JC Wiatt, the central character played by Diane Keaton, accidentally discovers an untapped market. She’s delivering sample jars of homemade baby food to the rustic general store when some out-of-towners approach and ask about price.
First, she tosses out a low figure. Then, with each admiring “ooh-aah” from the group, she blurts out a higher number until she lands on a figure nearly double her starting price.
It was a true win-win scenario: The buyers got a great deal, JC got a great price. In the real world, however, such clearcut win-win experiences can be elusive.
Salespeople in particular are feeling the effects of price pressure. They interpret a customer’s every frown, sigh or probing question as a sign of reluctance and an obstacle to closing the sale.
One reaction is to frantically start calculating ways to lower the price. Cut margins? Browbeat a supplier into lowering fees? Promote a less expensive material? Offer a top-of-the-line product at a bargain price?
Keep in mind, the customer has yet to express any displeasure or to demand a lower selling price. The salesperson, however, interprets the signs and jumps to the conclusion a lower figure will secure the deal.
Recently, a client made several powerful points regarding such phenomena.
Material and production costs have gone up, but in his industry, many vendors are holding the line on price. They feel pressured by customers, the market and the economy to absorb these costs. They assume the customer will reject any price increase, so they don’t even broach the topic.
My client offered a basic example:
Old Cost: $80 Price: $100 Profit: $20In the short run, such apparently small differences may have no immediate effect. Every time a salesperson chooses to absorb a cost increase, however, they’re cutting into the company's profit margin. Cents quickly become dollars and dollars quickly become hundreds and thousands in lost revenue.
New Cost: $90 Price: $100 Profit: $10
Over time, these little cuts add up to some very negative numbers. Multiply these little differences by every product, service and salesperson, and it doesn’t take long to turn a stable, profitable company into one that’s struggling to survive.
When this happens, the fact these are self-inflicted wounds is no comfort at all.
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Related
Price Pressure | Death by a Thousand Cuts
Price Pressure | Internal Forces
Price Pressure | External Forces
Price Pressure | Is it Hurting Your Bottom Line?
Price Pressure | Market Forces & the Solyndra Fiasco