It was a sunny day, things were going well. I was feeling positive and enthusiastic. As I went about my business, I saw a fleet prospect ahead that I had been meaning to call on. I had been on a roll, so I said to myself, "What the heck, let's make this happen." I walked in to make my first sales call on this prospect. The tire buyer was available and agreed to meet with me. He's an amiable sort and we quickly found several things in common.
Everything was going well, so well, in fact, that my prospect said, "Shoot me a price, maybe we can do some business together."
So what do I do? Do I start by shooting a high price? My prospect might think I'm trying to take advantage of him. Do I start low so I don't risk dissolving this new relationship? Ultimately, the issue of price will come up in every sale before merchandise is delivered. If price was not discussed before your customer places an order, you might want to check the credit very closely. A sale is only profitable if you get paid. Pricing often becomes an emotional issue and it doesn't need to be. Pricing strategy is a fairly scientific process. Price, by itself, means very little. Value means everything.
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Value equation
We start with the value equation:
Value = Benefits - price
In this simple equation, there are two ways to increase value; increase the benefits or decrease the price.
For example: If two tires are the same price but one wears twice as long, the long-wearing one is a much better value, right?
Not so fast. The above scenario is making two assumptions.
First, you're assuming that the customer is keeping the vehicle long enough to see the tires wear out. If they're selling the truck and just need decent tires, wear rate is immaterial. If they haul scrap metal and tend to rip up tires long before wearing them out, wear rate means nothing. Wear rate is a feature. It doesn't become a benefit until it helps your specific buyer.
Second, the above example assumes that everything else is equal, which is rarely the case. What if the less expensive tire was not retreadable? What if it did not ride as smoothly? What if the traction was inferior? What if replacement tires were hard to find on the road? What if the tires had greater rolling resistance causing fuel economy to suffer?
These what-if scenarios could literally go on forever. If you're looking for a quick and simple one-size-fits-all solution, you're looking at price. Benefits are specific to each buyer, price is universal. Take another look at the value equation. Without robust benefits, lowering the price is the only way to improve value.
Solve problems, improve lives
If you want to be more successful selling tires, stop selling tires.
I hate to be the one to break the news, but you're selling something that most people do not want to buy. In a recent study, people were asked what they like to spend their money on. Buying tires ranked below going to the dentist! People don't go to the dentist because they want to, they go because they need to. The dentist doesn't sell tooth drilling, she solves problems and improves lives. Great tire salespeople don't sell tires, they solve problems and improve lives.
Here are some stories from the field. See if you can determine the benefits for the dealer and the customer.
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Scenario 1:
Years ago I worked for a company that had impeccable billing procedures. After a year or so, my customers stopped spending any time double-checking our invoices because the invoices were never wrong! Never!
Would you consider that a benefit worth selling?
I once found myself talking to a prospect about his office staff. Together we determined that he spent nearly $50,000 per year on office staff just to double-check every invoice prior to giving it to him to approve. Since this customer purchased approximately 12,000 tires per year, we might have been able to save him nearly $4 per tire in administrative expense.
Scenario 2:
I was working with a large fleet out West. The vice president of maintenance asked me what our adjustment rate was. I explained that our adjustment rate, like most of our competitors, was somewhere under 1%.
He then asked me to guess how much adjustment credit he received last year from his current supplier. Since this fleet spent over $1,000,000 per year on tires, I estimated the number to be around $5,000 (one-half of 1%).
He said the actual amount was zero! Getting that corrected would mean a large sum of money for him.
When we started to look through all of the tires that were removed, we found some surprises. First, his pull point was 4/32 and the tires were sitting there with an average of 6/32 remaining. That means that nearly 10% of his tire budget was ending up in a hopper behind his dealer's retread plant. We also saw an inordinate number of tires with a particular wear condition caused by improper mounting.
