The article, CHANGE THE NEGOTIATION CONVERSATION: TWO STEPS FOR HANDLING “I CAN GET THE SAME THING CHEAPER” appears in the current issue of SAMA’s Velocity Magazine. Click on the image below to view the article.
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Negotiating
There are many sales skills that have impact on the value of a strong sales team within an organization:
Account Management
Value Selling
Questioning
Presentation skills
as well as a number of others.
However, one of the things we love most about our work in helping B2B sales organizations improve negotiation skills is the immediate, tangible, return on investment. Unlike many sales skills, negotiation is a hard skill: meaning not only is it highly measurable, but it also delivers business results fast! The other great news is that together, we, the Think! team with the client stakeholders, can identify this potential ROI before any investment is made to build the internal business case for a negotiation improvement initiative.
Here are results from five (5) Fortune 1000 clients in these industries: logistics, packaging, energy solutions and services, information services, and healthcare.
Their returns:
466% average ROI
9-month average payback period
How is this possible?
We think in terms of leading and lagging indicators. An example for one of those clients would be:
Their VP Sales had a goal of increased revenue, margin, and decreased DSO - Days Sales Outstanding (lagging indicators).
Working with their cross-functional team, we identified the top four deal components in negotiation to include more or less of, which included: increase price %, longer contract length, shorter payment terms, and inclusion of consulting services (leading indicators).
Current and desired targets were identified for each and expectations were laid out for the salespeople.
Sales teams were trained on a strategic negotiation process that included how to improve their deal overall, and specifically how to include more of the top four deal components.
We coached teams from planning through to close.
We measured the percentage of contracts the top four deal components (and others) appeared in before and after the investment.
This work resulted in:
Improved A/R compliance 1.3%
Reduced past due balance 5.1%
Revenue Gained $7,151,913.71
ROI 510%
The focus on specific leading indicators, meaning those items sales teams can control during the negotiation, drove outstanding end results. Additionally, moving from generic negotiation training (negotiation skills process) to teaching the teams how to execute a company specific negotiation strategy, that is, alignment on what leading and lagging metrics we want more of or less of in deals, was the key.
For additional reading, review our most recent case study with Sonoco. Click here.
Never be surprised again at the end of a deal cycle when negotiating. You can prepare for 97% of buyer tactics that happen in every negotiation. Click on image to watch this 5-minute video.
https://www.screencast.com/t/kS5m9Wd61
‘I sent my customer a proposal. They accepted it on the spot with no changes, and I closed the deal,’ said no salesperson ever!
Salespeople must understand that submitting a first proposal to their customer is an invitation to the negotiation dance. A dance that includes price concessions, line-item negotiating, demands, and giveaway pressure. Even if you have executed your sales process flawlessly, there will always be missing information and uncertainty in a customer negotiation. With the best intentions, salespeople set out to sell solutions only to end up negotiating price. They believe customers will view and negotiate the package as a whole. When in reality, customers enthusiastically negotiate line by line, and then inevitably pull price out of the equation and place a bullseye on it.
What if there was a better method of changing the conversation with your customer from delivering pricing to delivering value solutions? A method that would help keep you in control, manage the uncertainty, and close larger deals more quickly for you and your company? There is. Multiple Solution Options
The Multiple Solution Options (MSO) concept and technique assist salespeople sell value solutions and negotiate those same value solutions. Let’s start with the simple idea that giving the customer choices about how they can buy from you, instead of an ultimatum, is smart. Then consider that using choices to skillfully organize your customer’s thinking about how they could work with you to solve their business needs, while illuminating your full value proposition in various ways, is strategically brilliant.
Why three? Simply put, one option results in giving the customer an ultimatum; ‘take it or leave it.’ Exactly the opposite of a value-expanding desired negotiation outcome. One option is also easily sub-divided and decreases the worth received by either side. Two options still set up a “one or the other” proposition and limits flexibility. However, three options provide your customer with enough flexibility, direction, available shared-risk levels, and added-value choices without overwhelming them.
Options increase your chances to steer the customer in a direction you want them to take. In essence, you begin to organize the customer’s thinking for them. For the buyer, the choice between options opens possibilities and demonstrates the seller’s flexibility and creativity. For the seller, offering three options helps to keep the negotiation discussion open and focused on compelling ways to message your value. Presenting solutions will motivate a sensitivity test with your customer. You will find out in a hurry what they like and what they don’t like. This is by design. Listen to their feedback.
