Seller: “Based on your requirements X, Y, and Z, with setup and 90 days of consultation time, the price for the project will be $475,000.”
Buyer: “Is this the best you can do? It’s more than I was expecting. While I’d prefer to go with you, [competitor] said they can do it for less.”
Seller: “We are pretty confident in our pricing, but let me see what I can do and get back to you.”
This is oversimplified, but it’s an all too common scenario in B2B selling.
When you’re buying something big, you likely ask for discounts. If you do, it makes sense that others do, too. If you don’t ask for discounts, guess what? You’re in the minority.
According to our research, most buyers seek and achieve price concessions. We asked 449 buyers to respond to the statement: "In general, I/my team achieve pure price concessions from suppliers, that is, if we don’t change terms or deliverables materially, we still get the price to come down."
59% of buyers achieve pure price concessions from suppliers. This means that, in these situations, sellers flat out cave. Frequently.
Now for the disclaimer: discounting isn’t inherently bad for sellers when it’s a part of a planned strategy, and not every situation is the same.
But caving on price without trading for value is rarely a good strategy.
Ask and Ye Shall Receive
The second most effective negotiation tactic buyers use is to simply ask for a better price. We call this the Whack Back. Regardless of how reasonable the first offer is, the buyer pushes back on it. They say things like, "we need a lower price," or, "is that the best you can do?" In fact, 83% of buyers find this tactic effective.
Buyers ask for price concessions and sellers give them. But do sellers have to? Are buyers really going to walk if sellers don’t lower their prices?
Buyers' Price Sensitivity
While most buyers use tactics to lower seller pricing, only 20% to 30% of buyers are highly price sensitive.
That means approximately three-quarters of buyers are not overly price sensitive. In fact, 62% of buyers in our study, Top Performance in Sales Negotiation, agreed with the following statement:
“We had the flexibility to pay more for this solution if the supplier demonstrated why doing so was worth it.”
Perhaps more telling, only 16% of buyers disagreed with this. (Some buyers were neutral in their answer.)
Buyers are focused on value. Consider the second part of the statement: "if the supplier demonstrated why doing so was worth it." That’s the very definition of value, with ROI being more important than the price itself.
Sellers need to do a better job of focusing on value and taking the focus off price.
Let's take our example at the beginning of this article and play it out a bit differently…
Seller: "Based on your requirements X, Y, and Z, with setup and our 90-day implementation excellence process, the price for the project will be $475,000."
Buyer: "Is this the best you can do? It’s more than I was expecting. While I’d prefer to go with you, [competitor] said they can do it for less."
Seller: "In our experience, our competitors don't offer anything quite like, or as effective as, our 90-day implementation excellence process. This process provides us insight that often uncovers significant cost savings. Our average ROI after the 90 days is 14X, measured through our ABC process, and certified by our customers themselves. It’s also true that the failure rate of these kinds of initiatives is quite high. Ours is less than 4%, with the industry average around 25%. Our 90-day process does, in fact, cost more, but the returns are consistently much higher, and risk is much lower. Curious to know your thoughts.”
Don't have or know differentiators with metrics to back them up? Your product or service will always be seen as a commodity to buyers.
To sell the value, you need to know and then communicate the impact of working with you versus others, and paint a picture of the New Reality a buyer will achieve.
If a buyer seeks a pure price concession from you, think of the 6 Essential Rules of Sales Negotiation, Rule #2: build value. It'll help you and your sellers focus on buyer results and success, and take the pressure off of price.
To answer the original question posed in this article: How often do sellers cave on price?
Answer: Too often! It’s better to flip the script and focus value over price.