When it comes to business-to-business sales negotiation, some sales professionals are just naturals. These salespeople are able to steer the conversation away from lowering their product’s price and onto a discussion about how to reduce their customer’s costs.
The best salespeople come prepared with a list of concessions they need and a list of concessions they believe their customer will pursue. Finally, they know exactly how to handle customer scare tactics.
Three Simple Steps to Sales Negotiation:
Business-to-Business sales negotiation need not be an involved process. It doesn’t always involve negotiating a large contractual agreement. It doesn’t always involve going back and forth on a supply contract. In most cases, negotiation occurs over the phone, in person, and almost always before the order is awarded.
As salespeople, we negotiate with our customers all the time. Sometimes it’s fairly obvious that we are in an in-depth negotiation, and other times it’s more subtle. Either way, you must pay close attention to the three aforementioned areas of negotiation.
First, you must defend your product’s price. Second, you must have your own list of concessions, ones your company needs in order to have a successful negotiation. It also means you must understand the types of concessions your customer is likely to pursue. Third, you must be able to differentiate between a fake customer threat and a real customer threat. One is a ploy to get you to give in, and the other is a more serious concern that could lead you to lose the order. We’ll review each one of these critical areas in detail.
1. Defend Price
There is one simple rule to follow when it comes to dealing with a customer’s request that you lower your pricing: A customer’s demand for lower pricing is nothing more than a need to reduce their costs. Once you understand this, you can focus on reducing your customer’s costs without immediately resorting to reducing your price. The idea is to get the customer to understand that there are other ways for them to save money.
Most salespeople are immediately taken back by a customer who uses pricing as a weapon. Often you’ll hear the customer claim that you have to either match or beat your competitor's offer. However, pursuing this course of action will do nothing more than reduce your profit margins and get you into a price war with no end. Instead, focus on coming up with a list of ways you can reduce your customer’s costs without reducing pricing. There are literally hundreds of ways you can save your customer money while leaving your product’s pricing alone. Here is an example of what you can focus on.
- Products with Cost-Per-Use-Benefits: If your product offering lasts longer than your competitor’s, then show your customer how this saves them money. Companies that have products with a longer life are able to define that benefit in terms of the savings it provides their customers. Use a table to define the savings of using your product relative to your competitors’ offering.
- Reducing Inventory Management Costs: Holding inventory is incredibly expensive. There are costs pertaining to financing, freight, obsolescence, damage, pilferage, counting, storage, in addition to numerous miscellaneous warehouse management costs. Identify ways you can help your customer reduce their inventory management costs. For instance, are you closer to your customer’s location – and can this save them on freight? Are your products more durable and less likely to get damaged? Are your products better packaged and easier to handle? Can you run vendor-managed inventory agreements like consignment inventory, or are you willing to hold products at your location under a blanket order or kanban agreement? These are all areas where you can save your customers money without immediately capitulating to their price demands.
- Inventory Liquidations: Another solution might involve liquidating your own inventory of slow-moving products. You reduce your inventory carrying charges while your customer reduces their costs on finished goods. Other approaches might include selling loss-leader product lines, ones that have no strategic value to your enterprise.
2. Match Concession for Concession
Your customer is guaranteed to come into the negotiation looking to secure some essential concessions. As such, you must come up with a list of concessions your company needs versus a list that your customer is likely to pursue. Ultimately, you want to match a high-value concession with a high-value concession. In one of my earlier posts entitled "B2B Negotiation: Preparing Your List of Concessions," I explained how you can come up with a list of primary, secondary, and tertiary concessions for both your company and your customer. When you grant your customer a concession, you must ask for one of equal value.
Don't abandon the negotiation if you’re unable to secure an important concession. Understand your customer’s priorities and pursue a set of priorities that are equally important to your side. You should have plenty to work with. Remember that negotiation is the ultimate “what if” scenario.
What if the customer asks for this concession; how will I respond? What if the customer says that inventory turn-times are essential, should I still ask for more flexibility on delivery or abandon this request? Take the time to come up with a list of concessions your side needs for a successful outcome relative to what you believe your customer will pursue. During the negotiation, try to match important concessions with important concessions.
3. Customer Scare Tactics
There are two types of customer scare tactics: Fake threats are nothing more than a ploy to use intimidation to force you to give in to the customer’s requests; Real threats are definitive concerns on the part of the customer. In essence, they are the proverbial “show stoppers”. So, one is meant to intimidate you, while the other is meant to define the severity of the customer’s request. How can you tell them apart and what can you do when confronted with one of these scare tactics?
- Handling Fake Threats: Customers who use fake threats in negotiation are ones who use one threat after another. In fact, they often don’t even know how often they threaten the salesperson. You’ll immediately recognize a fake threat because the customer will continue on with the negotiation. Some customers become so accustomed to using fake threats that they forget how often they’ve used them. Simply put, these threats aren’t serious and you should have no problem identifying them.
- Real Threats: Ultimately, the easiest way to identify a real threat is when the customer’s demeanor or tone changes. Real threats typically follow an important concession. These are “show stoppers” and they are much easier to recognize because of the severity of the concession. So, if real threats follow an important concession, then shouldn’t you follow up with a concession request for your company that is equally as important to your side? Yes, you should.
“Match a high-value customer concession with one of equal value for your company”
Don’t be afraid to defend your position as the incumbent supplier. Don’t be afraid to defend your product’s price. When a customer uses price against your company, they are literally asking your company to help them lower their costs. Focus on reducing your customer’s costs and you’ll be able to protect your price.
In terms of preparation, be sure to come to the negotiation with a list of concessions for both your company and your customer. Anticipating your customer’s requests will help you match high-value requests to high-value requests. Finally, understand the difference between a fake threat and a real threat. It will help you defend your position and secure important concessions.
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