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September, 2006

How to Read The Flinch

...and other tools to give you the last word on price.

By Bill Lee

Is your quote-to-order ratio pitiful in part because your sales force lacks confidence in the overall value your company has to offer compared with your competitors? Do they buckle when confronted with the "Flinch?”

If you answered "yes” to even one of the above questions, this article will benefit both your company’s managers and salespeople.

Why do contractors complain so much about price? One reason is because many salespeople have taught their customers that if they kick and scream loudly enough and long enough, the salesperson will somehow come up with a lower price. If this is the case in your company, something must be done to reverse the trend. The first step is to accept a lot of personal responsibility for much of the haggling that goes on over price and take action to fix the problem.

One of the best rules I’ve ever found to give salespeople confidence in their pricing is this: If your customers and prospects are not complaining about your prices, then your prices are too low. Just because customers ask for lower prices doesn’t mean that your prices are high, it just means that the customer wants a lower price. Don’t we all?

In our free enterprise system, prices are largely determined by two factors: supply and demand and negotiating skills—both on the part of the customer and the salesperson.

Take a look at your company’s sales. I don’t care whether you’re doing $5 million in sales or $100 million in sales, your prices are obviously competitive. If they weren’t competitive, you would not be doing the volume of business you are currently generating. Your customers have made the decision that when they consider your service level, the quality of the products you have to offer and the price you charge, your prices reflect a satisfactory value. If your prices were perceived to be higher than the value you offer, your existing customers would do business with one of your competitors. This alone should give your salespeople confidence in the competitiveness of your prices.

Build Those Relationships

We operate at Level II of the selling process. I call it the Relationship/Patience level. I added "Patience” to "Relationship” to emphasize that it takes a lot of patience to build a relationship.

Have you ever thought about why your loyal customers with whom you have a strong relationship find your prices competitive while your prospects who have an equally strong relationship with one of your competitors complain that the prices you quote are badly out of line?

I believe the answer to this question lies with loyalty and relationship.

Almost 100% of the time, contractors do business with people they like. They do business with building supply companies they feel most comfortable with. When you’re on the outside looking in, your prices are a lot more suspect than when you’re on the inside looking out. This, I believe, is human nature.

Prospects who beat up salespeople over price are frequently looking for a lower price to shop to their current supplier. They don’t want to buy from your company, but they do want to use you in an attempt to keep their current supplier honest.

What’s the Real Objection?

Here’s a question designed to determine whether price is the "real reason” the prospect is not doing business with your salesperson or if it’s merely an excuse:

"Mr. Prospect, if our prices were item-for-item identical to our competitor’s, are you telling me that you would give me your business?”

If the prospect answers "yes,” then you have successfully determined that price is the only obstacle that must be overcome.

However, if the prospect answers with something like, "Well, actually, no, even if your prices were identical to the prices we’re currently paying, I don’t believe we would give you our business.”

This is why we call this question the Set-Aside Technique. The question is designed to set aside the price objection; that is, treat it as if it doesn’t exist. So if the prospect tells you that regardless of whether your prices are competitive, you still would not receive an order, you must then ask a follow-up question:

"If price is not the obstacle that is standing between us doing business together, I know you have another reason, would you be kind enough to tell me what it is?”

Again, the salesperson is probing for the "real reason.” By the way the prospect answered the Set-Aside question, the salesperson learned that the price objection was nothing more than an excuse.

The key word in the Set-Aside Technique is if. When you use the word if at the beginning of a question, it becomes a conditional phrase. Here’s another example that concerns service as opposed to price: The prospect tells you that your company has a bad reputation for on-time delivery and this is the reason he won’t do business with you or your company. You might ask the customer: "Are you telling me, Mr. Prospect, that if we could guarantee you that your material would be on your job site by the time you specify, you would give us an initial order?”

If the contractor answers "yes,” then you know that the service obstacle is the "real reason.” But if he answers "no,” you know that while on-time delivery may be a concern, it is not the "real reason” or the only reason you are not getting a shot at this prospect’s business.

Avoid Price as a Marketing Tool

One reason gross margins are so anemic in our industry is that too many salespeople are poorly trained in how to deal with price objections. Based on my experience, the majority of salespeople—and, I might add, the majority of managers —in our industry believe that the only way to break into a new market or into a new account is to "buy” their way in. In other words, cut the price.

Using price as a marketing tool is a two-edged sword: 1) When salespeople use a low-ball price in an attempt to get a builder’s attention, about nine times out of ten, the builder will shop the low-ball price right back to his current supplier, which your competitor will meet. 2) Not only did the low-ball pricing tactic not work, it lowered the pricing in the entire market because pricing seeks its own level.

The low-ball quote is double trouble because in retaliation, your competitor will often seek out one of your loyal customers and fire off a low-ball price to him, which he shops back to you and you meet.

Salespeople who resort to using price as a marketing tool lower the gross margins in the entire market.

How to Read the "Flinch”

I have attended approximately 13 negotiating seminars over the course of my career and each has taught the use of "the Flinch” as one of the most effective tactics to persuade salespeople to lower their price.

In fact, at the national builder’s convention (NAHB Show) each year, not just one but several such programs are often presented to teach builders how to beat down the quotes they receive from subcontractors and suppliers. If your customers are trained how to use such negotiating tactics, but your salespeople are not so trained, your salespeople are at a distinct disadvantage when trying to defend their prices.