Customers WILL cherry pick your options. They will want to combine deal components that are best for them from each option and want them at the lowest cost. Your job is to keep your value packages together.
That is to say, the deal components must be intrinsically tied together. Volume, discount, level of services, number of products, payment terms, contract length, quarterly business reviews, etc. should ALL be connected. You certainly can give on one component as long as you replace it with something that represents equal or greater value back to you, i.e. – makes your solution whole again. This strategy often leads to a fourth, co-created, option. That is exactly your goal.
Your ‘solution messaging’ is the key ingredient to continuing to change the conversation with your customer from price of product to value of solutions. When you have your options established, we highly recommend you practice presenting the options before you present them to the customer. Consider this a formal sales presentation and rehearse your storytelling message. Your goal is to anticipate where your customers will push back on your options.
If you are serious about changing the conversation with the customer from price to the value of your solutions, you will need to use decidedly different visuals and messaging with the solution story you tell.
Follow these best practices to improve the deal you are closing:
Visually represent your options on one page to set up for a better cohesive story.
Title each option using words that solve a customer’s business issue. The title needs to contain just a few words. Follow with a brief summary and a few sentences to summarize the intent of the option. Then, prove out the title by including the various deal components that make up this specific value package. This is important and is a key part of changing the conversation and telling your value story.
Be prepared to accept any one of your three options. Each option should be acceptable to you but represent different levels of shared commitment to your buyer. The more the buyer commits to us, the more value we provide in return.
Options are meant to represent varying levels of investment and return. That is to say, if the customer wants “low price” that’s fine, we offer low price with a value drop that matches.
Each option should demonstrate how you are better than the alternative(s) and offer the highest confidence of success, and lowest risk of failure, compared to the alternative.
For advanced use, when there are multiple buyer stakeholders, create an option for each one, addressing the often-differing priorities for different stakeholders.
We recently completed coaching on over $1b in deals for two tech companies globally. Two huge issues related to deal timing came out of the coaching that plague most sales organizations:
Waiting until the end of the quarter / quarter-end promotions
Waiting until 30-45 days out to plan for renewals
In fact, Harvard Business Review (HBR-8/2017) reports these same issues:
Decreased deal size and win rate results for an estimated $98 million per year in lost revenue for the average company.
Conversely, it represents a potential gain of over 27% in revenue per company if properly addressed.
How did we let this happen? Market pressures from Wall Street and investors, irrational competitive behavior, internal quarterly pressures to “make our numbers;” they all contribute to the problem.
But we aren’t helping the situation.
We are all familiar with end of the quarter pressures. To deal with the pressure, many salespeople wait for those quarter end (or month end) promos to make it easier to close deals. Even worse, we all know we’ve trained buyers to feed off this behavior. At Think! we not only consult to sales organizations but to buying organizations. We see and hear firsthand their clear strategies to leverage this end of quarter weakness and wait until the last minute for renewal discussions.
How Do We Fix It?
Plan for renewals; we call it T-12
Determine the impact of no agreement for both sides to get crystal clear on tangible value
Change the conversation from “here is our offer” to “here are three value creating going forward options”
Number 1: T-12 - Start Early!
For renewals, our goal is to begin planning at least 12 months out. It helps to model “what happens when a renewal goes well?” By looking at past successful renewals, we can understand what happened when and by whom. At intervals of 12-9 months, 9-6 months, 6-3 months and less than 3 months, what actions took place and who was involved both internally and externally?
What we found when we looked at these best practices were items such as “usage data;”
Is the customer using what we sold them?
If not, what do we have to do now to drive usage before renewal?
What has the value been of usage and prepare to begin leveraging that data early in discussions.
What customer stakeholders were involved when?
Who did we involve internally and at what stage?
What insight did they provide that can be leveraged for other renewals?
These actions are then mapped out and all renewals 12 months out are targeted and coached against best practice for all stages. The goal here is to make best practice common practice and install rigor and cadence for scale.
