Monthly Archives: November 2010

The Top 7 Reasons Why Sales People Cut Price

View more presentations from Russell Sarder.

Cutting price has long been considered an excellent technique for increasing sales, but in many cases, especially for smaller companies, this is not the best strategy to pursue. This is because larger companies can undercut smaller ones more easily through their strength in size. Cutting price is an approach that you may want to have your staff avoid. Here are the top 7 reason why sales people cut price and how you can prevent them from doing this:

1. Because they can
All too often, companies give their salespeople a free reign with prices. The staff is empowered to discount items without having all of the information that they need to make calculated and prudent pricing decisions. There are commonly two problems with this. One is that the salesperson may lack the knowledge and skills to understand optimum pricing. The second, ironically, is that they may also lack the discipline to do so effectively. Instead of giving sweeping control over prices to untrained staff, companies should provide training and policy guidelines for price cuts.

2. Fear
Fear can be terribly inhibiting. Salespeople may cut prices due to the fear of losing a deal or losing a customer. Fear may also be generated through the sense that the customer is somehow being “gouged.” This fear usually springs from the sense that the value of the product or service is lower than the price charged for it. A lack of understanding of your customer’s business and the full value that your solution adds may also cause this fear. If you believe that your solution is genuinely not worth the money being asked, you can indeed cut price, but you might also tackle the problem by adding value to your offering.

3. Lack of Confidence
A lack of belief in the solution offered is another common cause of price-cutting. The source of this problem usually lies in a limited knowledge of other products or services available on the market. An analysis of the competition including its strengths and flaws can go a long way toward addressing this problem. Salespeople who understand the real benefits and added value of the product they are selling will be more confident and better prepared to close the deal. Salespeople also need to learn how to let go of the potential customers who do not value their solution and focus instead on attracting and selling to those that do.
4. Lack of Skill
Salespeople are not always adept at selling on value rather than price. They need to be furnished with the skills of Value-Added Selling. This strategy focuses not on price, but the key concept of value. Customers perceive a sense of value when they feel as if they are really getting their money’s worth for a solution. Training to provide knowledge and skills on Value-Added Selling is the best way to tackle this common problem.

5. Projection
Salespeople often erroneously project their own sentiments onto the client. In other words, many times salespeople mistakenly assume that everyone thinks the same way they do. For instance, they may think to themselves, “I shop price, doesn’t everyone?” This is assuming that price is the key selling factor for all customers. Since they base their own purchasing decisions on price, they assume that everyone else does too, and this makes it difficult for them to alter their sales methods to accommodate other selling points besides price. Again, training on Value-Added Selling can go a long way to fix this issue as well.

6. Mixed Messages
Sales managers may confuse their staff by giving mixed messages about how to sell. For example, this may happen when managers first begin to support Value-Added Selling, but then get nervous due to lack of sales. Then they decide to move to a volume-sales mentality, focusing on short-term gains and forgetting those principles of Value-Added Sales. Managers who change their minds cause salespeople to become confused. Success here depends on consistency of message.

7. Over identification
Sales staff can sometimes over-identify with clients and become personally attached. This can lead to poor business decisions as personal feelings and relationships are put ahead of sound business judgment. In business, professional distance is necessary at all times to ensure that good, solid decisions can be made regarding customers and sales.

All-in-all, proper training can go a long way to fixing most of the issues related to unnecessary price-cutting in sales. A knowledge-rich, skilled staff is better able to make good decisions, thus allowing your business solutions to be sold effectively and at the price most accurately aligned with their real value.

What’s the best way to segment your customers?

Not all customers are the same. Customers are different ages, different races or ethnicities. They are of different genders; they have different levels of disposable income to spend;  they live in different locations, and have different values and standards.

Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing such as age, gender, interests, spending habits, and so on.

The practice of customer segmentation allows companies to target groups effectively and allocate

marketing resources to optimize the results. To do this, companies need to understand which customer segments they are targeting. All too often, you’ll hear business owners saying that “everyone” is their customer. This is not helpful from a marketing perspective. If the customer is indeed every person, it is difficult to develop a marketing campaign that will be attractive to the customer because all customers are different. It also often means that the product or service may not be specific enough to be appealing to any group of customers at all because it does not target anyone’s specific needs effectively.

Companies can use customer segmentation to:

  • Develop customized marketing programs – With clear segmentation, it is possible to target marketing campaigns effectively to make sure that the widest possible audience for the product or service sees some aspect of the campaign. For example, if the product or service is targeted at a customer segment that has been identified as fairly affluent women from the ages of 18-35 who like fashion, the marketing campaign would be very different than the one for a product that was designed with the 80 year-old man in mind. The former may be targeted by placing ads in women’s magazines or carrying out social media marketing on Facebook. An 80 year-old man, however, likely does not use Facebook and probably doesn’t read women’s magazines.
  • Establish appropriate service options – If a business knows which customer segments it is targeting, it can add service options to suit this group. For example, service options designed for children may not be appropriate for adults and vice versa.
  • Prioritize new product development efforts – As mentioned above, savvy businesses that have identified their exact customer base can develop their product further to better suit their clientele.
  • Choose specific product features – In an effective marketing campaign that is targeted at a specific customer segment, certain features of the product may be highlighted to appeal to that segment.
  • Design an optimal distribution strategy – Products and services can be distributed to different segments according to their needs. For instance, let’s use the example above of a woman aged 18-35 and an 80 year old man. For the former, products might be best distributed via the Internet. The 80 year-old man may not be online, however. The best distribution channel to reach him may be his local store.
  • Determine appropriate product pricing – If the customer segment targeted is a small start-up company operating on a shoestring, there is no point pricing the product at $10,000 – this will be out of range for most start ups. It does not matter how good the product is; success depends on effective product pricing according to customer segment.

The market can be segmented in so many ways, and there is no “one-size-fits-all” approach. The best way to segment the market depends on the specific business and its products or services. Here are some ideas of how this may be done:

  1. Geography –Where does the customer reside?
  2. Industry – What business is the customer in?
  3. Customer size – How big is the customer?
  4. Benefits – What benefit does the customer seek?
  5. Customer behavior – Who are the key buying decision makers?

My company, Information Technology (, targets business customers or B2B. As an example, here is a basic snapshot of customer segmentation of my company, NetCom Learning:

We target each of the above customer segments using the following criteria:

  1. Geography
  2. Job Title
  3. Technology Area
  4. Client type – existing vs. new

This allows us to develop marketing campaigns or service features that are relevant to our different segments. For example, if we are selling to a new client, we have to focus our campaign on selling the company since new clients may not be aware of who we are. However, if we are trying to sell to an existing customer, this segment already knows us, so we can focus more on selling specific features of a new service to them.