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12 Keys for Successfully Selling at a Price that is Higher than your Competitors’ – April 2010 Master Negotiator

April 29, 2010 By Leave a Comment

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“In business, you don’t get what you deserve, you get what you negotiate.”

-Dr. Chester L Karrass

One of the most frequent questions we are asked is how to negotiate when it appears that the only thing that matters to your counterpart is a low price. As a sales person or negotiator, your success, and your company’s success, depends on your ability to convince your counterpart that the value your product or service provides is worth the higher price.

In this issue, we will outline 12 keys to successfully negotiating in a price war. Please feel free to contact us with any negotiation questions or article ideas. We’ll do our best to address them in upcoming issues. (peter@peterstark.com)

Remember, almost everything in life is negotiable.

Peter B. Stark & Jane Flaherty

Negotiating with a counterpart who places high importance on a low price is always difficult. This problem is amplified when your counterpart is talking to multiple competitors and your product or service has a reputation for having high value in the marketplace. Typically, when your product or service is recognized for having high value, you can charge a higher price. Competitors who are recognized as having lower value in the marketplace tend to compete by charging a lower price. Most people buying a product or service want the highest quality and best value at the lowest price.

Our clients have found the following 12 keys helpful in successfully negotiating a price that is higher than that of their competitors: even in situations where it appears that the only thing that matters to your counterpart is a low price.

  1. Build your confidence. Part of the reason your product or service is worth more is because of the service and support you and your team provide. If you don’t believe that your product or service is worth more, then it will be difficult to convince a customer that paying more than your competitors is a good thing.

  2. Develop a positive vision. You have to believe that you are going to win this sale, and that it is going to be in the customer’s best interest that you do so. If you feel you are going to lose on price, you already have. Get excited about putting together a plan, with options, that will lead to a successful outcome. This one may be tough, but you have to believe in a positive outcome.

    An important part of your positive vision is to remember that you have more price power than you think. If the client still returns your phone calls and emails, or agrees to meet with you, you have power. If you had no power, they would simply place the order with the competitor at a lower price.

  3. Ask great questions. Sales people who lack confidence tend to ask closed ended questions that yield short answers with little information. Control the conversation by asking great questions that uncover a customer’s true needs and the importance of value to them in this negotiation. Ask great open-ended questions, then listen.

  4. Make sure you are dealing with the decision maker. If price is going to be the deal maker or breaker, there is no sense dealing with the monkey when the organ grinder is sitting in the next office. Competitors who steal business tend to do it by gaining direct access to the decision maker, while the incumbent maintains their existing relationships with the user buyer with whom they are most comfortable. The incumbent is then left playing a challenging game of good-guy, bad-guy with the user and economic buyer/decision maker. That game is highly effective in forcing you to lower your price.

  5. Understand the true needs of your buyer. There are two types of needs. Explicit needs like price, quantity, quality, features, terms, warranty and delivery. Then there are implicit needs like the buyer’s reputation, credibility, and the need to look good to their boss and peers. Implicit needs almost always override explicit needs in determining the outcome of a negotiation. If implicit needs did not override explicit needs, we would all be driving Yugos: the lowest priced car ever sold in the United States. If the thought of buying the lowest price could impact your credibility and reputation, almost always, you are quite excited about paying a higher price.

  6. Remember, people hate giving up value! Everyone hates to pay a high price but they hate giving up value even more. Don’t ever lower your price without taking away some value at the same time. If you lower the price, but don’t adjust the value, the customer will continue to ask for an even lower price.

  7. Strong relationships count. When you are in a business that has repeat or annual renewals, it is important to build strong relationships with key players throughout the year, even when you don’t need them. If you only have a relationship with the user buyer, and the economic buyer decides to get involved in the negotiation, you do not have the relationship or the credibility to negotiate a higher price. Wal-Mart has made billions by rotating buyers, giving them high goals to gain price reductions with sellers they have very limited relationships with. When there is no relationship, it is harder to support a higher price.

  8. Treat your counterpart the way they want to be treated. If your buyer’s negotiation style is a driver or a director, then trying to dump 87 pages of data down their throat to support the value of your product or service will not work. The driver/director ignores your data and flips to the last page with the price. Conversely, to give a one page overview of your product/service to a highly analytical user buyer is going to decrease the amount of trust they have in you and what you are selling. Design communication that is aligned to your client’s behavioral style.

  9. Know your competition better than your customer. If you don’t know your competition, then you tend to take anything your buyer says about your competitor as true. To successfully defend a higher price, you need to know your competitors, and you need to know the truth. Do your research in advance: not being the best prepared undermines the value of your higher price.

