The Difference Between Value, Cost and Price

How much do you enjoy talking about price? How many conversations have you had about price that you can honestly say you enjoyed and that the relationship between you and the buyer was as good afterward as it was before? I’d guess between few and none

That’s what this discussion is about. How to talk about price. Or rather how to not talk about price. And why would you not want to discuss price? Well, here’s a couple of reasons.

Once you’ve quoted a price it typically becomes THE topic of conversation. It’s virtually impossible to get off it, for example to shift to value, without sounding defensive, like you’ve got something to hide. There’s just no way around that.

When you quote a price, you can guarantee buyers will want to negotiate It’s human nature. Buyer’s assume you haven’t quoted your lowest price off the bat (no one does, do they?) and they also assume you’d be expecting them to negotiate and that you would have allowed for that by leaving some fat in your price to provide scope for a discount.

I mean can you quote and then not have to negotiate and then discount? Is that possible today?

That’s how it goes doesn’t it? Like a game. And almost everyone plays it. It’s expected and so neither you nor the buyer thinks much of it. You negotiate and hopefully reach agreement. Here’s the problem though.

The Damage of Discounting

Whilst (nearly) everyone does it, discounting is a game that costs dearly. You pay a big price in loss of trust and credibility, because this is what happens when you quote and then discount.

  1. You didn’t offer you best price up front, so the buyer feels you tried to take advantage of her. That’s a breach of trust.
  2. You’re obviously prepared to do business at a lower price than you quoted, so why quote the higher price in the first place? Were you trying to gouge the buyer? No of course not, but that’s how she’s going to see it.
  3. Your pricing has no credibility. The buyer no longer trusts you. From now on whenever you quote she won’t believe you’ve done your best She’s going to want to negotiate. You now have a relationship that is based on distrust.

When buyers say they want to negotiate that’s not so subtle code for ‘I don’t trust you’.

The President of Delta Airlines once said:

‘Coffee stains on the seats means faulty engine maintenance’

From a customer’s point of view, if what they can see isn’t right, what then of the things they can’t see? You’re leaving them to join the dots and they’ll assume that what they can’t see must be so much worse. So, for example, if I can’t believe your first price is your best price, how can I believe your service is as good as you say it is? Or that your consultants know as much as you say they do? What else are you not honest about.

This is how Seller’s loose traction with buyers. It reinforces the almost universal distrust buyers feel for salespeople.

Here’s the thing. Every day we’re exposed to countless messages screaming discount, 10, 20, 30, 50% off, don’t pay full price, we’ll price match and so on. The message is that first price is not the last price. It’s merely a start point. So that distrust is baked into our psyche. You can’t fix that problem.

Here’s what you do. It’s simple but maybe not obvious. If you can’t solve the problem, then don’t create it in the first place. Here’s how:

Don’t make a firm offer until you are certain it will be accepted.

That is, a quotation for example, where you’re proposing anything other than list price and your normal commercial terms. Our objective in these cases is to remove the need to negotiate or have price conversations and instead have Value Conversations. We want consensus to replaced negotiation.

So, I’m going to show you how to not have pricing conversations. If you think that sounds fanciful. Listen up.

The first thing to appreciate is that price has nothing to do with value. Although those words are often used interchangeably they’re quite different concepts. The price of an item is what someone wants if they are to part with it. Value however is what something is worth to you. You could say price is somewhat arbitrary where value is personal. Price and value are 180 degrees opposed, you give one and receive the other.

The important point to bear in mind is that value received is not dependent on price paid. You can pay a lot of money and get little value, just as you can pay a little and get a lot of value.

Now let’s look at cost. Price and cost are often used interchangeably too. But they again are different. Price is what the seller gets, cost is what the buyer pays. More to the point, the cost to acquire a product or service is only part of the cost the buyer bears. There are then the costs in use, for example, training, maintenance, storage, support and so on. That is, buyers don’t just pay a price. It is only a part of their investment to close a Value Gap. And that is our intention here, to close the buyer’s Value Gaps. And so their cost, or more specifically total cost, should be our focus.

If we are to explore value, then it is cost we need to be discussing not price. And in fact, that’s how buyer’s see it too. If you doubt that, simply ask the buyer, ‘what’s more important to you, lowest price or best value?’ 99/100 they’ll go for value. And if they don’t then I’d suggest they’re not a customer you want unless of course your objective is to be lowest bidder.

So, having Value Conversations is about exploring cost, not discussing price. Let’s look at the difference.

The Difference Between Cost and Price

Cost is about buyers. It’s their language and so it’s safe ground for you.

Price is about you. It’s your language. It’s about your products/services, which is self-interest and so not safe ground.

Cost is not product specific. It’s generic. For example, if you said: ‘I’d estimate it would cost $1000 to $1500 to repair your engine’ that’s just and opinion or advice.

Price is product-specific. If you were to say, ‘our price to repair your engine is $1200’, that’s a quote. That’s not advice, that’s selling,

Price can be contentious. Buyers may not accept that your price is reasonable.

Cost is not contentious: Buyers accept that there is a cost to solving problems.

See the difference?

It’s perfectly safe and effective to discuss cost. That’s not the case with price.

Once you’ve quoted a price, it’s very difficult to shift the conversation, for example to value. Whatever you say, you’re going to sound like you’re defending your position and that what you’re asking is reasonable and by inference, what the buyer is expecting is unreasonable. You’re on different pages. It creates tension and even conflict.

You can however talk costs for as long as you like. And you should do. No tension. No conflict.

Bottom Line: You want the buyer to agree the cost he’ll bear before you quote a price.

And then your quote will of course be less than he was expecting to pay so he gets a pleasant surprise!

Can I really avoid price?

Now I know that for many sellers, this approach is a paradigm shift. Refusing to quote when asked to do so will feel strange. However, it’s really not that big a deal. Simply say, words to the effect:

‘I’m happy to quote you budget pricing, but before providing a firm quote I need to do more work to ensure I come up with an offer that will be compelling value for you’.

It works every time.

I mean, what is the buyer going to do? Ask you to summit a quote that’s not compelling value?!

In the game of inches that is selling, this approach will gain you many inches. Buyers will respect you and think more of you for it

Finally, when you do quote, stick to it. You need only do that a couple of times and your credibility and the respect that the buyer has for you will soar.

 

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