What do you do when your customer says they only have a budget of $2,000 (or so they say) – and your product sells for $2,500? You know they’ve just hit you with the dreaded price objection, so what do you do? Do you drop the price to $500 to match their budget and give them a discount? Most people would, right? Wrong. That’s the wrong answer for several reasons. In this Selling in Asia Podcast episode, Managing Director Tom Abbott discusses how to deal with low-budget customers in 6 steps. Read on to discover the difference between cheap and frugal customers and the different price negotiation tactics they often like to attempt.
The difference between cheap and frugal customers
Today, most customers are looking to save money on purchases, or at least get the very best deal they can get – because most prospects know that they already pay too much for their current solution provider and need to reduce their expenditure. However, when dealing with low-budget customers, salespeople must be aware of: Frugal and Cheap. Let’s explore their differences below:
| Cheap Customers | Frugal Customers |
| Often afraid to spend money. | Prioritize their spending so that they can have more of the things they want/need or really care about |
| Only care about spending less. | Driven by maximizing the total value of the purchase |
| Driven by saving money regardless of the cost and will likely sacrifice quality, value and time to acquire short-term savings | Driven by saving money regardless of the cost will likely sacrifice quality, value and time to acquire short-term savings |
| Uses price as the bottom line. | Uses value as the bottom line. |
Also read:
- The Ultimate Guide To Objection Handling
- Quick Tip: Why it’s Easier To Sell Something That’s Expensive
How do buyers negotiate price objections?
Like in all sales areas, salespeople must be prepared for every customer interaction – and in this case, some buyers will try specific tactics to get you to lower your price. That’s why below are some common price negotiation tactics you should be aware of when dealing with cheap customers who might use them to gain a positional advantage:
Anchoring
Anchoring is the price negotiation tactic of sharing a target price or budget cap to anchor the bargaining range in their favor. For example, prospective buyers may say, “We’re only really looking to spend no more than $250,000 for this.”
In this case, the best approach to the customer is to take the lead from the get-go and suggest a price. However, if you can’t do that, instead, ask the customer how they calculated this figure and how it fits into their budget – the idea is that you want to uncover whether they’re stating a real number or a lie.
This type of price negotiation tactic is why it’s essential to prepare for any price objections with possible alternatives you can offer by determining your BATNA, WATNA and walk away point.
Pushback
A typical price negotiation tactic commonly employed by cheap customers always pushes back on the first price offered. In this instance, salespeople must ask why the price is too much, listen carefully as the buyer explains their objection, and ask permission to understand the issue thoroughly. For example, they may say, “I bought a similar product for at least half that price before!” and you respond by pivoting your answer to resolve or at least challenge the objection like, “I think the reason you’re still looking for a solution is that because you purchased a product from [competitor] that differs from our product because [x, y, z reasons]”
Cherrypicking
In this price negotiation tactic, buyers attempt to dismantle bundles to gain concessions and assume that the price will stay the same. However, you don’t have to accept changed terms because the buyer changed them. Instead, address the issue head-on by stating that you must review the pricing dependent on the proposed terms. This response will make it seem like their new terms have effectively come out of nowhere and that it’s unlikely to happen, but you will engage in a discussion about appropriate pricing.
How to deal with Low Budget Customers
1. Find out why that’s their budget
Does your prospect have the money? Can they afford it? Do they have the budget? To handle the price objection, you need to find out if they can’t afford it (affordability) or if they don’t see the value. If the answer is yes, they can afford it -then you need to start looking at how to demonstrate value and make sure that they see that this is the right solution for them. So you address price objections that revolve around value by demonstrating the value, not by dropping the price.
If, on the other hand, they see the value, they think your product is worth it, but they just can’t afford it. You need to address the price objection by finding a way to make it easier for them to afford. For example, can they pay monthly installments or pay a deposit now and the rest later? To find out why that’s their budget, the next time you speak with a customer, they say, “Oh, that’s expensive.” Ask them:
“When you say it’s expensive, or you say it’s too much, do you mean that it was more than you planned on spending?” (Affordability) “Or, do you not see the value of that price or you’re not sure why it’s priced at that much?”
The answer to that question will be very different and will then help steer you in the right direction regarding how you handle that price objection.
2. Assess their needs
Creating a needs assessment of your prospective customers’ needs can help you more accurately understand their most pressing challenges while at the same time positioning you as someone who can provide solutions moving forward.
You could start by looking at your offering, approach, philosophy, process, etc. Then re-phrase these statements in the form of scale statements. For example, “I have created an assessment to accurately understand my prospective customers’ needs and position me as someone who can provide solutions. Rate yourself on a scale of 1 to 10 (1 is ‘Completely disagree’ and 10 is ‘Completely agree’)”.
3. Focus on demonstrating value
If you drop the price to match their budget, all you’ve done is you’ve actually said, “You know what, my product really isn’t worth $2,500, to begin with. It’s only worth $2,000,” so maybe that comes across as unethical, to begin with. Why would you charge me X and now drop it down to Y?
Instead, demonstrate the value. Why is your product or service worth $2,500? Help your customers understand how this can help them solve a problem.
If you exhaust everything, hard qualifying, value demonstration if they still don’t “get it”, stop fighting. Stop pushing and move on to find another customer who gets it! Who love what you’re doing and are willing to invest because they see the return on investment. Doing all the hard work of ‘qualifying’ opportunities early on makes it a lot easier down the road when you’re negotiating. There shouldn’t be too much back-and-forth negotiation once you’re towards the end of the sales cycle.
4. Define Their Options
It’s important to start all negotiations by planning out in advance what you can sensibly offer in terms of freebies, discounts, and concessions. This is all called defining your bottom line and your walk-away point. Don’t let pressure and uncertainty control the path of your sales negotiation because it will ultimately lead to you losing even if you ‘won.’
By knowing your absolute limits, you’ll ensure you aren’t manipulated into conceding to your prospect’s Price Objections or a deal you can’t happily deliver on. Any offer that’s less than your bottom line should be dismissed, and alternatives should be pursued instead.
5. Confirm you’ve satisfied their objection
Now, check that you’ve satisfied their objection with your solution. Trust me, just because the customer nodded along to your responses doesn’t mean they entirely agreed; instead, they’re polite. So, ask if they’re happy to continue with your solution and explain other components if necessary.
6. Know when to walk away
After you go through everything, hard qualifying, value demonstration, and if they still don’t “get it,” stop fighting. Stop pushing. And move on. Find another customer who gets it! Who love what you’re doing and are willing to invest because they see the return on investment.
Close More Deals; Master the Negotiation Process
Profit, relationships, and deals are won or lost during negotiation. When successful negotiators arrive armed with the tools and skills needed to negotiate effectively, desired outcomes are optimized, and loss of profit is avoided. However, profits and closed deals aren’t the only desired outcomes when it comes to negotiations. That’s where our Negotiation Skills Training comes in.
Preserving the relationship is crucial to ensure that long-term business opportunities and negative feelings aren’t harbored.
Sales professionals, procurement departments, and business leaders must learn how to navigate effective negotiations that positively impact both parties and inspire future business.
