by Jacqueline Codair Donovan
While different customers may push for concessions on various terms and conditions during negotiations, virtually all customers push for concessions on price. One of the most common challenges clients face is customers focusing solely on price and making it difficult to discuss the value they are delivering to them. This price-focused discussion becomes particularly difficult when dealing with someone from procurement who is incented based on the price reductions he is able to obtain! When confronted with this dynamic, sales teams often default to an adversarial problem solving and negotiation strategy which results in haggling and give-and-take compromises, frequently leaving both sides dissatisfied and ultimately damaging the working relationship. It doesn’t have to be this way! While most buying organizations care about price, rarely is price the only interest a customer cares about. Though it may be difficult to pivot the discussion to include customer interests beyond price, doing so is essential to protecting the value your company creates. Making this pivot requires crafting a strategy to uncover your customer’s underlying interests, developing options that meet the full range of customer interests while protecting your margins, and sharing data that helps the customer recognize the value you are delivering. We recommend that you follow the steps below in order to successfully uncover your customer’s interests beyond price and escape a haggling dynamic.
1. Understand your customer and their environment before you begin any negotiation
The first step to understanding your customer’s non-price interests is taking the time to thoroughly prepare for your negotiation. If you are thinking only about price yourself, you can be sure that the negotiation will quickly become about price! Take the time to consider what might be important to your customer’s overall business, and to the specific group or buyer you are working with. Think through the challenges in their market, potential threats, etc. What does this suggest about their company (or their division/business unit’s) short term and long term business and technical goals? How might the solution you are providing help them achieve these goals? The answers to questions like these might even be within your own organization, or within your own sales team: explore what other customers in the same industry have found valuable (other than price reductions). If you don’t know the answers to these questions, conduct some research via the internet on your customer’s annual report, recent statements by company or business unit executives, or analyst assessments of gaps and opportunities. Ask colleagues who work with similar customers what they observe in the market. Armed with this research about what the buyer might find valuable, you can begin to build your plan for the negotiation itself. Salespeople who are well prepared and equipped with knowledge of the client and their business are better able to discuss and create value for their customers, as well as strengthen the working relationship, without making unnecessary price concessions.
2. Skillfully dig under positions around price and shift the discussion to underlying interests, especially when dealing with a “hard bargainer”
After you have prepared thoroughly for your negotiation, you must skillfully implement your preparation to ensure your discussion with the customer seeks to satisfy all of their core interests, not just price. You have a great deal of control over how this discussion develops, more than you might think: our experience is that the vast majority of negotiators choose their approach to negotiation based on the approach you demonstrate. Thus, rather than focusing on closing the deal quickly, seek to create a learning discussion in order to figure out what is important to the customer and how to meet the full set of customer interests.
Even when you skilfully set the right tone for a meeting, you will face customers who lock into price early on in a conversation. When a customer begins to push you on price, it is easy to forget your preparation and give in to discounts in order to close the deal or just to maintain the relationship. Rather than giving in to this temptation, when a customer refuses to discuss value and continues to hammer on price, change the conversation to explore the other potential interests you identified during your preparation. This requires skill (and control over your own emotions!). Some advice in responding to a discount-seeking customer includes:
Don’t fight their position (e.g., “I need a 15% discount and I’m not taking any less”), and instead look behind it for their underlying interests
Imagine why they’re not sharing their other interests (for example, do they fear disclosure will hurt or weaken them?) and try to address any underlying fears or concerns about transparency
Model the behavior you want, by sharing your interests (e.g., the unique ways you and the customer can work together, the importance of the relationship to your organization, your hope to innovate with the customer, etc.)
Use your preparation to test their interests. For example, say, “I could imagine that your organization is really focused on right now” or, “Given consolidation in the market, I think and might be important to you. Tell me if I’m missing something, though.” Often, what you hear in response will be a non-price interest you can use to change the discussion.
3. Propose possible options for agreement and invite criticism in order to learn more about their interests
Once you’ve uncovered some of your customer’s interests, take the next step by proposing some ways to meet those interests without a price reduction. The most skillful negotiators are able to take the interests they have heard in the meeting, combine this information with the preparation on what the customer might care about, and generate some possible options for agreement that your customer can react to. Focus your options on ways to satisfy these interests, not the positions the customer may have stated around price.
Remember to explore many options with the customers. For each option you propose, invite criticism by asking “What would be wrong with this option?” instead of just making a proposal and asking for their agreement. By asking this simple question, you will elicit responses that are more often than not expressions of their interests (many of which you may not be aware of), and you’ll help change the discussion from one about positions to one about underlying interests. As you collect more interests, you will be able to craft even more options to meet your customer’s interests.
4. Share metrics/data with your customer to demonstrate the value of options you propose
After generating options to meet both your customer’s interests and your own, you must work to sort among the options and help the customer understand how these options satisfy a broad range of interests — beyond just price. Rather than making decisions based on strength of will (i.e., which side can force the other to comply) focus discussion of options around standards of legitimacy (i.e., which side can most effectively demonstrate that its proposed approach is fair and appropriate, independent of the will of either party). Common standards of legitimacy might include precedent, market rates, industry standards, the law, or the opinion of a neutral party, and each of these can be used to persuade others that the options you’ve identified not only meet their interests well, but are fair and reasonable. Using external criteria not only helps show the customer how you are able to meet their interests other than price, but also helps produce wise, durable agreements while enhancing the working relationship. In contrast, agreements built just on strength of will tend to reward inflexibility on price, produce arbitrary outcomes, damage working relationships, and set bad precedents. As you look to standards of legitimacy to evaluate options, consider using this data in the following ways:
As a sword: As you prepare, search for a range of standards that might be applied to possible options for agreement, especially those that may persuade the other side that there is value in your offering that can meet interests other than price. As you introduce options, start with the most favorable criteria that you would be willing to put before an impartial arbitrator.
As a shield: Do not yield to pressure, only to principle. If the other side applies illegitimate pressure to force you into price reductions and you give in, you reward their bullying and encourage them to repeat it. If, however, you respond to arguments based on objective standards, you demonstrate to them that legitimacy works and encourage them to continue its use.
While this advice has helped our clients across a number of industries, it is important to remember that every customer has a unique set of interests (based on their organization, their industry, their internal relationships, etc.). You must push yourself to prepare thoroughly for each key negotiation, hone your skills in discussing these non-price interests with your customers, and work to put forward options that meet non price interests.