  10. Focus on value first, brand second. Some people feel that the reputation of their brand deserves a higher price. Although the reputation of your brand may hold power, when it comes to price negotiations, the value that your brand brings to meet the implicit and explicit needs of your buyer holds even more power. Whenever possible, get the prospect to tell you about the value they have received from your product or are expecting to receive from your product versus your competitors.

  11. Develop options. When it comes to selling at a higher price, options help to change the buyer’s question to, “How will they use us?” Not, “If they will use us.” By adjusting price and value and developing a variety of options, you will find it easier to defend a higher price.

  12. Sell the problem, not the solution. Almost always, there is a reason for your higher price. Most sales people try to sell the solutions of their product or service. It is much easier to defend a higher price by selling the problem. If you buy the lowest priced back-up system and it fails in a catastrophe, what impact is that going to have on you and your company?

And last but not least:

Celebrate your success! You won’t win them all but with these 12 strategies you will win a lot more price wars. Start celebrating your success!

For more negotiation tactics, sign up for our tactic of the week.

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Wal-Mart: The Big Gorilla – March 2010 Master Negotiator

April 29, 2010 By Leave a Comment

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“Any business arrangement that is not profitable to the other person, will, in the end, prove unprofitable for you.”

-B. C. Forbes

In last month’s Master Negotiator, we advised against the tactic of walking away from a deal. Specifically, we referenced that win-win negotiation is about getting what you want, but also ensuring that the needs of your counterpart are met. Why is the success of your counterpart critical? Because, in real life negotiations, chances are good that you will negotiate more than once with the same counterpart: for example, with your boss, a coworker, family member or friend. When either party walks away, whether they choose to or are forced to by an un-yielding counterpart, bridges are burned and ties are cut. Last month, we urged our readers to use the walk away strategy cautiously for this reason. According to recent news, even super giant Wal-Mart is not immune to the problems that arise from walking away in negotiations.

Please feel free to contact us with any negotiation questions or article ideas. We’ll do our best to address them in upcoming issues. (peter@peterstark.com)

Remember, almost everything in life is negotiable.

Peter B. Stark & Jane Flaherty

For years, manufacturers’ or distributors’ biggest reasons for celebration was landing the Wal-Mart account. But the story that is not told often is about the pressure that Wal-Mart puts upon its suppliers to bring “everyday low prices” to their customers. It is common knowledge that whatever price Wal-Mart sets for products from each of its 21,000 suppliers this year, the price will be lower next year. And, if the supplier doesn’t agree to the lower price, you can guarantee that Wal-Mart will threaten to remove all of that supplier’s products from their shelves. Wal-Mart tells the companies when they are no longer willing to buy their products that they are working on the art of SKU optimization, and your SKU’s are no longer being utilized.

There is some good news in these hardball negotiations. First, there is no doubt that customers have benefited from Wal-Mart’s drive to have suppliers squeeze their profits. Second, some have even said that Wal-Mart is partly responsible for helping the U.S. keep a lid on inflation. And third, if you are a supplier to Wal-Mart, they will force you to lower your price which will force you to become more efficient, leaner, faster and more productive.

So, how can Wal-Mart do this to both huge and small companies, even those who have products that are strong household names? It’s easy. Wal-Mart is the world’s biggest company. Wal-Mart is bigger than Exxon Mobil, General Electric and General Motors combined. It does more retail business than Target, Sears, Kmart, J.C. Penny, Safeway and Kroger combined (Fast Company). The challenge for suppliers becomes a negotiating decision similar to the ones that a crack addict has to make. If you move forward with the decision, it feels good (take the fix and make the sale) but it destroys your health (physically and profitably). You know the decision of lowering your price is going to increase your sales, but most likely erode your profits. Why do companies move forward with their decision and cave into Wal-Mart’s demands? Like the crack addict, it feels so good. And, the thought of telling anyone you just lost your biggest customer hurts so badly.

Thirty days ago, I was planning to write this article and tell you that Wal-Mart was one of the few companies who effectively used this walk-away strategy in negotiations. Wal-Mart requires companies to lower their prices and then dumps them if they refuse. This seemed to work for Wal-Mart at first, because it’s obvious they have a much better BATNA (Best Alternative to a Negotiated Agreement) than their suppliers. As long as you never have to work with your counterpart again, as I imagine Wal-Mart believed they would not, this is a highly effective strategy.

Some of their suppliers have even gone out of business or bankrupt when Wal-Mart utilized their walking away strategy (The Loveable Company and Vlasic Pickles). So why should Wal-Mart even care about their suppliers? Because as Wal-Mart has since experienced, very seldom are negotiations one-time affairs.

