"You are too expensive!" How to deal with price objections

Most people don’t like to talk about price. Objections to price can bring up emotional reactions and once we have a certain price in mind it can be hard to change our position. Price objections can cause discussions to become defensive and rigid.

In this article I present a number of ways how you can successfully navigate the price objections and help the other side understand and accept your price.

Protecting your price is important

First of all, protecting your price is important. Nothing hurts your profit margin as directly as reducing your price. Offering a discount may help you close the deal but it can hurt you as the deal may become economically less interesting for your business.

Besides directly hurting the bottom-line of your deal, discounts can have other undesired effects on your buyer. She may for example, be coming back for the same discount next year. Alternatively, she may ask herself why you are giving this discount in the first place. Did you calculate some extra room in the first price your proposed? What if this discount wouldn’t be in place? Then she would have paid too much. Or what if there are more areas where you have built in slack in your pricing? 

I’m not saying you should never give a discount on price or that you shouldn’t do extra work not agreed in the first proposal. It can be justified to agree on a lower price but you should take into account to always get something in return. 

Price is justified by the value delivered

Unless you find yourself in a pure commodity business, price is a byproduct of other issues of your offering. Say for example that your product only uses best-in-class materials or that your company only hires senior personnel to guarantee perfect service delivery. These are features of your services and they come at a price. It’s important to note that, when compared to competition, having more expensive components in itself does not justify a higher price. A price always has to be based on the value you deliver to your customers. It’s the job of marketing and sales to explain the value by presenting the features of your offering as benefits to your customers and prospects. 

Let me give you a real-life example of this point from my personal experience. At Quby, we have developed an intelligent energy display that doubles as a smart thermostat. The physical display is one of the core features of our service offering. Incorporating the screen has been a strategic choice and allows us to deliver services that are not possible without the screen, and thereby adding unique value. Several of our competitors have chosen a different route for their product and did not decide to include a screen which enables them to charge a lower price. The screen is a feature of the entire service offering and it comes at a certain price. It’s the job of marketing and sales to explain this feature as a benefit to our customers and by doing so, create justification for the price of the service.

Objections to price present an opportunity

If you are having discussions on price with your prospective buyer, chances are your buyer likes what you have to offer. Because why would the buyer go through the trouble of identifying the price if he isn’t interested in it in the first place? Savvy sales people will know that price objections are signals of buying intent. 

The exception to the rule is of course if the price is so far out of the range of the buyer’s willingness or ability to pay that price itself forms the problem. Consider for example a house or a car that you cannot afford. If you are having these discussions, you should probably do some work on customer segmenting instead of focusing on getting better at price objections. 

Four methods to diffuse the price objection and realize the opportunity

Based on sales theory and my own experience, I have found that objections to price can be brought down to 4 categories. Each category has its own characteristics and offers opportunities for a clever sales person. 

Doubt

The buyer is unsure whether she should go for it. Alternatively, the person you are talking to may be sure about your proposition, but she may have difficulty in explaining the value of your offering at home or internally in her organization. In more complex sales cycles your proposition may be clear for the person you are talking to but that person may have trouble explaining your solution to the decision-makers. Either way, the doubt is usually caused by two reasons:

1. The benefits of your solution are not completely clear. If this is the case you should take a step back and explain the proposition again. Ask for specific topics that are unclear and that you need to highlight. Check out this article for more insights in explaining features as benefits. 
2. The ROI of your solution to the buyer’s business is not clear. In this case you need to focus on the added value your solution provides to the buyer’s business. If your service brings about a cost reduction or an increase in revenue for your buyer, a strategy may be to reflect this in a business case. Another consideration regarding ROI is that it’s often not so clear what the costs are of not selecting your proposal. The costs of not doing something and staying with the status quo also brings a cost. It will help your cause if you can make the costs of saying ‘No’ apparent and explicit for your buyer. 

Competition

Your offering is being compared to competition. This is an opportunity for the savvy sales person to explore and find out which competitors are in the race and on what areas you are being compared. This information tells you a lot about the buyer’s needs and can allow you to build your strategy going forward.

Budget

Usually, buyers have limited budgets. If your proposal doesn’t fit with the buyer’s budget, it’s time to get creative. The most important step is to understand the buyer’s budget and to identify ways how to fit your proposal into their budget. Let’s say you are selling a service that will be in place over a longer period of time. Together with your buyer, you can identify options of spreading the payments so your buyer can spread the investment over multiple budgets. 

If the benefit you can realize for your buyer is significant, you may even be able to help your buyer lobby for an increase in her budget. Alternatively, you can identify the parts of your offering that present the most value to your buyer and carve out parts that have less value so you can reduce your cost to serve and therefore your price.  

Sports

Some people just want to talk about the price for the fun of it. They see it as a sport and want to play. If this is the case, it’s important to know who you are playing with. What their needs, desires, limitations and tactics are and never give away something unless you get something in return. 

Note that there is a difference between negotiating and haggling. Negotiating is when you are adjusting terms and conditions to find a solution that works for both your buyer and for yourself. Haggling is when you are asked to do the same amount of work as you proposed, but for a lower price. There’s a difference and you should be careful with haggling. 

The strategies described above have helped me in various discussions and I hope they will help you too. Good luck and enjoy!