Price Negotiations: How to Respond When a Competing Vendor Underbids You

We all know this kind of price negotiation: You’ve put yourself in an enviable position as a salesperson. Over several weeks or months, you’ve worked hard to qualify a prospect, familiarize him with your product, and build a relationship.

He likes you, and he likes what you’re selling. You estimate there’s a 90 percent chance you’ll close the sale during your next conversation.

But then, the (not so) unthinkable happens. You get a call from the prospect, and he tells you he’s been talking to your competitor for weeks now, and they’ve just offered him a meager price on their product.

He puts you on the spot and asks, “Can you beat that price?”

If you’ve been in sales for any reasonable amount of time, you’ve probably encountered this price negotiation scenario. If you haven’t or were unsure about how to proceed, the answer is pretty simple.

That’s because there’s one surefire way to win a price war. Get out of it. Avoid price competition.

(Want a shortcut to overcoming objections and winning sales negotiations? Get our free objection management template.)

Put Price Aside

When a prospect appears to be fixated on price, it’s up to you to steer the conversation towards what matters, and that’s value. Answer his initial question with your own questions and let him know where you stand.

What happens next depends on what type of prospect he truly is and what you think about your product.

A prospect who tries to lowball you fits one of two profiles:

1. He’s a tough negotiator

This prospect is comfortable being uncomfortable and is perfectly okay with trying to make you feel uncomfortable. He might tell you that he loves you and your product, but the premium price tag that comes with it isn’t justifiable.

That’s okay. If you’re offering a premium solution, you have every right to offer it at a premium price. When you engage in a price war, you devalue your product. To make an exception for this prospect would be doing all of your current customers a disservice.

The conversation with Prospect #1 could be complicated conversation to have. You may lose the opportunity to make a sale. But even if he decides to go with your competitor, you haven’t lost the opportunity to add value to him and his business, which means you haven’t lost a potential customer. We’ll see why in a moment.

‎2. He’s not the right customer (yet)

Maybe this prospect really is looking for the cheapest solution and has not considered or cared about the long-term implications of that strategy.

If you are in the business of being the cheapest – if you look around at your competitors and determine their margins are where your opportunity lies – and you can execute that strategy, then read no further. The advice in this blog won’t apply to you.

But if you’re maximizing value for your customers and thus maximizing value for yourself in the long run, then a prospect simply seeking the cheapest option is not someone you should attempt to sell to.

If your prospect aims to get the best price right now, help him reach that goal. (I will share how to do this in the next section—not just generic advice, but a highly actionable tactic you should use exactly as I lay it out here when dealing with this kind of prospect.)

Whether you’re talking to Prospect #1 or Prospect #2, you should recognize that in this situation, there is an opportunity to build a partnership that can ultimately add value to you and your company in the long term.

Put the Team First

At first, you may sweat a little bit when you hear yourself boldly promise to help sell your competitor’s product to your customer. But this strategy makes perfect sense when you remember that any SaaS business's growth relies on enabling others' success.

In other words, you should do whatever it takes to add value to your prospect and his organization without compromising your sales efforts or product.

In this particular situation, you have an excellent opportunity to do exactly that.

When you say to your prospect, “I’m on your team. If the only difference between our products is price, I want you to go with the other guys. Leverage me as much as possible to get their solution as cheaply as possible. I'll even help you negotiate a lower price by sending you an email underbidding their latest offer.” You are turning yourself into an undeniable asset and a valuable partner.

Here’s what happens when you do that.

‎Outcomes

Prospect #1: When you are willing to help him reach his goal, even if it means selling the competition’s product, Prospect #1 will recognize that you’re committed to adding value to his organization. Likewise, when you show that you’re willing to take the deal away rather than compromise, you set the tone for the relationship moving forward and demonstrate your expertise as a salesperson and your belief in your product.

If Prospect #1 is as intelligent as he seems, he’ll likely recognize you as the type of partner he wants to be aligned with.

Prospect #2: If you help Prospect #2 acquire the cheapest alternative to your solution, it’s only a matter of time until he realizes he got what he paid for and wants and needs more. When this realization finally hits, he’ll know your confidence in your product and should be ready to pay for that added value.

Fortunately, he got the first solution for next to nothing, thanks to you.

Build Something That’s Built to Last

Don’t cheapen your product by letting yourself get lured into a price war, and don’t settle for customers whose number one priority is price.

Remember that building mutually beneficial relationships that will bring value to your organization and your customers over time will ultimately determine your long-term success more than closing any single sale.

If you're seeking effective techniques for politely declining customer discount inquiries, our article "How to Say No to a Customer Asking for a Discount" provides valuable guidance.

Want more tips on overcoming objections and winning sales negotiations? Get our free objection management template.