Are you proud of your price?

Dave Heywood, MD & Growth Partner at OX7 Partners (00:00)
price isn’t just what a customer pays, it’s part of what you tell the market you’re worth. This is Scale, an OX7 Partners podcast and I’m Dave Heywood And today I want to ask you a deceptively simple question. Are you proud of your price?

I remember doing some sales training years ago. One of the central principles was very, very straightforward. Be proud of your price. Not defensive about it, apologetic, rushing to qualify it before anyone’s even reacted to what’s been put in front of them. The logic was that if we’d done the rest of our job properly, understood the client problem, recommended the right solution.

and made that value crystal clear, why would we suddenly become almost embarrassed when it was time to say how much that all cost?

We spend months and a lot of money telling the market that we’re different. Better. We talk about our expertise, our services, the outcomes we deliver. Then the buyer asks for a ten percent discount and all that conviction just disappears out the window.

And in that very moment, that discount is doing much more than just changing the economics of the deal. It’s revealing what you and the business really believe about your own proposition.

In a way, your price can signal who the offer is for, the quality you can expect, and how much value the business believes it creates for clients.

So let’s look at the economics of even a small discount. Imagine you sell something for 100 quid. It costs 60 to deliver, and so you make 40 quid of gross profit. Now give that customer a 10% discount. Revenue falls to 90, not that much, but the 60 pound delivery cost hasn’t changed. So your gross profit falls from 40 to 30 quid.

in giving away ten percent of the price, you actually lose twenty five percent of the gross profit. And now to make about the same forty at the discounted price, you’ve got to sell a third more.

And the trap that we all rush into is that the discount is measured against revenue, but the damage is really felt in the profit margin.

And McKinsey did a similar study as well across the S&P 1500 In their model, a one percent reduction in price reduced operating profit eight per cent. assuming everything else stayed the same.

and in service businesses in particular, extra volume isn’t free. More clients requires

more people, additional processes, technology spend, more management attention, delivery capacity.

So it’s very easy to win on revenue, but lose on economics.

And as we said, margins only the first layer here.

your price also communicates your proposition.

So your proposition and your price don’t live in separate rooms here. but in too many businesses,

Marketing articulates one and sales and finance calculate the other.

At the end of the day, a client experiences one offer.

So if you position yourself as high trust, high expertise for important work, perhaps in a regulated space, but price yourself like a commodities supplier, the client’s gotta resolve that contradiction in their head. Are you really premium? Is the work less substantial than you claim? Was the original price just inflated?

And it can really work to undermine everything that’s got you to the point you’re at right now.

And there’s plenty of research supporting the fact that price acts as a signal, particularly when buyers can’t easily judge quality in advance.

A piece of analysis by Akshay Rao and Kent Monroe found a positive relationship between price and perceived quality across consumer products experiments.

Yeah, and whether we’re B2B or B2C, at the end of the day, we are engaging with and influencing humans. there’s plenty we can derive and learn from even consumer focused pieces of research like this. What it doesn’t mean though is that putting the price up alone magically improves the product. Of course it doesn’t.

But price is one of those cues that buyers use to interpret an offer. that really matters in a context where what we sell is intangible or difficult to evaluate before purchase. Accessing expertise, receiving advice and reducing risk, it can’t be

Inspected on a shelf.

But creating value is not the same as claiming it, and

It’s really tempting to put discounting at sales’ door. If only they were more confident, they’d hold the line on pricing. But there’s some research that suggests something a little more interesting than that.

A study published in the Journal of the Academy of Marketing Science, a title which rolls off the tongue, examined how customer-oriented salespeople behaved in price negotiations. It included 207 customer interactions involving 40 salespeople, plus a second study of 164 salespeople, so a decent wodge to to look at here. And the research has found.

that the customer oriented salespeople created value, but they didn’t automatically use that to resist discounts. Concern for the customer could make them reluctant to claim value when they feared losing the deal or damaging relationship.

They were better able to defend prices when managers reinforced the belief that those prices were justified. And profit-related incentives also reduced excessive concessions, as you might expect. So creating value and claiming value.

Are very different commercial capabilities. Someone in sales can really understand the customer, create genuine value in the interactions that they have, but still give too much away at the negotiating table. So the answer isn’t for us just to beat them a little bit harder and tell them to toughen up.

The organisation itself has got to provide evidence, connect that value to price, and reward profitable revenue.

Which also comes with accepting that sometimes walking away from a bad deal

is commercially responsible.

but if salespeople are paid for the top revenue line and interrogated whenever they lose, using price to get deals over the line is a predictable response to the system that’s been built around them.

So in really simple terms, marketing has to create difference, the proposition has to solve a problem worth paying to solve, and sales has to connect for value to the customer situation, and

only in those circumstances does the line I was told during my sales trading be proud of

price.

become something that we can live by and deliver and do.

And at the end of the day, discounting sets all sorts of bad precedents. It can shape what a customer expects at renewal time, what someone else might see as a benchmark, and what people learn to do when getting a deal over the line becomes difficult.

And so every discount essentially creates a debt. There’s margin debt because you need more volume to recover that profit lost. There’s expectation debt today’s discount just becomes the price. There’s delivery debt because the customer still expects the same result despite having paid less. And there’s value debt because

we’ve weakened that connection between the value claimed and the price accepted. And of course there’s that cultural debt as well, because everyone has seen that holding the line becomes optional when the pressure’s on.

So does that mean we should never, ever, ever discount?

a lower price can be quite rational when the exchange changes, so whether a customer commits for longer, pays up front, accepts a reduced scope or makes delivery cheaper or less

risky.

But those price changes come with a change to the shape of the deal. So the principle I often use is never discount but trade for one. So if the price needs to move, something else needs to move with it. maybe that’s the client taking on more responsibility in a particular area. Maybe that’s changing the scope.

of deliverables a little a little bit, but protects that assertion that the price is the price, and if that needs to change, something must move with it.

So before we start looking at things like discounting, then there’s a few questions we can ask. Have we made the value clear in the customer’s terms? Does the proposition genuinely justify the price?

What changes in return if the price falls? And is this an isolated scenario or part of a broader pattern? One concession can be rational, repeated concessions are a trend. They might be telling you that the targeting’s wrong, the proposition is weak, value is poorly evidenced, sales team is under equipped, or the original price just isn’t credible

So as I finish up, I’ll ask you that original question again. Are you proud of your price?

I hope you found that useful. I’m Dave Heywood this is Scale, an OX7 Partners podcast, and I’ll see you next time.