How to Avoid Lowering Your Prices
What to look at when customers regularly ask for lower prices? SiriusDecisions has recommendations on what options companies have to avoid lowering prices.
Even prospects who are enamored with your offerings and eager to buy may ask for a discount. It’s a completely understandable negotiation strategy, and companies’ willingness to lower prices when asked only encourages those customers to attempt to negotiate more with other vendors. (See my colleague Lisa Singer’s post: “Do You Let Customers Set Prices?”)
But when customers regularly ask for lower prices, there are two things we typically recommend that companies look at:
- Has the customer been sufficiently sold on the value? They may be asking for a lower price because they don’t understand the value they can get from the offering, and improved messaging – along with a different selling approach – may help here.
- Are there different tiers or versions available for the product or service? Often a customer who balks at a high price for a “platinum” offering can be steered towards a “bronze” offering that fits within their budget while satisfying their needs.
But let’s say you’ve tried those tactics, and customers are still asking for lower prices. They may just want to win something in negotiation. Numerous studies have shown that people are happier with the end result when they feel they got a deal, even if it cost them more. A consumer who can haggle a $30 shirt down to $25 may be happier with his purchase than one who bought the exact same shirt for a sticker price of $20.
So, when customers persist in asking for a discount – whether it’s to feel like they won in negotiation or due to a legitimate budget issue – what can a company do? An upcoming SiriusDecisions research brief will cover the full range of options, though we’ve compiled a short list that categorizes those options:
- Administrative considerations. For example, offer to bill the customer in installments or extend your normal payment terms. This consideration may help address legitimate budgetary challenges, especially towards the end of a customer’s fiscal year.
- Additional features and services. Expedite the standard installation or onboarding timelines, or offer to provide special conversion or migration services to get the customer up and running as soon as possible.
- Special benefits. Whether through a formal beta program or some other informal program, offering access to new versions and features pre-release may help customers feel appreciated.
- Pricing considerations. For subscription products, hold tight to your list price but offer a longer contract (e.g. an extra month or two on an annual subscription). This concession changes the revenue you can realize on a per-month basis but doesn’t psychologically diminish the value the buyer places on your product or service.
All of these strategies should be chosen by product management and product marketing. Policies and controls need to be put in place, as the strategies should not be left to individual salespeople to employ as they wish. Escalating approval levels – within sales management, and potentially to product management and senior management – should be defined to give sales reasonable flexibility.
These strategies can make buyers feel like they got something they value while holding firm to your price and not giving away too much. What other strategies have you successfully used to avoid lowering your prices and still address customers’ requests for concessions in negotiation?