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The Green Sheet Online Edition

November 23, 2009 • Issue 09:11:02

Street SmartsSM

How much do you factor in price?

By Jon Perry and Vanessa Lang

Value-added services are great, but what happens when all your prospect wants to discuss is price? This question started a thread of 130-plus comments on GS Online's MLS Forum. The thread is titled, "Like it or not, we all sell on price."

The topic raised valid points from individuals of both persuasions - those who believe that to lead with price means to lose on price and those who think merchants' main criterion is price, so why not discuss it upfront?

What struck us about this thread is how it made us revisit our own approach to selling. Proposal selling has been a main component of any sales call we make, but how often do we default to price?

Can anyone win the price wars?

Savvy merchants have figured out that comparison shopping for service providers in our industry is a wise move. More often than not we will drop the rate a few basis points to win the deal. The main concern voiced on the forum is margin erosion. If the next merchant level salesperson (MLS) keeps lowering rates (not to mention the variety of other applicable fees), what will that mean for long-term sustainability?

It has some people concerned enough to consider leaving the industry. As Antares stated, "I think we all should start planning for an exit strategy. I just hope it never comes to that point."

"Save your way to a sale," an old industry adage, comes to mind. Clearent made an excellent point on a root cause for this common mentality: "It's quick and easy to train a rep on 'giving them a rate cut' so that the trainee doesn't take too much time."

Training is costly and, due to the complexity of our industry pricing model, it can take owning and managing an acquiring bank to fully understand the true costs and profitability associated with portfolios.

Combine this with current industry trends, which provide little residual and large upfront bonuses, and it is not uncommon to find small merchants getting the same pricing that the big-box retailers invested millions to negotiate.

Why should a merchant choose you?

Is price as important to merchants as we perceive it to be? Certainly a merchant who pays a 5 percent effective rate when he or she could be paying 3 percent may seek out the better deal, but what can we do to help merchants understand the intangibles?

Forum member JEH1003 stated it well: "What's it worth to just call us, tell us the problem and then not worry about it because their processing guys will handle it? Apparently, it's worth quite a bit if you're a successful business owner.

What's it worth to have someone in your town or a few hours away rather than calling [a foreign country] for help and going through automated menus? What's it worth if you're a restaurant to have a machine downloaded and in your hands in less than an hour if you go down on a Saturday or a Friday?"

Small merchants want credit card processing to be transparent. While this approach does not apply to every business model, it certainly differentiates your organization from the competition and is important in client retention. There will always be merchants who are only interested in rate. Some MLSs will quote them a rate and others will not. JEH1003, who believes his hand-on approach increases his cost per merchant, said he has "walked away from many deals because all the merchant wanted to talk about was price."

One of our industry mentors always told us that when someone asks what your rate is, ask in return, "What do you want it to be?" Give it a try and see how merch-ants respond.

Back at the start of 888QuikRate, we decided to create video testimonials of our clients and post them on our Web site. We picked a variety of merchants and asked them for 15 second testimonials, without asking them any leading questions. Their answers changed our market approach.

Only one merchant commented that we saved her money. All others focused on intangibles - service, support, value-added solutions and skills outside of core processing. Those intangibles have become our differentiators.

Ultimately merchants deserve a fair price. But if pricing does not match customers' perceived value, it can lead to attrition. The lower the value, the lower the price.

If it's wrong, why do it?

Sometimes people have different ideas of what is right or optimal. People who see solution selling as a powerful tool struggle to understand how people can sell solely on price and rates, and vice versa. The bottom line seems to be that "sometimes merchants will not buy on anything other than price," Side Swipe stated.

Johnmcknee looked at the bankcard business from a price perspective: "The only business model I see that works is to sell based on price and make up for it in volume, and I mean a lot of volume."

Forum member dc62 stated, "I am brand new to this, but I've been in sales for a long time. The bottom line is that, despite what we've all been told in our 'sales training,' people buy in their own time and for their own reasons. For many people, that translates into price."

Some people are not willing to walk away from a deal just to avoid selling on price. As Antares wrote, "If I have exhausted all other value-adds, and the merchant is only interested in price, I am not going to walk away from a perfectly good deal that I can still make good money on."

Anyone who is truly knowledgeable goes beyond price, but if merchants just want to talk price and are willing to sign, would you walk away?

There is a notion out there that it is easy to sell on price. Therefore, selling on price makes you lazy and uneducated. These are real thoughts shared by our industry on the forum.

Still, even though we lean toward solution selling, it is very nice to write a deal every now and then where you walk in, show them the savings and they sign. Keep up with the service and up-sell later if you can. There is always more than one way of accomplishing the same result.

Forum member Jdeckard limits negotiation. "I sell processing ... and I sell it at the price I want, or I move on to the next merchant," Jdeckard said. "I don't give away anything."

Can you be flexible?

We can see and appreciate both sides. We think ncrum described our thoughts well when he posted, "For me, I will admit, reluctantly, that I too sell on price more often than what I care to admit."

Our general thoughts on this topic boil down to four "Selling 101" tips:

  1. Understand why the client is shopping or buying.
  2. Get to the pain and gain of the situation.
  3. Develop a solution to eliminate the pain, or move them toward gain.
  4. Understand your best and final offer.

In many cases price could be the deciding factor, but following this model we can understand a merchant's current situation and determine the value of the merchant's future state, which makes the situation a win - win - win for all parties (you, the client and the processor).

As long as all parties are profiting or gaining something of value, then sell on price, value-adds - anything you want. Work at creating a value-added offering that will help slow the erosion of profits and keep the feet on the street thriving. end of article

Jon Perry and Vanessa Lang are the owners of 888QuikRate.com, an ISO based in Ft. Worth, Texas, that was named Small Business of the Year by the local newspaper, The Star Telegram. For more information, tweet them at http://twitter.com/dfwcard, comment on their blog at http://merchantservices.cc or visit their profile at http://linkedin.com/in/jonperry or http://linkedin.com/in/vanessalang. Alternatively, you can contact Jon and Vanessa by phone at 817-857-3557 or by e-mail at jon.perry@888quikrate.com or vanessa.lang@888quikrate.com.

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