Price negotiations: How to respond when a competing vendor underbids you
We all know this kind of price negotiation: You’ve put yourself in an enviable position as a salesperson. Over the course of several weeks or months you’ve worked hard to qualify a prospect, familiarize him with your product and build a relationship.
He likes you and he likes what you’re selling. You estimate that there’s a 90% chance you’ll close the sale during your next conversation.
But then, the (not so) unthinkable happens. You get a call from the prospect and he tells you he’s been talking to your competitor for weeks now, and they’ve just offered him an outrageously low price on their own product.
He puts you on the spot and asks you straight up, “Can you beat that price?”
If you’ve been in sales for any reasonable amount of time you’ve probably encountered this price negotiation scenario. If you haven’t, or were unsure about how to proceed, the answer is pretty simple.
That’s because there’s one surefire way to win a price war. Get out of it. Avoid the price competition.
(Want a shortcut to overcoming objections and winning sales negotiations? Get our free objection management template.)
Put price aside
When a prospect appears to be fixated on price, it’s up to you to steer the conversation towards what really matters, and that’s value. Answer his initial question with some questions of your own and let him know where you stand.
“Let’s put the price aside for now. Do you like our product better than theirs? Is our product more valuable to you than theirs is? If you view our products as equal and the only differentiator is price, then I want you to go with theirs, and I want to help you get the best price possible for it.”
What happens next depends on what type of prospect he truly is and what you really think about your product.
A prospect who tries to lowball you fits one of two profiles:
- He’s a tough negotiator
This prospect is comfortable being uncomfortable, and is perfectly okay with trying to make you feel uncomfortable as well. He might tell you that he loves you and your product, but the premium price tag that comes with it isn’t justifiable.
That’s okay. If you’re offering a premium solution, you have every right to offer it at a premium price. When you engage in a price war, you devalue your product. To make an exception for this prospect would be doing all of your current customers a disservice.
The conversation with Prospect #1 could be a hard conversation to have. You may lose the opportunity to make a sale. But even if he decides to go with your competitor, you haven’t lost the opportunity to add value to him and his business, which means you haven’t lost a potential customer. We’ll see why in a moment.
- He’s not the right customer (yet)
Maybe this prospect really is looking for the cheapest solution, and either hasn’t thought about or doesn’t care about the long-term implications of that strategy.
If you are in the business of being the cheapest – if you look around at your competitors and determine that their margins are where your opportunity lies – and you’re able to execute on that strategy, then read no further. The advice in this blog won’t apply to you.
But if you’re in the business of maximizing value for your customers, and thus maximizing value for yourself in the long run, then a prospect who is simply seeking the cheapest option is not someone you should attempt to sell to.
If your prospect’s goal is to get the best price right now, help him reach that goal. (I’m going to share how specifically to do this in the next section—not just generic advice, but a highly actionable tactic you should use exactly as I lay it out here when dealing with this kind of prospect.)
Regardless of whether you’re talking to Prospect #1 or Prospect #2 you should recognize in this situation an opportunity to build a partnership that can ultimately add value to you and your company in the long term.
Put the team first
At first, you may sweat a little a bit when you hear yourself boldly promise to help sell your competitor’s product to your customer. But this strategy makes perfect sense when you remember that the growth of any SaaS business relies on enabling the success of others.
In other words, you should be doing whatever it takes to add value to your prospect and his organization without compromising your own sales efforts or your product.
In this particular situation, you have an excellent opportunity to do exactly that.
When you say to your prospect, “I’m on your team. If the only difference between our products is price, I want you to go with the other guys. Leverage me as much as you can so that you can get their solution as cheaply as possible. I'll even help you negotiate a lower price by sending you an email underbidding their latest offer.” You are turning yourself into an undeniable asset and a valuable partner.
Here’s what happens when you do that.
Prospect #1: When you show a willingness to help him reach his goal, even if it means selling the competition’s product, Prospect #1 will recognize that you’re committed to adding value to his organization. Likewise, when you show that you’re willing to take the deal away rather than compromise, you set the tone for the relationship moving forward, and very clearly demonstrate your expertise as a salesperson and your belief in your product.
If Prospect #1 is as shrewd as he seems to be, it’s likely that he’ll quickly recognize you as the type of partner he wants to be aligned with.
Prospect #2: If you help Prospect #2 acquire the cheapest alternative to your solution, it’s only a matter of time until he realizes that he got what he paid for, and that he actually wants and needs more. When this realization finally hits, he’ll be well aware of your confidence in your own product and should be ready to pay for that added value.
Fortunately, he got the first solution for next to nothing thanks to you.
Build something that’s built to last
Don’t cheapen your product by letting yourself get lured into a price war and don’t settle for customers whose number one priority is price.
Remember that what ultimately will determine your long-term success, more than closing any single sale, is building mutually beneficial relationships that will bring value to both your own organization and your customers’ over time.
Want more tips on overcoming objections and winning sales negotiations? Get our free objection management template.