We went to his shop to find that they were not cleaning the rim properly and were using the wrong lube. When researching the wear rate, steer tires at this shop location were being removed an average 40% earlier than tires mounted at other shops. We also found two adjustable tires. He left them in there to see what his current supplier would do.
You can fill in the blanks. Do you think his decision to switch to me was based on a low price?
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Scenario 3:
I was calling on a large fleet in the Midwest. Talk about a tough negotiator. When he asked me for a price, I told him, "I don't sell tires. I fix problems and improve tire programs. Since we've just met, I have not yet found anything that I can fix or improve upon."
I asked if there were any problems that he wanted me to look at. He could not think of any specific problem, but explained that he had not been able to stay within his tire budget and was getting a lot of heat from the corner office.
When I asked to see his RAR/NRT (non-retreadable tire) reports, I learned that nearly 40% of his once retreaded casings were being rejected because they were a few months older than his retread specification. When I looked at his trailers, I learned that many of the tires were eight or more years old. Once retreaded and installed onto a trailer, they rarely wore out before retiring the trailer from service.
Like many fleets, this prospect ran out the initial tires, retreaded them first for drive, then for trailer. Since 40% of those drive tires were not retreadable, he was forced to buy replacement casings or new tires for the trailers.
Together we calculated how much he would save if we capped the drive tire with a less expensive, shallower tread, allowing the casing to come out of service a few months earlier so that it could be retreaded within the specified age criteria. The price of the shallower drive tread was lower, but the actual number was unimportant. If it kept him from having to buy replacement casings, the annual savings were astonishing.
Infomercial selling
Each of these scenarios and countless others has a common thread. Price was not discussed until long after a significant benefit was discovered, clearly defined and agreed upon.
I wish I could tell you that I invented this approach, but that would be a lie. I learned it late one night watching a TV commercial. The announcer interrupted my movie to display some crazy apparatus that was sure to change my life. It was a kitchen tool that slices.
So what? I can get a knife at the dollar store that slices.
But he went on to say that the thing dices. Alrighty then, perhaps we're up to $4 or $5. When the announcer told me that it would not rust, bust or gather dust, I knew it was going to be pricey. I've priced knives that don't rust. Some were well over $100 and I was not about to buy something like that from a TV commercial.
As if somehow sensing my concern, the announcer asked, "Now, how much would you pay?" Before I could come up with a number, he proclaimed, "Wait! Don't answer yet, there's more. It also makes mounds of Julienne fries." Now I've never had Julienne fries, but they don't look cheap. This thing looks like a food processor. The commercial then showed several food processors, proclaiming that similar products can cost $200 or more.
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This one, on the other hand, was available while supplies last for the low, low price of only $39.99. And if I ordered in the next six minutes, I would get some miracle kitchen cleaner (a $30 value) absolutely free!
Watch these commercials carefully and you'll notice a distinct pattern. The price is never revealed until after they've illustrated benefits certain to be worth many times the price you are about to see.
The order is very important. If you talked about price the before the benefits, the customer will tell you that your price is too high. That's what buyers do. Anything you say after that will sound defensive and potentially argumentative.
Your price is too high!
Even if you've done everything right, you're still going to hear it. Before you drop your price, don't assume that they have a lower price from someone else or that price is all that matters. Here are a few of the top motivations behind price objections:
1. Standard operating procedure: No customer has ever said to me, "Jas, you're price is way too low!"
You can expect most of your customers to flinch at the first price you present. They're trained to do that. Even if you don't move on the price, they're doing their job as a buyer by trying.
The toughest negotiator I ever met was one of the nicest people I know. To any price quote he asks with a smile, "Is that the best you can do?" Regardless of the answer, he responds, "Thanks, we'll think it over." He then waits for a salesperson to become impatient. When the salesperson calls back, he asks again, "Are you sure that's the best you can do?" I am surprised how effectively he gets the price to come down with each call.
