Negotiating a Sale

The more value you can build, the more deals you can close. Thomas Phelps

What, in your customer's mind does the pricing of your product equate to? Does it mean the actual amount the she will have to pay? Is the price the total cost of ownership or does price mean something more?

While many feel that the price of an object is simply what it costs to own or use a product, a better definition is the comparison between the value the product gives and the investment needed to get the value.

Building Value

For any negotiation to be successful, the customer must see value in what you are selling. If they see zero value, the price means nothing and no negotiating will help you close the deal.

To build value means either creating or uncovering value for your product in your customer's mind. The more value you build and the more value your customer sees, the less important the actual cost of ownership becomes.

Beginning the Negotiations

Negotiations begin when the customer has a determined value applied to your product and she compares her perceived value to the asking price. If the perceived value is higher than the asking price, a sale is made. If, however the perceived value is lower than the asking price, the time for negotiations begin.

It is important to realize a few things about your customer's perceived value and how it affects negotiations. To serve as an example, let's say that you are a Real Estate Agent and are showing a house to a potential buyer.

If the potential buyer, after an initial walk through of the house feels that the house is worth $200,000, your chances for a sale are high if the asking price is below $200,000. If your asking price is slightly above $200,000, the potential buyer will be much more willing to negotiate than if the asking price is $300,000.

If there is a substantial delta between perceived value and asking price, the customer will probably not be interested in engaging in negotiations.

Conversely, if the asking price is significantly lower than the perceived value, the customer may feel that she missed something negative in her summation and will be leery about moving forward. The closer your asking price is to the perceived value, the better for your negotiations.

Determining Your Customer's Perceived Value

Customers today are much too well informed to willingly tell a sales professional what they would be willing to pay for a specific product. They are more willing, however to share their budget range. Asking a customer who is considering a purchase what their budget is will provide the sales professional a target to shoot for.

This "budget" question is very often used in auto sales as sales professionals ask potential buyers what monthly payment they are looking for. Most of the time, by the way, the potential buyer will respond with "I don't want to pay any more than X per month." Whatever figure they give should serve as the starting point of negotiations.

Increase the Perceived Value

If your asking price is at or below the customer's perceived value, your focus should be more on closing the sale rather than on negotiations.

If your asking price is higher than perceived value, you effectively have two options: First, you can lower your asking price. This may not be an option and certainly not what you should be aiming for. Consistently lowering your price is a great way to lose gross profit and to turn your product into a commodity.

The second option is to increase your customer's perceived value of your product. Trying to negotiate with a customer whose perceived value is lower than your asking price should begin with reviewing all the benefits that your product will deliver to your customer. Doing this will not only remind your customer of the benefits of your product but also gives you a chance to make sure that your customer is aware of all the benefits. It may be that your customer hadn't considered something about your product that would be beneficial.

Once a new benefit is added, the perceived value is increased. The more benefits, the more perceived value.