NASHVILLE, Tenn.-Are price-cutting competitors keeping you from earning a decent profit? Do customers try to strong-arm you for a discount?
If so, Lawrence L. Steinmetz has a cure for such ills: It's called knowing ``How to sell at higher prices than your competitors''- the subject of a 90-minute seminar given by Mr. Steinmetz at the recent World ITRA Expo in Nashville.
``Price-cutting is a self-inflicted wound. The competition does not cut your price-you do,'' he told tire attendees at the International Tire & Rubber Association-sponsored event. Most sales people invite and encourage a lot of price negotiation. The way you handle your price will largely determine whether you'll get that price.''
A former professor of labor relations at the University of Colorado and now president of High Yield Management Inc., a consulting firm in Boulder, Colo., Mr. Steinmetz said the first rule in selling at prices higher than competitors' is not to encourage customers to haggle over price.
``How many of you expect to pay the sticker price on a new car?'' he asked his largely tire dealer audience. Nearly everyone, he pointed out, challenges the manufacturer's suggested retail price on the car's window.
Why? ``Because car dealers have trained us to beat them up on price,'' Mr. Steinmetz said. Radio advertising by new-car dealerships typically screams phrases such as: ``Come on down and let's make a deal.... No legitimate offer refused.... We'll meet or beat any competitor's price-we won't be undersold.''
``Car dealers tell us publicly their prices are negotiable,'' he told the audience.
Mr. Steinmetz said most businesses that are pressured for a better deal by customers make two fundamental mistakes:
The first is ``wowing'' on price-a term describing a situation in which a salesperson tells the customer something on the order of ``Wow! Can you believe these prices?''
Wowing, Mr. Steinmetz explained, may be a simple statement such as: ``Are you sitting down?'' ``Better buckle your seat belt before I lay these prices on you.'' ``Man, can you believe these prices?'' or ``Ain't it a crime the prices they charge for tires these days?''
The salesperson who feels his price is too high is very likely to use the wow technique, he said.
``Cracking'' is the second most common mistake sales people make. Cracking is when the salesperson cracks under pressure and communicates that he or she is willing to cut the customer a deal, Mr. Steinmetz said.
Typical examples of cracking might include the salesperson saying to the customer: ``You know I want to work with you on this, George''; ``Let me talk to the boss and see what we can do for you''; or ``What do I need to do to get your business?''
In conversation, anything other than ``the'' preceding the word ``price'' will telegraph the same message to the customer, he said. Examples such as ``our usual...regular...retail...list ...standard or asking price all indicate to the buyer that the seller's price is negotiable.
Smart, sophisticated buyers always challenge the seller's price, Mr. Steinmetz said. But that doesn't mean the salesperson has to cave in to such pressure.
Basing prices on those of competitors is a common mistake, he said. Why? ``Because I'll bet you have a competitor who's going broke.... Most businesses go broke by cutting prices. If you base your prices on those of a competitor who's going broke, then you'll go broke, too.''
Setting prices on the basis of your cost also can be a mistake, he said, because the better your business gets at keeping costs down the less you make. Don't base your prices on those of competitors and don't base them on your costs, he advised dealers.
Most business owners are terrified that their prices are too high. But instead, they should be terrified that their prices are too low, Mr. Steinmetz said.
Price is almost always more significant in the mind of the seller than in that of the buyer, he said. Most of the resistance to raising prices comes from the sales department- not your customers.
Business owners frequently complain that competition won't allow them to raise prices. But Mr. Steinmetz said such concerns are unfounded. ``If you think that it's your competitor who's keeping you from raising prices, I'll telephone that competitor and ask if it's all right with them if you raise your prices,'' he told the audience. ``I think your competitors will be as happy as little pigs if you raise prices.''
Many customers-if not most-are prone to stretch the truth when pressuring the seller for a better price. They consider it negotiating rather than lying, he said.
One way to determine whether the customer is telling the truth or merely ``negotiating'' in such fashion is by watching where the buyer is looking as he says: ``I'm not paying that kind of money.'' People who are not being straightforward have a tough time making eye contact with you, Mr. Steinmetz said.
There are three additional clues as to when customers are ``negotiating'' rather than telling the truth, he said.
Some begin using emotion-charged personal pronouns such as ``you,'' or ``you people.'' Others become opinionated, saying, for example: ``I don't care about the difference in your services'' or ``I classify all such claims as....''
Another clue is when a customer starts using statements intended to intimidate the sales person. For example: ``Unless you cut your price, I'm not going to buy from you.'' Such comments, Mr. Steinmetz said, almost always are proceeded by words such as if, unless or either.
``History shows there are no long-term business successes based on discounting,'' he said. ``If your ability to sell only results from having a price lower than your competitor's, then your business will evaporate the minute anybody else comes down the pike with a lower price.
``You will never build a viable business by being a discounter,'' he told the audience.
Business owners wanting to sell at prices higher than their competitors must learn to ``hang in'' and keep selling when the customer challenges their price.
``Always acknowledge the fact that your prices are higher than your competitor's and show that you fully expect to get the sale anyway,'' he advised his dealer audience.
Reply to the customer's challenge with something like: ``That's right. We are 10-percent higher than the competition. Let me tell you why I think you'll want to buy from us.''
In this way the situation is turned into an opportunity for a sales presentation on how the salesperson's company adds value to the customer's purchase.
``When a customer tells you he can get a better deal elsewhere, you should ask yourself why he's not down there getting it,'' Mr. Steinmetz said. One reason might be that the competition doesn't have that item in stock. Another could be that they won't do business with that customer because he hasn't paid for the last tires he bought there.
``The most expensive customers you'll ever have are the price buyers,'' Mr. Steinmetz said.
Price buyers, he noted, ``take up all your sales time; do most of the complaining; forget to pay you; tell others how little they paid you; drive off good customers; run up your investment in inventory and equipment and will continue to buy from you only as long as your price is lower than the competition's.
``Price makes a credibility statement,'' Mr. Steinmetz said. ``A low price makes a negative, derogatory, diminutive statement about your product or service. A high price makes a positive, salutory statement.
``How many of you would be willing to go with the lowest-priced bid for your brain surgery?'' he asked. ``Why not? Because you're afraid of a cheap surgeon and you blindly assume that the expensive surgeon is better. What makes you think a cheap surgeon is not a good surgeon? Price. You'd be surprised at how price affects perceptions of quality and service.''
Testimonials from satisfied customers also are a big help, Mr. Steinmetz said. ``Studies show that people don't mind paying premium prices. But many have a morbid fear (that causes them to ask) `am I the only idiot who paid that much money?' Customers find it a warm fuzzy event to learn that other people are buying from you. Let them know who some of those customers are,'' he advised.