It’s the Risk, Not the Price!

By Dave Kahle

"Low price, low price, low price." It’s the mantra that sales people in every industry segment are hearing more these days than ever before. Customers, looking for ways to contain costs, naturally pressure their vendors for lower costs.
But, is low price the motivating factor in a customer’s decision to buy?
In every survey of buying motivations I’ve ever read, low price is never the primary motivation. Yes, it’s important. And, when everything else is equal, it will be the deciding factor. But very rarely is everything else equal. And very few people in this world buy only on the basis of low price. How many of you are wearing a suit you bought at a garage sale? Or watching a 12-inch black & white TV?
If low price were the only motivator, you would have gone with those lower priced options. But, you don’t always buy on the basis of low price, so why should you think that all your customers do?
The truth is, they don’t. And here’s a secret that almost nobody knows, including all those gurus telling you to sell value. They don’t always buy the best value. But, they can invariably be counted on to buy the lowest risk!
The biggest issue in the minds of your customers and prospects is not price, and it is not value – it is risk.
What’s risk?
It is the potential cost to the individual customer if he/she makes a mistake. It's not just the money, although that is part of it. It is also the social, psychological and emotional cost that your customer will pay if your choice isn’t the best one. The lower the risk of the decision, the more likely your customer will say yes to you – regardless of the price.
Let’s become comfortable with this concept of risk first, and then discuss how to use it in your sales efforts.
In order to really understand risk, you must first see this issue from your customers' perspective. Try to put yourself in their shoes, and calculate the amount of risk that you expect your customers to take when you offer them an opportunity to say "yes" to you.
Here's an illustration to help you understand this concept. Imagine that you are under orders by your spouse to pick up a package of disposable cups on the way home from work today because you're having friends over for a casual evening of dessert and drinks tonight. You stop at the local grocery store, and make a selection between brand A and brand B. You pick brand A.
What happens to you in this instant in time? What is the consequence of your decision? I don't know about you, but I would be the recipient of some negative emotion. My spouse would be upset with me. That may be the most painful cost of your decision. But there are other costs.
You're going to have to fix the problem. If there's time, you'll have to run back to the store and replace the cups. So, in addition to the emotional cost, you must also pay in terms of extra time and additional money. All because of your bad decision. Those costs -- negative emotions, time wasted, extra money spent - all combine to form the risk you accepted when you made your decision.
Here's a simple exercise to help you understand this concept. Draw a short vertical line. At the top of the line, write the number 25. At the bottom, write the number zero. Now on a scale of 0 to 25, with 0 being low, and 25 high, where would you put the risk of buying a package of disposable cups? You’d probably say it is close to zero. So, put an X on the line from 0 to 25 where you think the risk of buying those cups would be.
Let’s look at an illustration at the other end of the scale. I once had an adoption agency as a client. When a young lady is in a crisis pregnancy, and she's making a decision as to whether or not to release her unborn child for adoption, how big a risk is that for her? Put your X on the line that represents your assessment of that risk.
Most people put their mark around 25. The risk in this situation is a lifetime of consequences for at least four people – the mother, child and adoptive parents. That's a very high risk. Compare the X’s for the two different decisions, and you’ll conclude that different decisions carry with them differing degrees of risk.
Now, let’s apply this concept to your customers. Remember that every time you ask your prospects to say yes to you, they are accepting some risk. And each of those decisions you ask of them carries with it a different degree of risk.
Imagine your typical customer. Then think of the typical offer or decision you ask of that person. For example, take one of your newer products. Imagine you are presenting it to your customer for the first time. Now, put yourself in his shoes, and see the situation through his eyes. On the 0 - 25 scale, how much risk does your customer accept when he says "yes" to you?
For an easy way of calculating it, just ask yourself what happens to that individual if you, or your company, or your product, doesn’t do what you promise?
If your customer buys that product and it doesn’t do what you claim it will, what trouble will that make for your customer? What consequences will he/she pay? What is the risk?
And don’t say that there is no risk because you’ll take care of any problem that might develop. You may think that, but your customer doesn’t know that. And remember, you’re trying to see this from your customer’s point of view, not yours. The amount of risk is what your customer perceives it to be.
I had a great example of the role of risk in sales several years ago. A young man approached me to help his company with their sales efforts. They were selling a product that was, at the time, a real state-of-the-art breakthrough. The company designed computerized controls that were retrofitted on food processing equipment. As a result of the use of these controls, the savings in energy consumption would pay for the cost of the equipment in less than a year.
It looked like a great product. But he couldn’t sell them as rapidly as the company wanted.
"Tell me how you go about selling them" I asked.
"We qualify our prospects to the point where we know we have someone who could use the equipment. Then I call the production engineer or the plant manager on the phone, and gather some information about the type of equipment they use. Then I create a written proposal showing the economic payback, and mail it to him. Next I call and try to close the sale."
"Let me see if I understand correctly," I said. "You’re calling a plant manager on the phone. I would guess that most plant managers are men in their 50’s, probably with advanced degrees, and who have been in the plant for a number of years, is that right?"
"That’s right."
"OK," I said. "So, you’re calling someone twice your age, asking him to spend $30,000 - $40,000 on equipment he’s never seen, from a company he’s never heard of, and from a sales person half his age who he’s never met. Is that right?"
My client became a little defensive. "If you put it that way, I suppose its right."
"Well put it that way," I replied, "because that’s the way he sees it."
The problem was simple – risk. On that scale of 0 – 25, how much risk would you think the plant manager would be accepting if he said “Yes” to the over-the-phone offer?
Put yourself in his shoes. Suppose the equipment didn’t work the way it was supposed to? He could shut down production lines, spend weeks trying to make things right, cause all sorts of havoc in the plant, and potentially even lose his job. Now that’s risk.
If you were that plant manager, how much more than the original $30,000 quote would you spend to reduce the risk? It wouldn’t be hard to justify a price double that.
That should give you a clue as to how to fight the “low price” issue. Worry less about low price, and more about lowering the risk.
Here are four strategies to do so.

