The Trap Negotiators Fall Into
We’ve consulted on over 20,000 negotiations in over 45 countries for 16 years. The most common issue we see is:
“Very seasoned negotiators having a price conversation absent of the value conversation.”
What does this mean exactly? Imagine for a moment that you work at a high-end steak house and you encounter this scenario:
- You are seated a table and are ready to order. You order the Filet Oscar, the house specialty, which is listed at $42 on the menu.
- You continue that you would like to pay $16 for it because that is what you paid last night for dinner (you fail to mention it was a plate of tacos at the restaurant down the street).
- Your server goes to find the manager to ask for an adjustment to the bill to give you the discount.
That is crazy, right? No one would get, or even ask for, a discount like that because clearly a beautiful cut of steak topped with decedent crab has more value than a plate of tacos. So why do we allow this to happen with our sales reps?
Here is a scenario played out in reality:
- First, customer asks rep for a discount, sounds like “you need to lower your price” or “your competitor just came in 10% less” etc. Or, it’s the end of the fourth quarter and the rep is shocked that the customer now asks for a discount to get the deal closed.
- Next, the rep comes back to HQ to ask for a discount.
- The conversation is now focused squarely on price and no mention of how your solution provides value.
This is clearly the conversation the customer wants to be having and the rep reacts to that conversation. Usually there is an attempt to commoditize or at least lower the value or most likely, ignore the value all together.
Yes, it’s a very common problem that costs companies millions in margin each year. Sadly, with the frequency in which it is happening, is it because we are de-sensitized or because we accept that this is how negotiations work?
Let’s think rationally and factually about this for a moment. How can we lower the price of “it” without also referencing “it?” Just like you wouldn’t sell steak for the cost of a taco, would you sell a car, a house, a piece of software or even services at a lower price without comparing your car or house or service to the buyer’s alternative? I think not!
When I say, “absent of the value discussion,” what is value exactly? The way we define value is based on how customers make decisions:
“How does your solution help you meet their needs better than alternatives?”
We’ve had the opportunity to consult with a range of industries from technology to heavy construction. Let’s take a construction example where our client does multi-million and sometimes billion-dollar deals. The owner or municipality asks for a discount on fees, the General Contractor then starts panicking about how to respond. Again, these are very seasoned, very bright engineers who have bid and run huge projects for many years. Our client has one of, if not the largest infrastructures to execute large projects like nuclear power plants. Often they execute projects at much higher confidence and lower risk than smaller construction companies, which are this customer’s alternatives. Yet they react to the customer request for lower fees without any discussion on the confidence and lower risk their approach brings to the project vs. the alternatives.
We recently completed over a billion dollars in deal coaching for a Fortune 50 technology company. At the end of the process we documented one key issue almost all these very seasoned global account managers had; they were discussing commercial terms separate of value. Rather than changing the conversation to one discussing the value provided for those commercial terms, the reps, by and large, reacted to the price conversation with a price conversation.
Why is this? We think there are a few reasons:
- Account managers are still surprised at requests for discounts. They shouldn’t be. We know from our own primary research that 97% of the time, customers use one of two tactics (or a combination approach) in every negotiation. One of those tactics is asking for concessions, the other is referencing their alternative! Reps can count on customers to ask for discounts. By anticipating this tactic, rather than being surprised by it, they begin changing the conversation earlier in the deal process.
- A lack of data. We posit that your value is the 3-5 reasons in which you meet customer needs at higher confidence and lower risk than their alternatives. It is a lack of available data, as well as a lack of due diligence and preparation to collect and leverage that value data early in and throughout the sales cycle.
- A long history of “customer service.” Many reps feel that it is a form of customer service to simply react to requests. In fact, for a customer service rep this is probably true. The problem is however that the role of a sales rep is different from that of a customer service rep. The sales rep's job is to anticipate and change that conversation. It is not playing hardball, it is simply a matter of facts. We can’t talk about the fact that “it” costs too much without being clear on what “it” is.
It’s not that we can’t talk about commercial terms, we will. It’s just that we need to tie our value, how we solve customer business problems, to the commercial terms, and what the customer invests to acquire that value into the conversation. We do this to make sure the price conversation is inclusive of the value conversation.