The Strategist

Risk Factor

04/14/2015 - 17:29

How can I be successful in sales, if I am not offering the lowest price on the market? I would like to receive a dollar for every time I hear this question. Sellers and their bosses often ask this. There are many answers – impossible to mention them in one article. Therefore, here we discuss only the best of them.
Prerequisite "because it is cheaper" is not the only reason why people make purchases. I have seen the results of mass surveys, and in none of them the price occupied the top of the pyramid of motivation. Yes, it has a value. And, if all other factors are equal, people will buy where is cheaper. However, the equivalence of all the other factors is the ideal situation, but practically impossible in our imperfect world. Few people really buy everything just because it is cheapest. Does anyone of you still have a black and white TV at home? You can buy it for a penny! But you did not. So why do your customers have to decide on only one criterion - the price? This does not work. Moreover, people do not always purchase anything with the most obvious value and usefulness - despite the fact that this view is advocated by many trainings for sellers. People do not always choose the best quality, the maximum effect, etc. But they always take the proposals where the risk is low or even in absence.

Most customers do not care about price or quality - they are worried about the risk.

Where the buyer risk lies? Within the scope of the losses that a purchaser will suffer if he would take a wrong decision. It's not just about money: the loss can be emotional, psychological, social. The lower the risk of these losses, the better your chances to hear "yes" from the client in response to your offer. Regardless of price.

To understand the effect of risk factors, it is necessary to see the buying process from the client’s perspective. Try to put yourself in the shoes of the customer, and calculate risk that he takes along with your proposal.

A simple illustration

Imagine that you are going on a picnic with friends, and your share, among other things, had the purchase of disposable tableware. On the way home from work, you drop into the store where you can see two kinds of plastic utensils. Let us call these species A and B. Without thinking, you grab a stack of plates and glasses A, and go on a picnic.

Surrounded by nature, you begin to pour drinks. Your glass is leaking. A glass of your friend also occurs. Moreover, no one has a good cup - all are with holes.

What thoughts come to you at this point? You are losing. Social - your friends are upset, you, even reluctantly, but let them down. Emotional - the situation is unpleasant to you personally. Financial - the money spent on the dishes are thrown to the wind. And temporary - you need to take the time to solve the problem.


Draw a vertical line, at its base put zero, at the tip - 25. This is the scale of losses. If we consider the example of plastic housewares, you award him from zero to 2 points.
Now remember your last talks with potential new client. And look at your offer by his eyes. Where on your scale would you mark the losses that may be incurred by the client, if the decision to cooperate with you would be wrong? For simplicity, just imagine what will happen to this person if your company as a supplier of goods/services, has fulfilled its obligations. Or if the real effect of the cooperation with you is much worse than expected.

Do not try to argue in style "if problems arise, I will deal with them." You think so, you can even announce it in the negotiations, but your client does not take this into account. In addition, we are now considering the possibility of cooperation from the client's point of view. So that the risk of loss from the wrong decision is calculated according to the criteria of the client, and not your own.

I can give a great example from my own practice. A few years ago I was asked by a young man to help increase sales. His company was selling automatic control system production equipment. The result of integration is lower energy costs, and return on investment in less than 1 year. For that time, it was a great product.

But he did not succeed to sell it as quickly as he would like,.

- Describe the process of sale, - I said.
- We are studying a company, find out whether our system applies to their equipment. Then I call the chief engineer or production manager, get more information about the equipment. On the basis of this information, I form an offer illustrating the economic benefits and send it by mail. The next day I call the recipient and try to close the deal.
- So - I said - correct me if I'm wrong: you are communicating with the chief engineer on the phone, and the chief engineer in most cases is a man of about 50, higher education, working in this factory is not for the first year, right?
- Right.
- All right. That is, you call someone who is twice as old as you and the person you do not know, offer him to spend 20-30 thousand dollars on the system, which he had never seen, delivered by a company of which he had never heard.

The client took a defensive position.

- Well, if you see all these things this way, then yes.
- Not only because I see it all - just so the proposal is perceived to those with whom you come in contact.

Risk factor in this case prevailed over everything else in the sentence. Imagine yourself in the place of the chief engineer, who agreed to cooperate. What if the new system will not work as described? Engineer stops production, seek a solution days and night. They could easily lose their jobs. Here it is - the risk. How many chief engineer will be ready to pay to reduce the risk to a minimum? Easily twice the originally offered price.

Therefore, it is better not to think about how to offer the lowest price in the market, and how to make an offer as safely as possible for the client.

Four Tips
  • Build strong, trusting relationships with key managers. Relationship reduce the risk. The better your communication with key people in the client company, the lower the perceived level of risk. Therefore, the seller who is in good relations with decision-makers managers always have a competitive advantage. The point is not in the price - it is risk
  • Use recommendations, reviews and examples. All of this prompts a potential customer that someone else has already worked with you, and was pleased with this cooperation. Consequently, the risk of loss is small.
  •  Trial version, trial, product samples. Your proposal should not be limited by words and promises - let the customer try what is offered, see and feel the possible effect. The more the customer will like, the less the risk will be in his eyes.
  • Make your offer less risky within the company. Trial periods, money back guarantee, deferred payment, warranty, support - all of this reduces the risk perceived by the client.
Nowadays, victory in the competition goes not to those who offers the lowest price. The best are those who reduce risk to the minimum.

original by Dave Kahle

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