Whenever possible, we recommend giving salespeople “price bands” as guidance rather than a single target price. In most cases, this means providing some version of a start price, a target price, and a floor price, at the line-item level, overall transaction level, or maybe even both.
There are many reasons we believe price bands make more sense…
For starters, price bands are much better aligned to how deals actually happen in negotiated environments. Salespeople rarely quote a price and have the customer immediately respond, “That seems perfectly reasonable. Where do I sign?” There’s usually some back-and-forth, some performative outrage, a competitor who is supposedly 345% cheaper, and maybe even a claim that the customer will never do business with us again if we even try to hold to the targets.
A start price gives the salesperson room to negotiate without immediately sacrificing the price the company really hopes to achieve. The target price clarifies where deals should ultimately land after all is said and done. And the floor price establishes the point at which the salesperson needs additional approval, a compelling justification, or perhaps a brief timeout for quiet reflection.
Price bands also allow pricing teams to build more intelligence into the guidance they are providing. Instead of setting price floors using a generic margin requirement or cost-plus formula, the floor can be market-based, showing the price no other reps have had to go below to close similar deals. It might not be perfect, but it’s more precise and useful than a blanket markup.
Bands can also provide different degrees of negotiating flexibility across different price segments. A highly price-sensitive segment might need a wider band. A segment with stronger value perceptions, fewer alternatives, or higher switching costs might warrant a narrower band. In other words, the guidance can reflect the fact that not every transaction warrants the same amount of leeway.
And importantly, price bands give salespeople some measure of control.
Generally speaking, salespeople who are accustomed to having a lot of discretion don’t respond well to being asked to comply to target prices being handed to them by people sitting in the “ivory tower.” Even when the number is analytically sound, a target price can feel rigid, naïve, or disconnected from the realities of the deal. A band acknowledges that the salesperson has information and discretion that matters…while still keeping that discretion inside a reasonable set of guardrails.
But price bands also do something else that doesn’t receive nearly as much attention…because it’s a bit more covert…
Price bands establish psychological anchors for our salespeople.
Once a start, target, and floor price are placed in front of someone, those numbers become reference points. The salesperson may consciously use them to plan the negotiation. Or the numbers may simply sit in the back of their mind and influence of their perceptions of high, low, aggressive, reasonable, or risky.
Either way, the price band is working to shape the decision.
Of course, some salespeople will insist that none of this applies to them. They’ll say they don’t pay attention to the price bands at all. After all, they know their customers. And they know the market. So they just price each deal based on their many years of experience and their finely tuned instincts.
Then the pricing team reviews the transaction data six months later and discovers something interesting…
The initial price quotes have somehow started clustering around the start prices. The final prices are somehow landing closer to the targets. And the deepest discounts are increasingly stopping near the floor prices. Apparently, all those fiercely independent pricing decisions are just lining up with the provided guidance by sheer coincidence. Amazing!
Price bands aren’t magic, of course. Poorly constructed bands can anchor people to the wrong numbers just as easily as good bands can anchor them to the right ones. And if nearly every deal falling outside the guidance, the problem is likely with the guidance rather than a sudden organization-wide collapse in discount discipline.
But well-designed bands do more than communicate pricing expectations. They define the negotiating territory, establish meaningful reference points, and subtly influence how our salespeople exercise the discretion they’ve been given.
Pricing psychology doesn’t just apply to the buyer’s side of the table. The prices, the anchors, and the reference points we put in front of our own salespeople influence their perceptions and behaviors, too…whether they’re willing to admit it or not.
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