Cutting Price? Cut the Offering!
Never reduce your price without reducing your offering. If you tell a customer that the widget or service you sell costs $50 (or $5000) and they counter with $40 (or $4000), do not change your price without changing your offering. If you are going to compromise by reducing price, you must reduce your offering. This can take many forms. Actually reduce the product or service they will receive for this price. Require payment up front vs. extending payment terms. Require a minimum order quantity or longer lead time to meet that price. Eliminate certain ancillary services that are normally included with purchase of this core product or service. Trade SOMETHING for that price concession. There are two important reasons you must never reduce your price without reducing your offering:
- “Caving” on price in this way sends a message to your customer that you were trying to gouge them with your initial price. This easy crumble to a lower price creates suspicion and unease in your customer’s mind that your pricing was set arbitrarily and unfairly high. They feel like you might be trying to get away with something. They think you are a cheater cheater pumpkin eater. (This needn’t be true. It probably isn’t. No matter. It’s the message you’re sending.)
- Dropping price without any reduction in offering trains your customer to beat you up on price. Customers learn that all they have to do is ask you for a better price and you will capitulate. You’ve done the equivalent of giving a piece of candy to a tantrum-throwing toddler to keep them quiet. They now know exactly what button to push to get that candy next time. Please don’t do that.
Here’s how this works in my business. When a client wants to hire me for a full-day workshop but then counters my price, I say, “I can’t do a full-day workshop for that price. The price for a half-day workshop falls within that budget. Here are the things that a half-day day workshop won’t include: x, y, z. That said, a half-day workshop will drive substantial benefit in your organization and fits within your budget.” If the client really wants x, y, and z, he or she will find a way to pay the price for the full-day workshop. If the client doesn’t care much about x, y, or z, or those elements are less important than budgetary limitations, then the client will opt for a half-day workshop. The client self-selects into a price sensitivity category based on the “features” they value most. This is a value conversation, not a price negotiation. (Free tip: never hire a pricing consultant who negotiates on price. He or she cannot help you. Seriously.)