Number 2: Impact of No Agreement - Facts Not Tricks
Easily the most important step in reducing discount and improving deal quality is analysis and rigor around the impact to both sides if you don’t agree. A typical scenario looks this this….
It is the end of the quarter and the buyer says:
“Either you offer X discount, or I will choose someone* else!”
* Or do nothing or pursue another alternative.
The rep feels losing this deal will have them miss quota, so they head back to headquarters asking for additional concessions on behalf of the client to “save” the deal.
We have coached seasoned account management professionals from around the world who were shocked and panicked by these last-minute buyer tactics. However, there should be zero surprise here. As sellers, we should expect this buyer tactic with a very high probability. The only thing that should surprise us at the end of the quarter (or month) is for the customer to say, “Your value is so high you should really take up your prices!”
What we’ve found in most deals is when we do an analysis of the customer's alternative to buying from us, their alternative is not as great as they would have us believe. And the alternative can be just about anything, not just selecting a named competitor. Think about it this way, as an alternative to you or your competition, your client could also do nothing/stick with the status quo or even do it/build it themselves.
The only way we can take pressure off concessions is to understand our value. The only way we can understand our value is to know:
What are the customer's business needs at this moment?
What is their most likely alternative?
What are all the strengths and weakness of that alternative given their needs?
What gets “netted out” of this analysis is your value, which we define as:
How You Meet Customer Needs at Higher Confidence and Lower Risk Than an Alternative
It's not flowery statements or vague value propositions generated by marketing. It is the 2-3 reasons why what you’re proposing, at this given moment, is better than the alternative given your customer’s specific needs. It requires doing this analysis through the lens of understanding the needs for senior, mid-level and operational stakeholders, because it is likely that they are different. Taking the time to determine the criteria customers should be using to compare you to alternatives and in fact, knowing it better than they do, allows us to lead versus react.
This analysis also provides us with the confidence to hold tight on concessions. It is this value analysis that informs the stance to take on discussing commercial terms with the client. Of course we need to do this as early as possible, but even if we’re pushing for a month end close, we should never talk commercial terms without being backed up by this insight.
Number 3: Change the Conversation From Price to Value
This is one of those things that every consultant talks about and every sales leader wishes they could do. In the simplest sense, what we want to do here is to move from:
“Here is our offer.”
TO
“Here are three paths forward at three different investment and effectiveness levels.”
When we give “our offer” we are instantly set up to execute what mankind has been doing for millennia, that is to drive a customer response that has them asking us to “do better.” It is the natural flow of the process and will end up having us executing a price or discount conversation.
Once we execute our “no agreement” impact analysis for the customer, we will have a clearer idea of what risks are posed to them of missing their business goals by not choosing our solution. We can use these gaps as true value statements to “brand” each of the three paths forward. For example, perhaps the customer is attempting to reduce cycle time as a key initiative, and our analysis shows that reaching agreement with us provides a higher probability and lower risk for meeting that goal. This first solution would then be titled “reducing cycle time.”
Typically, these options, which we call Multiple Solution Options, run from tactical to strategic impact on the customer organization with corresponding commercial terms for each.
What we see in practice is that there is a very low probability that any of these initial three will be accepted. What it does do, however, is three things:
Changes the conversation from the price of one offer to the value of three different solutions.
Reduces the probability of zero-sum concessions in favor of value creating tradeoffs.
Broadens the conversation beyond price and acts as a sensitivity analysis for the needs of the buyers when we ask them to rank each solution most to least desirable.
What typically occurs after the “ranking” is that we are co-creating a fourth solution that has maximum value for us and the buyers.
Summary
When we execute the above three strategies on both renewals and quarter/month end deals, we successfully:
Change the conversation from price to value in about 90% of the deals
Reduce discounting
Increase the quality of the deal for both sides
Improve the human relationships
Increase closing percentages
Decrease time-to-close
Improve forecast accuracy
Now, do you consider this effective negotiation?
As recently as 10 years ago, few of us made purchases via the internet. Over time, security issues and the ‘risk’ of making a purchase via the internet have been mitigated by sellers and financial institutions alike. According to the Cisco Inclusive Future Report (2020), “In 2000, only 6.7% of the world used the Internet, yet by 2017, almost half of the global population did.” In the most recent data from the U.S. Census Bureau (18 February 2022) Total e-commerce sales for 2021 were estimated at $870.8 billion, an increase of 14.2 percent (±0.9%) from 2020. E-commerce sales in 2021 accounted for 13.2 percent of total sales.
