Category: Sales

Business Principle:
Ensure your price structure is supporting sales, not reducing them.

The Issue

Our Experts client was in the screen media business, supplying the hardware for AV systems in the Out of Home environment (public spaces and retail environments).  The client had developed a template for all customer quotations, that contained very detailed breakdowns on the cost of all elements, such as 40” LCD screen, media player, housing or casing, installation etc.  The clients sales team reported that 9 out of 10 quotations would be challenged by their customers – especially specifics such as why was the 40” screen so expensive, how did they justify the cost of installation etc.  Invariably the challenges implied that many customers felt they were being over charged, which then prevented closure of many sales deals, and created pressure to defend or reduce costs before closure.

The Solution

Our Expert is a keen student of customer behaviour and customer psychology. One such nugget of knowledge was that of the “Anchor Price”. Quite simply we all form opinions of what a product or service should cost, these opinions are normally formed by exposure to previous cost examples.  For example, you see 40” TV’s on sale for around £399, this becomes your sub conscious “Anchor Price”. If you then see a quality TV for less, you think it could be a bargain, if you see a similar TV for £1000, you believe you are being ripped off!  So, a price becomes “anchored” in our mind and is generally applied to any similar product or service. Our experts’ client, by already supplying very detailed quotations was ignorant to the fact that their customers would already have an Anchor price for a 40” screen – our £399. So, the quoted £1000 for a professional 24 hour running trade screen (even though very good value), was seen as ludicrously expensive as the customer did not understand the difference between a domestic home based TV and a professional screen panel (why should they know the difference?). Likewise, the installation was undertaken by skilled engineers, qualified in electrical installation and highly trained AV processes, but the prospect could only imagine a van driver who would then plug in a screen, and again the prospects “Anchor price” for a delivery man was far lower than the client quoted professional installation cost.

There were two possible solutions. The first would be to ensure that the quoted customer did not make incorrect comparisons, so that would require good communication and client education with every quotation, of why a professional screen is not the same as a domestic TV. This approach risks drowning each client in a sea of words, descriptions, information that they may or may not appreciate, but it would certainly make quotations harder to digest and thus harder to accept. To be honest, you did not ever need to understand how a car worked, in order to buy one and benefit from it – so over educating the prospect is generally not the best way.

The second solution, and one our Expert always recommends, is to consider what you are really selling, and focus upon pricing that in a way your customer can understand, and see you as “added value” to their business, and not Added cost. In this example, the supplier was in fact supplying a working video content delivery system, where the screen, media player and installation were just necessary props to provide the service.  Quotations, and all marketing materials, switched to referring to a “complete solution”, and ceased talking about specific elements.  Also, the quotation was quoted only as a total cost – with no breakdown. The total cost was also expressed as a cost per site per week for a one-year period (the period coinciding with the onsite maintenance service also included in the cost).   A customer could now see a cost per week per site of a total solution, and from that easily understand the net weekly benefit of owning such a solution – all without any obvious distractions of anchor pricing for any elements. A win win solution!

You may be also anchored to the traditions of employing your own full-time sales and marketing staff. Let us help you break free and enjoy the immediate benefits from your own Part Time Expert. Call us today.