Periodically we are asked about how to manage different difficult tactics that customers employ. This article is one of a series addressing those tactics.
Perhaps one of the most common tactics sales people encounter when negotiating with customers is threatening to switch business to a competitor if they don’t get what they want; usually a discount, but can also be changing other business terms in some way. In negotiation theory this is called going to their “BATNA” or Best Alternative To a Negotiated Agreement, a concept first introduced in the book Getting to YES. Among all of the ways that each party in a negotiation can satisfy (at least some of) their interests without agreement from the other side, the BATNA is the best alternative, or the one that best meets one’s interests other than going to a deal. When sales representatives negotiate with customers or procurement professionals, the customer’s BATNA might be switching to a competitor to get a similar product or service, choosing to build that product or develop that service internally, or simply choosing to not make a purchase at that time. In any negotiation, what the salesperson is offering should be better than what the customer perceives their BATNA to be, otherwise they will rightly choose to do something other than buy from you.
Even when their BATNA may not be better, customers and procurement professionals threaten it for multiple reasons, such as:
- Attempting to prove that a greater discount (or more favorable terms) is fair and justified
- Make you believe that they perceive less value from your product or service
- They do not know or understand the difference between you and your competitors
- They truly believe that their needs will be better met with a competitor and are offering you the opportunity to keep their business
Regardless of the factors motivating your customer to threaten moving to a competitor, there are a variety of ways to respond to this difficult tactic.
- Inquire, Inquire, Inquire. Ask your customer questions to try to understand what is motivating them to seek their BATNA, as well as to understand exactly what their BATNA is. Is the price the only concern they have or are there other underlying interests? Can you see the competing offer in writing? Have they considered where/if the competitor will be cutting costs in order to beat your price? The more you know about the competitor’s offer the more you have to compare to your offering and demonstrate its superior value to the customer. It is possible that your customer does not even fully understand the competing offer and is comparing apples to oranges.
- Avoid haggling on price and focus on the differentiated value of your product. This is a great opportunity to dis-cuss the reason your product is priced the way it is and reinforce the added value your product offers; whether it is the quality of the product, the customer service, end-user familiarity and trust in the product or service your company offers, or any other qualities that differentiate you from your competitor. Understanding the market and your competitor’s offerings is essential to being prepared and able to have this conversation, and you will want to have this data available and up to date in case your customer surprises you with this conversation. Many organizations develop sales tools such as “battle cards” which describe those unique capabilities and differentiators in order to support their sales people in such conversations.
- Brainstorm other ways to satisfy your client’s interests together. Creative options might consist of extending the contract term in exchange for a greater discount, increasing or decreasing the volume of product sold to the customer, including other services or products to existing terms, leaving out a warranty or service arrangement, or restructuring payment terms to match the needs of your customer. It is important to find an agreement that both meets your customer’s needs and maintains pricing integrity, while being defensible to your and your customer’s management. The deal you are negotiating now will certainly be used as a precedent for future negotiations, and you want to be sure to set yourself up for success now and in the future.
- Explore the unforeseen costs of switching to a competitor. While the upfront price of the competitor might seem attractive to your customer, they often do not consider many of the associated costs of switching that will impact their bottom line. The various costs of switching business to another company might include setting up new systems to accommodate the new supplier, new infrastructure or processes, notifying and/or training the end user of the differences and how it will affect them, declining productivity as resources are dedicated to the transition, and the unforeseeable risks inherent in working with a new company.
Ultimately, if you do need to cut your price to win the business, be sure to tie the discount to something justifiable and of value to your organization as well — this will make it harder for the customer to use the adjustment against you in future negotiations (or worse, for other customers to use it against you). For instance, tie the discount to: a certain volume commitment or offer rebates once the volume is reached; longer contract duration with some protection for early termination; increased share of their business; or the purchase of other products or service. Discounting to win the business may at times be necessary, especially if your company’s value is not differentiated; however, it should be done strategically and defensibly to avoid the downsides and market risks of doing so and to not reward the customer for threatening with their BATNA — otherwise you can be sure that they will do it again.