Business buyers are using the internet extensively to not only research possibilities, options and alternatives, but often to make their buying decisions. And they are often doing this before engaging with a salesperson from the supplier organization. This harks back to the days of business buyers using the e-auction method – taking relationships out of the equation as much as possible.
Now more than ever, our customers have little time to ‘teach’ their potential suppliers all about their business. Likewise, our customers do not see value in working with potential suppliers who are not as knowledgeable about the options and alternatives as they are.
The internet has changed how salespeople need to prepare to work with a potential customer in readiness to negotiate. More than ever, a salesperson needs to know clearly the unique business value that their solution / product brings to the table, and they need to know how to explain that differentiated value proposition. This differentiated business value needs to resonate with what is important to the customer’s buying decision.
By analyzing what would happen if there is no deal, (using Consequences of No Agreement Analysis) and listing the impact to the buyer if they do not reach agreement with you, the customer decision criteria becomes clear. Leverage your resources and experience to understand and validate the priority of the decision criteria. Then compare how well your solution / product addresses each decision criteria compared to the customer’s alternative. Any decision criteria that is high priority for the customer and for which your solution / product is better than the customer’s preferred alternative, shows you where your solution / product differentiates. This differentiation against the highest priority decision criteria is invaluable for you when you are working with a very knowledge buyer – especially a buyer who has done their research via the internet!
In our rush to wrap up a negotiation and show good faith, many times we make concessions that are either too quick or too costly, or both. This is why, as a negotiator, you need to plan what the likely "asks" might be requested from your counterpart and have some trades or concessions to offer up as alternatives.
When working through negotiations and there is a difference in expectations, it is almost inevitable that one party will suggest "splitting the difference." This seems a logical step, and immediately creates an atmosphere of acquiescence or goodwill. This tactic can be quite effective because it creates an emotional appeal for the counterpart and it would seem, on the surface, that it would be selfish and non-conciliatory to refuse the offer. The problem is that concessions should not be made unless there is a trade of value. If you concede without asking for something in return, you are virtually saying, "alright, I asked for way too much, I was trying to gouge you, now I'll play fair and let's wrap this up." The result: it creates distrust as the negotiation continues or as future negotiations are brought to the table. Your counterpart will be expecting you to "ask for too much" upfront and will plan accordingly.
Instead, plan ahead and have equitable trades that allow for a concession. For example, when your counterparts request you "split the difference," you can reply with a trade offer, such as, "sure, there may be a pathway to that... IF we split the difference in the price can we talk about a 40% increase in volume, or 30-day payment terms, or moving to a 3-year contract?" This approach not only opens up the door for more trading, but gives your counterpart some options. Remember, a very important part of this strategy is to be prepared for those "asks" and to have ready-made trades in mind when the "ask" comes.
Selling is a process through which the seller identifies how the solutions offered resolve a buyer’s needs at a given point in time. Whereas negotiation is the process through which both parties agree to the terms of a deal, which is better for both than any other alternative deal. Some people have stated there should only be a negotiation when there is a genuine commitment from both the buyer and seller towards a conditional sale. However, I think this approach is somewhat short-sighted.
If, as a salesperson, we are looking to close a deal, wouldn’t we want to strategize to position ourselves as the alternative with greatest probability of success while minimizing the risks for our customer? In order to be able to differentiate to win in a competitive environment, it is imperative that we begin the process of negotiating in tandem with the process of selling. If we wait to negotiate at the end of the sales process, it is already too late. Why? Because inherent in the sales process are a series of customer decision criteria which must be addressed, and if we are not capable of positioning our solutions in the proper context with adequate negotiating tactics we are bound to lose value. Before you know it, you are being compared on an uneven playing field with your competitors because you were unable to differentiate to win early on in the process.
Procurement professionals view negotiating as a core competence and an integral part of their purchasing process. Salespeople: it's time to follow suit and integrate negotiating into your sales process to be equally as effective.
Interested in learning more? Check out our white paper: Evolution of Sales and Negotiation (20 pages)