This blog contains content from originally from Clozd. We're excited to announce that our very own Tim Caito, Senior Partner at Force Managment, will be taking part of Clozd's #winlossweek, the largest online event dedicated to win-loss analysis. The free conference runs from Sept. 15-17, you can register here. Mark your calendar to join Tim for a conversation on September 17th as he discusses how to build an organizational competency around winning the deals you want to win and avoiding the ones you shouldn't pursue.
When a B2B deal goes south, the most common reason initially identified by both buyers and vendors is price. Of course, price runs through every decision, and no one loves shelling out cash. Unless probed further, the buyer may simply use the statement "the price is too high" to summarize his or her overall dissatisfaction with the vendor’s value offering.
It can be tempting to take this initial feedback at face value. After all, it’s hard to blame any one person in the organization if you simply “lost on price.” But this simplistic interpretation can have disastrous consequences. If you think your win/loss ratio is all about price, you will probably respond by lowering your price. This may simply pave over systemic problems and will likely leave some money on the table. Or, worse yet, you may lower your price and find that buyers still aren’t biting!
In conducting hundreds of win-loss interviews for high-profile clients, we have very rarely encountered situations in which the true driver of the deal turned out to be a raw difference in price. Instead, our in-depth conversations have yielded key insights on what a buyer really means when she says “the price was too high.”
Here are the three most common themes that come up when buyers talk about price:
Clarity
For many buyers, the problem is not so much that the price is high, but that it is unclear. They want to understand the structure behind the quote - that is, how you got to the price you gave them. To provide this clarity, you need to communicate effectively and transparently, avoiding the pitfalls of excessive discounting/price fluctuation and hidden fees.
Written and verbal communication should align to show the buyer a clear picture of what the price is, how the price is built, and what they will actually end up paying. For example, you may have marketing materials that neatly lay out pricing for your different services; but, if your sales team starts talking about exceptions, startup fees, and usage-based fees, the customer can quickly become confused.
If a one-size-fits-all price does not fit your business model and you must use conditional fees, make sure to explain why this pricing structure is better for the customer. Also, help them get a picture of what they will actually be paying by breaking down estimates into their component parts. This is especially useful if you provide them a few different quotes based on likely usage scenarios, clearly explaining how each quote is built.
Finally, avoid used-car-salesman tactics like starting with an unreasonably high price then deeply discounting to get to the buyer’s comfort level. The buyer may be pleased with the lower price, but they are also left wondering about your honesty - and whether you even have a clear idea of the actual value of your product.
Packaging/Fit
We find that many buyers start out saying “the price was too high,” only to reveal after some conversation that the way the solution or product was packaged (i.e., the elements included in the price) was actually not a great match for their needs. If they feel they're being forced to buy features or services that they don't need, they're going to be reluctant no matter the price.
Imagine you walk into your favorite burger joint. You're on a budget and all you want is a burger. What if they only sell burgers as part of a combo meal with a drink and side? You might be frustrated and walk out without making a purchase, all the while complaining that eating there is just too expensive. To win your business, do they really need to lower the price of a combo meal? Probably not. They just need to package their products differently.
This can be a simple matter of the size of the offering. If a buyer is looking for a quick fix for a simple business problem and all you offer is a premium product with all the bells and whistles, it’s going to be difficult to get your price down to a point that makes sense for them. So when they tell you “the price is too high,” what they are really saying is “your product is way more than we can handle right now.”
Mismatches in fit can also occur across other dimensions of the solution you’re presenting such as price structure, contract terms, and budgets. On price structure, for example, a buyer with many different tiers of potential users may be turned off by a SaaS pricing model that makes no distinction between different user types.
Here again, the right fix is probably not lowering your price. Instead, look at your packaging - you could benefit from adding some flexibility to the size, term length, and feature set of your offering. At the same time, you might consider tightening up your lead qualification process to focus on buyers whose needs really fit your product or service.
Perceived Value/ROI
It’s important to remember that B2B transactions are never just about money. Whether your price is lower than, higher than, or on par with the competition, you need to have a value proposition that justifies that price level in the customer’s mind.
If your price is high, you need a compelling narrative for why your offering adds value that outweighs the extra cost. Often buyers have a budget that can easily accommodate the most expensive option, but that doesn’t mean they are willing to pay a premium unless they can grasp the added benefit.
It also helps to take the buyer’s perspective in considering not just the quoted cost, but the Total Cost of Ownership (TCO). This includes switching costs, change management, and any future added work that the buyer may have to do as a result of making the purchase. TCO means that in many cases you need a value proposition that goes above and beyond simply justifying your contract price.
Finally, you need to be sensitive to the needs of the individual buyer within his or her organization. Making a big purchasing decision requires the buyer to use a lot of political capital. The clearer your pricing and value proposition, the easier you make it for the buyer to get the necessary buy-in for the purchase.
Takeaway
While price is a vital piece of analyzing your B2B wins and losses, it can also become a distraction if not put in the proper context. Sales reps in particular tend to over-emphasize price as a determining factor in losses. While they may be right, you need to dig deeper to understand what dimension of price is really impacting your win rate. Some elements to look at here include the clarity, packaging, and perceived ROI of your offering.
Putting price in context is a critical step in building a robust win-loss program that can improve your win rates and increase revenue. Need help conducting in-depth win-loss interviews? Clozd offers innovative services and technology for win-loss analysis.
Join us at WINLOSSWEEK
Join 30+ impressive brands and partners to explore the importance and best practices of effective win-loss analysis during the WinLossWeek conference from September 15-17. Our very own Senior Partner, Tim Caito is slotted (on Sept 17 at) to talk through how to make value negotiation an organization competency for your sales teams.
WinLossWeek is hosted by Clozd, you can find more information about what to expect and register for free here.