So, what is the Flinch? Well, it’s when a buyer practically goes into orbit when a salesperson quotes a price. In a loud show of dismay, the buyer might say something like, "…Good grief! Man alive! Your prices are sky high. No wonder we don’t do business with your company. How in the world do you expect us to compete if you can’t be competitive…?”

Rule No. 1, when a customer or prospect uses the Flinch, it doesn’t necessarily mean that your prices are high. It’s just a Flinch. It’s just a tactic designed to make salespeople feel insecure about the competitiveness of their prices. To determine whether the flinch is legitimate or just a hoax, I suggest the use of what I call the "Reverse Flinch.”

Here’s how the Reverse Flinch might sound: "Mr. Prospect, I am really surprised at your reaction. I quote builders several times a day and I’m told that my prices are pretty much in line with the market. In fact, this week alone I have had a record week for sales. My company spends a fortune trying to make sure that we are on top of the market; our customers routinely share with us copies of our competitor’s quotes, which is another way we stay competitive. We belong to one of the largest buying groups in the nation, so I feel confident that we buy competitively. Can you please give me some more information? What am I missing?”

Does the Reverse Flinch always work? Of course not. Some builders will stand their ground and insist that your company’s prices are still out of line. But by and large here’s what the Reverse Flinch accomplishes: It lets the buyer know that the salesperson was not born yesterday. It also provides several pieces of evidence that hopefully will convince hard negotiating buyers that they are not leaving money on the table when they pay the price they have been quoted.

That is of course the entire purpose of the Flinch—an attempt to get salespeople who may have an extra discount in their hip pocket to pull it out. In most cases, buyers merely want assurance that they are not leaving money on the table.

Cost vs. Price

How many times in your career have you paid the lowest price for something you purchased, but in so doing, you ended up paying more in the long run? The concept of cost versus price is critical when dealing with price objections.

Here’s an example: "Mr. Prospect or Mr. Customer, I can assure you that this is the very best price I am authorized to quote. We do our best to stay on top of the market. We sincerely believe that overall our prices are competitive. But there is a big difference between cost and price. Even if every individual line item we quote is not the lowest price in the market, we believe that when you do business with us, your cost on the entire project will be lower when you allow us to supply the job.”

Several years ago I was conducting a sales seminar for a dealer in Washington State when a salesperson related to me the following story. He had just lost a framing order to a competitor because he was $200 high on the framing quote.

The salesperson who lost this order knew from experience that this particular builder insisted that his framing material always be on the job site by 7 a.m., the same time his framing crew arrived. So since he was working another job site in the same subdivision, he drove by the job. What he found was the framing crew sitting around smoking cigarettes and drinking coffee. Material from his competitor had not yet arrived.

"How large was the framing crew?” I asked.

"It was a large crew,” the salesperson answered. "There were seven men on the framing crew.”

"How much do framers earn in this market?” I asked.

"An average of about $20 an hour,” he told me.

So let’s see, that’s 28 man hours (four hours late times seven framers)

times $20 per hour for a grand total of $560 that this particular builder had paid for his framers to sit around waiting for material. How much did he save? $200. So it cost this particular builder $560 to save $200.

What a terrific illustration of the difference between cost and price. So give your salespeople an assignment: Ask each of them to submit several examples from their experience that illustrate the difference between cost and price. This will give your sales force an arsenal of stories to illustrate this crucial point.

How to Sidestep the "Crunch”

The Crunch is another negotiating tactic that is highly effective, especially when it’s used against a salesperson who has not been trained in how to deal with negotiating tactics. For example, the salesperson quotes a competitive price, but his company has given him pricing authority to deviate from quoted prices. The buyer says, "You can do better than that.” So the salesperson does a little bit better. After all, he does have pricing authority.

Then the buyer says, "You are getting really close.” The salesperson still has some room to move and it sounds as if he does a little bit better that he will get the order. He lowers the price a little bit more.

So the buyer then says, "You’re almost there.” Using the Crunch, the buyer was successful in getting the salesperson to reduce his price three times.

If the salesperson had been trained, he would have seen the Crunch coming and could have sidestepped it with a statement like, "Mr. Prospect, I have quoted you the very best price I have been authorized to quote. I can assure you that this price is competitive. If I could have quoted you a lower price, I would have done so in my initial quote. If you’ll go ahead and authorize me to ship this order, I promise you that I will follow up and make sure that no snafus occur that will raise your cost on this job.”

Finally, never, ever give up anything unless you at least attempt to get something in return. "Mr. Prospect, if I could persuade my company to lower its price on the framing material, could you see your way clear to give us the millwork on this job?” Or the windows on this job? Or the locksets on this job. The point is never give up anything without asking for something in return.

Training Pays for Itself

If lumber companies are going to give their salespeople pricing authority, it is imperative that they also spend a few dollars to train their salespeople in techniques to deal with pricing objections. Over the course of a year, this training investment can make hundreds of thousands of dollars of difference in your company’s gross profit.

BILL LEE has nearly 40 years of experience in the construction supply industry. A consultant and seminar leader, he is the author of two books: Gross Margin and 30 Ways Managers Shoot Themselves in the Foot. www.BillLeeOnLine.com, 800.277.788

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