1. Build solid, deep relationships with the key decision-makers. Relationships mitigate risk. The greater the relationship, the lower the perceived risk. That’s why the salesman with the longer relationship almost always has the benefit of the doubt in a competitive situation. It is not the price – it is the risk.

2. Make ample use of third party recommendations, customer lists, case studies and testimonials. All of these say to the customer that someone else, or lots of other people, have used the product or service. That means it is less risk for your customer to buy it.

3. Try to get your customer as physically involved with the product as possible. For example, if you’re selling a piece of equipment, try to get the customer to trial the equipment, or at least visit somewhere its being used. The more your customer can see and feel the actual thing, the less risk is it to them.

4. Finally, work with your company to create offers that reduce the risk. Trial periods, money-back guarantees, delayed billing, warranties, service desks – all of these reduce your customer’s perception of risk.

The winners in the competitive selling arena of our difficult economy are those who are the low risk providers, not the low price people.

Your Biggest Competitor

May 12th, 2009

Don Cooper, The Sales Heritic.

Your biggest competitor doesn’t have a brochure, a web site or a business card. It’s never taken a sales training seminar, never goes on road trips and never makes PowerPoint presentations. It doesn’t even attempt to overcome objections, close the sale or ask for referrals.


And it will outsell you every day if you let it.

Because your biggest competitor is not another company, an alternative solution or a different salesperson.

Your biggest competitor is doing nothing.

Prospects have lots of choices. In fact, more today than ever before. But one of their choices is simply doing nothing. And in this uncertain economic climate, that’s a very attractive option for a lot of prospects.

To sell against this insidious competitor, help your prospect understand the true costs of doing nothing. What will they miss out on? What will they risk? How will their existing problems worsen?

You don’t want to come across as a fear monger. But you do owe it to your prospects to educate them thoroughly, so they can make the best decision possible.

Your biggest competitor has a lot of natural advantages: it’s omnipresent, it’s persuasive and it’s a lot cheaper than you. But you can often outsell it if you tackle it head-on and treat it like any other competitor.

