“Solution selling” is typically used in industries where there is a standardised range of products and services to choose from, and each one has its associated price.
In solution selling, it is the job of the salesperson to understand the requirements of the customer and recommend a solution based on the available pre-defined products and services.
The recommended solution typically comprises a bundle of services for a given volume or quantity for each one and is priced based on the requirements of the buyer.
Can you see the problem with this approach when it comes to maximising your pricing power?
The Hidden Cost of Solution Selling
Even if the salesperson feels they’ve done a good job by “giving the client what they asked for”, they’ve likely surrendered all their bargaining power on price.
This is because the pricing of a solution tends to gravitate to the lowest possible price to win the deal and ignores key pricing strategies such as “price anchoring” or “tiered pricing”.
This allows the buyer to easily compare prices from various providers and drive down the price to levels that they are happy with.
As a result, the seller suffers from long term price minimisation resulting in declining margins and loss of pricing power.
This is not a good place to be for any organisation.
Four Ways Solution Selling Undermines Pricing Power
I think there are the 4 main reasons why solution selling undermines your pricing power.
- Solution selling flattens differentiation – the uniqueness of your offer is diluted when it is based on standardised services making it easy for the buyer to compare. The conversation then becomes one about price, rather than value.
- Pricing becomes cost-based and internally driven – solution selling tends to rely on pricing guides that tie price to cost-plus formulas and often involve lengthy internal discussions to agree on a proposed price (without any real understanding of customer value).
- Missed opportunities for using psychological pricing techniques – if you only offer one set of prices for your pre-defined range of services, you miss the opportunity to use proven techniques such as “price anchors”, “choice architecture” or “tiered pricing” which can increase perceived value and encourage higher spend.
- Commoditisation becomes the default – when every vendor is pricing using the same playbook, it becomes the “norm” in the industry. This allows all buyers in the market to compare providers and results in a race to the bottom. The salesperson, lacking pricing tools or training, often defaults to discounting – eroding margin and weakening brand positioning.
Expert Evidence
The IMD Business School observed that “standardised products & services without differentiated value lead to commoditisation”. The Journal of Business Research shows that firms stuck in cost-plus / list-price models perform worse than those who in invest in commercial differentiation and value based strategies.
If your organization is currently using “solution selling” (or some variation on this theme), do you recognise these symptoms? If so, what are you going to do about it?
The Fundamental Problem
The fundamental problem for organisations in this space is that no attempt has been made to define a unique pricing strategy for their business. They have just decided to follow the market norms and allowed buyers to dictate how they want to receive pricing offers. And because every competitor does the same thing, everything becomes commoditised in a race to the bottom.
The Shift to Strategic Pricing
It doesn’t matter what argument you might make to say “our customers won’t like it” or “we’ll lose competitiveness” about your reasons for sticking with a solution selling approach. The simple fact is that you haven’t made the effort to think more strategically about your products, your pricing and the value you offer your customers.
To regain your pricing power, you need to evolve beyond basic solution selling by:
- Thinking strategically about customer value, rather than just customer problems.
- Transition from “assembling a solution” to designing a commercial offer that differentiates your business and influences perceptions of value
- Transforming your sales organisation by providing the tools, training and techniques that they need to shape price structure, not just quote from it.
This is where strategic pricing becomes a competitive weapon, allowing you to carve out new space in your market and capture greater value from all the opportunities available to you.
Next Steps
Don’t let “the market” dictate how to do your pricing. Find your own unique pricing methodology that aligns with the value you offer and create commercial proposals that differentiate you from the competition in ways that your customers will appreciate.
Yes, it takes effort, but it will open the door to a much more profitable future for your business.
As always, if you need any help with your pricing, do get in touch.