2. You started it: Good or bad, you train your customers how to buy from you.
Imagine going to a department store to buy a new outfit. You ask the salesperson how much the suit is, to which she responds, "Five hundred dollars, but I can sell it to you for $450." When you ask about the shirt, the salesperson says, "It's a $75 shirt, but I can sell it to you for $50." When you ask about the tie, the salesperson says, "It's a $50 tie." So you ask, "How much would you sell it to me for?"
If you've ever tried to get your foot in the door with a new fleet prospect by discounting some small offering, don't be surprised when they continue the trend that you've set.
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3. Weeding out the amateurs: "Go away kid, ya bother me" - W.C. Fields
The easiest way for a buyer to identify and get rid of an inexperienced salesperson is to ask, "What's the price?" The new salesperson, mistakenly thinking they've uncovered genuine interest, races to his boss for a smoking price. When he returns to present the price, the buyer inevitably says, "Oh, that's too high. Is that the best you can do?" The rookie races back to his boss to sharpen the pencil and come back with an even better price.
This cycle will continue until the salesperson finally figures out that there was no real interest in the first place. It was a quick way to get rid of him without being rude. As a side benefit, the buyer now has a competitive offering that they can use to beat up their current supplier.
4. Commodity: A pork belly is a pork belly, you don't really need to know the name of the pig.
Tires have the real potential to become a commodity. From four feet away, they all look the same. Once they become a commodity, price drops to devastatingly low margins.
Does that sound at all familiar? You don't need to look far to see what can happen when a product becomes a commodity and the great things that can happen when you de-commoditize a product.
Few people realize that the Starbucks phenomena was born at a time when cola had, for the first time in history, replaced coffee as the number one breakfast drink of choice.
People just didn't want to drink coffee any more in spite of the fact that you could get a bottomless cup of coffee for around 25 cents! Coffee had become a commodity, lukewarm, stale, mediocre quality and just about the same anywhere.
Picture the Starbucks' selling job, "I know people aren't drinking coffee like they used to, so I think we should jack up the price to between $2 and $4 and open coffee shops around the world, some right across the street from each other."
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What Howard Schultz did is de-commoditize the product. Ask someone in Starbucks about the difference between one bean and another or what happens if you brew it without the right water or leave it warming too long. Don't do this if you're on a tight schedule, you may be there for a while. You'll learn more than you ever dreamed possible. For some of these people, coffee is a passion. For others, it's an obsession. Not only did Schultz redefine coffee found at Starbucks, he raised the bar for the rest of the industry. Many ordinary people like me can now tell you with precision whether or not a cup of coffee is worth the price. Is your team this passionate about tires?
So back to the original question. I just had a great first meeting with my prospect who asked me to work up a price. What do I do? Here's a phrase that has worked well for me.
You are free to use it royalty-free:
"I don't sell tires, I solve problems and make life better for my customers. So far, I don't know you well enough to see any problems or suggest any improvements. If you will give me a chance to get to know you and your program better, I promise I will do all that I can to help you make your tire program best-in-class."
Given an opportunity to dive into your customer's program, you then need to quantify the impact of what you've found. When you can show your customer how to save more than it will cost to switch, price sensitivity goes away. Your proposal on paper will look better than free!
Now, how much would you pay?
A veteran of the tire industry with over 30 years of experience, Jason Miller has sold to everyone from local mom-and-pop organizations to some of the largest multi-million dollar international organizations. As a published author, record-breaking salesperson and gifted trainer, Miller takes tough, complicated challenges, breaks them down into simple components, and explains them in a way that motivates and inspires. Having worked closely with tire dealers, manufacturers and fleets throughout North America, Miller brings a genuine, no-nonsense, hands-on approach to peak performance in the tire business that needs no interpretation.
In 2007, Miller launched Miller Business to Business (www.millerb2b.com), an independent training, coaching and consulting firm on a mission to help tire manufacturers, dealers and fleets get back to the basics. Says Miller: "We're making this business tougher than it needs to be." His book, Selling by the Numbers, is available through all online book sellers, including Amazon.com.