Practicing High Performance

How NEXT LEVEL Consulting Co. Helps Businesses Reach Their Full Potential
While many training and consulting companies across the United States concentrate on improving employees’ technical skills and daily processes, NEXT LEVEL Consulting Co. has a vision different from the rest. Our goal is to prove that no amount of technical training and benefits can motivate and empower employees like human developmental training. Essentially, the distinction is our emphasis on the model for the high performance business, rather than the traditional model that has dominated the business world for so many years.
Consider these facts:
 A Sherwin Williams auto paint plant boasts of 30 percent higher productivity, 45 percent lower costs and 25 percent fewer employees for equivalent volume over a sister plant.
 A Digital Enfield plant yields equal volume to sister plants with half the people and half the space, while realizing a 2.5 times higher rate of first-time-perfect modules.
 A Corning mold machine shop realized 100% improvements in quality and delivery while reducing costs from 15% above to 15% below the competition.
 Rocky Mountain Labs reduced turnaround time from 28 to 14 days, reduced internal handoffs by 500%, thereby improving productivity by 50% and profits by 25%
 Tektronix Portables Division reduced inventory from $40 million to $15 million and reduced cycle time from 12 weeks to four weeks.
 Shenandoah Life Insurance Company reduced the employee-to-supervisor ratio from 7:1 to 37:1, yet service improved and complaints and errors declined.
 American Transtech decreased head count by 56 percent, increased sales volume by 46 percent, increased customer satisfaction and had an average of 158 percent improvement in shareowner services.
These are just a few of literally hundreds of businesses that are achieving outstanding results in the United States. They are doing so by changing the way work is organized and empowering the people who do that work. This is known as high performance work systems! But before looking ahead let’s look at where we have come.

The Traditional Paradigm
The model that has dominated most modern businesses has been based on a set of principles and practices formally defined by Frederick Taylor in 1903 and known as "scientific management". The principles of scientific management were very useful a century ago when this country was moving from a rural society in which people were self employed, produced their own food, made their own clothes, and educated them to an urban society based on mass production and interdependence. With these changes in the structure of society and the way in which work was organized, it was necessary to create bureaucratic organizations to manage and control masses of untrained people. Taylor believed that work could best be accomplished by breaking it down into simple and repetitive tasks for workers and that management's job was to control the means and speed of production. Some major features of job design that came out of the industrial revolution are the following:
• Simple, narrowly defined jobs.
• Division of labor that keeps different functions separate.
• One best way to do a job.
• Uniform and strictly enforced policies.
• Management's role to control the means and speed of work.
Although this paradigm may have been useful in moving us to an industrial society, it does not fit with the complex and changing nature of the economy, market place, technologies and people today. It is seriously flawed in two primary ways.
First, traditional organizations are structured around functions, e.g. engineering, manufacturing, and sales, etc. in a manufacturing company or customer service, accounting, billing, etc. in a service company. The problem this creates is that work is fragmented in such a way that people do not see or feel responsibility for a "whole process". They over identify with their own jobs and fail to understand or care about the overall good of the company or customers they serve. This leads to poor communication, redundancies of effort, turf battles, delays in decision-making and general inefficiency. It is most noticeable when a piece of work is completed and "thrown over the wall" to another department to be forgotten. ,or, when an urgent decision that directly impacts a customer is delayed for a couple of days because it needs someone else's signature. Or, when work is inspected after it has been built. The former Soviet Union was the paragon of inefficiency and bureaucracy. It took five years for the government to approve construction of the first McDonald’s restaurant. And to change a single ingredient in ketchup took numerous s of government approval.

