Most business people believe there are two basic components in any business transaction the product or service and the price. Many also believe that price is the most important component determining the outcome of the transaction. My recent work involving the proper pricing for a new service brought to mind an experience from my youth, and it may serve to put price in its proper place.
I was raised in a small, rural town in western Pennsylvania. Then, men and boys had their hair cut at a barbershop while women patronized a beauty shoppe.
I was sitting in the barbershop waiting my turn to have my world-class flattop trimmed when a fellow asked Dovey, the barber, what he charged for a haircut.
Upon hearing Dovey quote $1.25 (remember, this was many years ago), my ears perked up because the standard price was $1. The prospective customer began to haggle and eventually got Dovey down to $1, the regular price he charged everyone. The fellow left after arranging to come by that afternoon for the negotiated haircut.
I asked Dovey to explain what just occurred and received my first lesson in the strategy of pricing. It turns out Dovey knew the fellow and his innate nature as a horse trader. Dovey understood that haggling was important to the mans self-image.
It was important that he pay a reduced price. By quoting an initial price above his regular fee, Dovey maintained his profit margin while enabling the man to maintain his self-view as a sharp trader who never paid retail.
One point of this story is that price often has a different meaning to the buyer than it does to the seller. While haggling is not a common part of our culture, reaching a common understanding on the meaning of price is important to a successful sale.
In my experience, most sellers view price as the cost a buyer must pay to receive the sellers goods or services. While that may be true for some transactions and some buyers, it is less so for more complex or larger transactions.
An objection to price may mean the buyer has doubts about the sellers ability to deliver. Its more a question of confidence in the seller than it is about the price.
Price objections often arise because the customer doesnt have the knowledge to evaluate competitive offerings.
As a result, he defaults to the price objection. What he is really saying is, Tell me more. Give me the knowledge I need to make an informed decision.
Sellers are often confused when a longtime customer suddenly raises a question about price. It often means the buyer has forgotten the long-ago experience with a lower-priced, but inferior product that led them to buy from their current supplier.
The seller needs to continually remind them of their poor past experience.
The moral of this column is straightforward. Learn what price really means to your prospect, and address it in terms of dollars, time and risk. Just like Dovey, you and your customer will both win.
Bowser@BusinessValueInsights.com. Dan Bowser is president of Value Insights Inc. of Durango, Chandler, Ariz., and Summerville, Pa.