higher price is justified.
What is economic value?  Good question.
It is the total monetary worth of your offer, from the customer's perspective. It stems from your core product in addition to the information, services and support that are provided to the customer before, during and after the sale.
However, because the customer is not the expert, you must help the customer understand how your offering creates this economic value by improving their performance, reducing their overall costs and/or by reducing their exposure to risk and liability.
The majority of business purchases are made to solve some sort of problem, e.g., productivity problems, delivery problems, quality problems, etc. These problems consume resources and drive costs within the customer's organization.
Depending on the size and sophistication level of the customer, they may — or may not — be aware of the true economic impact of these problems. Therefore, the first step in the economic justification sales process is to identify the problem the customer is working to resolve, then to determine how much this problem is actually costing them. You want t uncover accurate dollars-and-cents information in order to quantify the total economic worth of your offer.
Next you need to determine the root causes of the customer's problem. This will enable you to provide a long-term solution that will create more economic benefit for them. This will also allow you to increase the total economic worth of your offer.
You must then look for opportunities where you can help the customer address these root causes, either with your product offering alone or with a combination of your product and additional information, or services and support, such as problem solving, application engineering, start-up assistance, etc.
You uncover economic value by asking questions that gradually reveal the true cost of the customer problems. This is very different from the traditional sales process which frequently takes the form of a sales pitch intended to present features and benefits, overcome objections, and then close the deal.
Instead, you research your customer and craft questions that will uncover areas where the customer does not yet understand the cost of a problem.  As you do so, you'll uncover areas of economic value that the customer did not realize… and which ideally will tie to something unique about your solution.
To do this, your conversation with the customer should uncover the following key subject areas:

• How does your solution help them improve their revenue? How much more product could they sell with your solution as opposed to without it?  Or opposed to some other solution? How much are those extra sales worth to them?
• How does your solution help them reduce costs? How much could they save in labor costs with your solution as opposed to without it?  Or opposed to some other solution?  How much could they save in overhead?
• How does your solution help them improve quality? How much could they save in reworks, scrap, overtime, corrective action costs, and so forth, with your solution as opposed to without it?  Or opposed to some other solution?
• How does your solution help them improve delivery performance? How much would they save in  canceled orders, expediting costs, airfreight charges, and so forth, with your solution as opposed to without it?  Or opposed to some other solution?
• How does your solution reduce their exposure to risk and liability? How much could they save in penalties, legal fees, and litigation, with your solution as opposed to without it?  Or opposed to some other solution?

By asking those questions, you're defining the economic value of your solution  to the customer in a way that makes it difficult or impossible for another solution (or doing nothing) to seem like a sane option.  It's that economic value — which proceeds directly out of this differentiation process — that renders price irrelevant.


NOTE: The above is based on a conversation with Robert Nadeau, probably the world's top consultant on the issue of pricing B2B solutions.  He's one of the smartest guys I've ever met, BTW.


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