A second flaw of the traditional paradigm is the assumption that it is management’s job to control the work of employees. Management sets goals, makes decisions, measures progress, evaluates performance, etc. Managers are the thinkers and planners, and employees are the doers. These organizations fail to tap the tremendous intelligence and creativity of their people. Power exists at the top and people on the "front lines" and closest to the core process of the business have less authority to make decisions, solve problems or significantly contribute to the mission or goals of the organization. Most people do routine, repetitive and somewhat unchallenging jobs without much sense that they really make a difference in the overall direction or success of the business. This results in organizations that are bureaucratic, rigid, unconcerned about quality, lacking innovation, unresponsive to customer needs and generally unsatisfying places of employment. Unfortunately, in spite of such limitations, the traditional paradigm continues to dominate the practices of most businesses throughout this country today.
The High Performance Paradigm
There has emerged in recent years an exciting new paradigm known as high performance work systems that is changing the way we think about people and how work is organized. A high performance organization could be defined as an organization in which each person is a contributing partner to the business. High performance work environments require a deep respect and trust in people. People are not viewed as extensions of machines, objects to be manipulated nor costs to be controlled but rather as thinking and feeling human beings who bring enormous energy, creativity and talent to their work. Most people want jobs that are meaningful and allow them autonomy to make decisions and contribute to the company in significant ways. Effective organizations are those moving beyond attempting to control people to trusting and empowering them with the resources, information, tools, skills and support to manage their work processes and create products and services of unprecedented quality.
Of course, lots of companies espouse a philosophy that values people and yet are not experiencing the kinds of performance described at the start of this article. That is because they are not designed to do so. Only a holistic and systemic view of the organization in which all aspects of the organization are aligned behind that philosophy will realize the true value of their people.
In high performance organizations people understand the business, are committed to getting results and are organized into self-contained, multi-functional and customer-focused business units or teams that take full responsibility for making decisions, solving problems and continuously improving the quality of their work. Everyone involved with a particular core process are members of the same team and are empowered with full authority for the success of a whole product, service or major segment of work. Roles and responsibilities are much broader and more meaningful in scope than in a traditional organization. The team is responsible for setting goals, coordinating and scheduling their work, interfacing with the customer, training, making decisions and problem solving, monitoring quality, and even measuring performance and making hiring and selection decisions. The role of management changes from that of controlling workers and solving day-to-day problems to being facilitators and coaches. They define outcomes, manage boundaries, and interface with other departments and, in general, insure that the team has the resources, training, information and support they need to carry out the job.
Perhaps this movement could be summarized by four basic principles:
1. People are the organizations greatest resource and need to be trusted and empowered.
2. Work must be designed so that people are allowed to do "whole and meaningful" tasks that integrate all work aspects into a singular and total system.
3. Cross-functional teams are the natural work units of high performance companies and are responsible for managing all of the tasks and processes to accomplish business goals.
4. The role of management must change from controlling workers to providing resources and training as well as managing the environment so teams of workers can be most effective.
The chart below contrasts the major features of traditional and high performance work environments.
If you keep doing what you've been doing...
Research and experience indicate that companies organized by principles of high performance consistently outperform their more traditional counterparts. In fact, a recent review of 100 companies that have recently redesigned their work environments consistent with these principles showed an average improvement in productivity of 37%. Pretty remarkable!

There is an old truism that "If you keep doing what you've been doing you'll keep getting what you've been getting". Most leaders, owners or managers have not yet tapped the full potential of their workforce, and yet they won't do so by doing more or even better of what they've done in the past. Only through a redesign of work and the structure of the organization can outstanding improvements in productivity and quality be realized.
How to make it happenThe good news is that we have created several programs to assist businesses in making the transition to high performance. The mission of NEXT LEVEL Consulting Co. is to introduce businesses to principles of high performance and, thereby dramatically improve their productivity, profits, and employee performance and employee morale. All types of organizations – manufacturing and service, large and small, whole companies or sub-units—can use these programs to become high performing.
The High Performance Model on page 8 shows the programs we use to create a high performance organization. As you can see, there are four distinct but interrelated paths to get there: organizational assessment and design, strategy development, leadership and personal development training, and implementation of teams. We provide eight different programs, related to the four paths, to help companies become high performing. Some companies elect to implement all eight programs within their organizations. Others choose to focus on one, two, or three programs to help them make the transition. A company’s leaders can choose based upon their needs and resources, the pathway and programs they will take to move them towards high performance.
A NEXT LEVEL Consulting Co. Consultant can help you develop a plan to become high performing. Contact NEXT LEVEL Consulting Co. at 203.430.4250 or www.nextlevelconsultingco.com to learn how you can embark on this exciting and productive endeavor.