Price trap

Leveraging the Inverse Relationship Between Price and Risk0

By Tibor Shanto – 

I was reading a piece recently where the author was making the case for a specific buyer behaviour. He suggested that people prefer not to take a risk over getting better barging. Which gets one to think about price and risk, and the ultimate risk in using price as a sales tool, as many do.

Most people, according to experts, about 70%, are risk averse, and will take proactive steps to avoid risk. If you want to see this in action just stand by any car rental counter and watch them buy unnecessary amounts of insurance, all with the goal of being covered for all risk. This includes risk that many already have covered by virtue of their existing auto policy or other sources like their credit card. (Disclaimer: I am not an insurance expert, please check with one before renting). Couple that with the propensity to associate risk with the unknown, in sales that would be any provider who is not the incumbent, and you begin to appreciate the challenge many sales people have.

Despite all that has been written by many about the futility of selling on price, how it erodes margins, which in turn has a number of detrimental effects, I continue to see sales people (apparently professional sales people) spend more time selling their managers on the need to make price concession in order to win deals. But if we take the premise presented as accurate, reducing your price may in fact be losing you deals, rather than helping you win them.

Think of it like this, every time you drop your price, you raise your risk profile, making it harder to get the buyer to select you. The more of a bargain you try to be, the more you cause the buyer to pause and think. “Is this too much of a bargain, is it cheap because it is no good, is he willing to drop the price because it was inflated to begin with, is everything else he tells me inflated, ooh, I can’t afford to take that risk.” One strategy to explore is how by selling at full value and full price you could actually reduce the risk profile and sell more. Yes I know, this may not be as easy as it sounds, but there are ways to do it.

Start by changing your focus from the price side to the risk side of the equation. By this I don’t mean working on minimizing your risk profile, but increasing the risk profile of where the buyer is now. Given the propensity to flee risk, and the premium people are willing to pay for safety, seems like a better idea than discounting.

This may not be easy, if there were a glaring risk factor, the buyer would have seen it and acted on it already. Your task is to identify little elements that if either left unattended, or combined can lead to insurmountable risk. This requires that you as a sales person abandon your focus on need or pain, being a “solution”, and focus on the buyer’s objectives. Unlike other sales people who beat the drum about a current risk, engage them based on the risk of not achieving an objective that may be 18 – 24 months out. Likely this will not be one or even two things, but a series of smaller risks, not scary on their own, but in combination, they will lead to the big risk the buyer does not see, yet. Think of it as dominoes, it may not be the first, or the third, but if the fifth domino gets knocked down, it exposes the buyer to the big risk inherent in domino six. Helping them avoid the first two or four dominoes from falling, will reduce the unseen risk, and help you drive full price, if not a premium.

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