So often, we see consultants in our industry trying to sell snake oil to the masses. It’s unfortunate and it makes the job of legitimate marketing experts more difficult because it sets unreal expectations for many of our well-meaning clients.
One example of this is the myth that you, as a company, can eliminate price sensitivity in your customer.
Let’s be straight about it right now: that’s a lie.
Price sensitivity will always exist
In their landmark book, The Strategy and Tactics of Pricing, Thomas Nagle and Reed Holden outlined “nine laws of price sensitivity.” They go on to explain why these factors influence how a consumer perceives price and how price sensitive they are likely to be with respect to different purchasing decisions.
Based on this and similar consumer psychology-based explanations of pricing strategy, it’s not only possible, but it’s vital for companies to effectively counteract price sensitivity by increasing perceived value and improving products and services. But can they eliminate price sensitivity completely?
Of course not.
Just imagine yourself buying a toothbrush. You’re presented with 15 different brands, all of which carry the same basic benefit: a convenient and effective way to clean your teeth. They all have their own designs, their own bristle shapes and rigidity, and they come in a host of colors. And, like every product out there, they come in a range of prices too.
You can spend $0.50 on a cheap disposable toothbrush, or you can spend $7 on one that’s supposedly the best around. But would you seriously consider spending $350 on a single manual toothbrush?
No. That would be ridiculous. No matter how fantastic that toothbrush may be, no consumer is going to spend that much more for it over its competition. Regardless of what that toothbrush manufacturer does, they’re not going to be able to completely remove price sensitivity from the equation.
They can only work within its boundaries.
Understand what’s driving price sensitivity, and you can take the wheel
The key for marketers and salespeople is to realize and accept the fact that price sensitivity always exists, and to expect Procurement to tell you your products cost too much. That’s their job.
But, more importantly, successful companies will strive to uncover what’s actually driving the particular price sensitivity they’re facing and will adopt a strategy designed specifically to counter that driver.
Most drivers of legitimate price sensitivity are outside the control of Procurement: competition, substitution, internal pressure from other departments, etc. Don’t confuse a purchasing tactic (“your product costs too much”) with a legitimate driver of price sensitivity (“a new tremendously popular app has unexpectedly overwhelmed our market and we’re struggling to catch up).”
And, perhaps most importantly, don’t fall into the trap some companies fall into as misunderstood price sensitivity continues:
The trap this myth lays for unsuspecting salespeople
Organizations must protect themselves from salespeople who begin falling under the spell of Procurement-based “price sensitivity.” If your salespeople still believe they should be able to eliminate price sensitivity from the equation, but they hear these price-based purchasing tactics over and over again from powerful procurement departments who couch them in “price sensitivity” explanations, they will begin to believe that those objections are insurmountable.
They will become advocates for discounting, and will begin helping Procurement further compress your margin.
Instead, train your salespeople to understand what drives true price sensitivity, and to know a fake when they see it.