On March 8th, Bloomberg reported that Wal-Mart is bringing back some of the very products they had walked away from and removed from their shelves. Why is Wal-Mart bringing back products that they had literally given the middle finger to? Because consumers were demanding a wider selection from which to make their purchases. The retailer said last month that its U.S. stores recorded a drop in sales and had a “slight decrease” in customer traffic in the quarter that ended in January. Even harder for Wal-Mart to acknowledge was the fact that consumers were shopping at other stores to find the products that Wal-Mart used to supply. Even I left Wal-Mart and headed for my local supermarket to buy some Purina dog treats that Wal-Mart had pulled from the pet food section. Bloomberg reported that Wal-Mart has now begun re-stocking products they removed from the categories of health and beauty suppliers, cereal, pet treats, soda, bedding and laundry detergent.

I started this article with the premise: if you are big enough and have a better BATNA, you can walk away and win. I end this article by stating a premise we have written about for twenty years: almost always in on-going relationships, it is better to develop a win-win outcome where the needs and goals of both parties have been achieved. Hopefully in round two of these negotiations, Wal-Mart will obtain the products their consumers are demanding, and the suppliers can obtain a price from Wal-Mart that keeps them successfully profitable.

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You Have the Power to Walk Away… But Should You? – February 2010 Master Negotiator

April 29, 2010 By Leave a Comment

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“The most important trip you may take in life is meeting people half way.”

-Henry Boyle

Win-win negotiation is all about getting what you want, but also ensuring that the needs of your counterpart are met. Why is the success of your counterpart critical? Because, in real life negotiations, chances are good that you will negotiate more than once with the same counterpart: for example, with your boss, a coworker, family member or friend. When either party walks away, whether they chose to or are forced to by an un-yielding counterpart, bridges are burned and ties are cut. This is clearly not a good tactic when negotiating with individuals with whom you’re close to, but is it different for business?

Please feel free to contact us with any negotiation questions or article ideas. We’ll do our best to address them in upcoming issues. (peter@pbsconsulting.com)

Remember, almost everything in life is negotiable.

Peter B. Stark & Jane Flaherty

Let’s say that you and your spouse are having a serious discussion about an upcoming vacation destination. You want to hike the Grand Canyon, while your spouse argues that a cruise will provide you both with entertainment, great food and much needed relaxation. You are both arguing passionately about your choices for the vacation and have a strong need to achieve your outcome. At any point, you could use the tactic of threatening to walk away from the negotiation by saying, “Fine, if you won’t come with me to Arizona, I’ll go by myself.”

Recently, Google tried just the same tactic with China, saying that if China continued to censor Internet use, Google would pull out of China. Within minutes, it appeared that Google was reconsidering the threat to leave. Here are just a few facts that came to light after Google used the tactic of: “If you won’t play our game by our rules, we’re out of here:”

  1. Google’s threat to pull out of China drew little reaction among the country’s 384 million Internet users. The prevailing sentiment was that if Google left, there would be other choices. T. R. Harrington, CEO of Shanghai-based Darwin Marketing, said, “It’s like in the U.S. saying, ‘You can’t use Yahoo search anymore.’”

  2. China has its own search engine, named Baidu, which is used by 60% of China’s search engine market, and gives users access to 3.2 million registered Web sites.

  3. Goggle took a stand on China’s censorship of the Internet, but most Chinese users are currently in their 20s and are known for their love of consumerism and disdain for politics. Their favorite online activities are listening to music, chatting with friends and playing video games. As such, there was very little public outcry when Google threatened to depart.

From an outsider’s perspective, China’s official reaction seemed to be, “Fine. If you don’t like our laws, you don’t have to be here.” While we don’t have closure on the Google/China standoff, Google appears to have backed off on their threat to pull out of China, perhaps acknowledging the financial consequences of this decision. China, with nearly 400 million Internet users, is seen by many as one of the most important and fastest growing Internet advertising markets in the world.

Whether the threat to walk away from the negotiation occurs between big players, such as Google and China, or over a family disagreement, the outcome is almost always the same – there are winners and losers. And, the losers are typically reluctant to play the game again. In the case of Google vs. China, there is potential for both to become losers. If you use this tactic, it will most likely be your last negotiation with this counterpart. Walking away from a negotiation will work, but only if you have no intention of continuing the relationship. If you chose to put this tactic into play, make sure you’ve thought the consequences through completely. In the Grand Canyon example, you could just go to the Grand Canyon no matter what your spouse says, but it might be a lonely trip with a difficult homecoming.

  1. Negotiate using the “If… then” tactic. Compromise is difficult, because both sides are reluctant to back down from their original stance. The “If… then” tactic seeks a compromise based on mutual agreement. Meaning, if you could agree to a counterpart’s stance, would they concede a part of their stance and accept your proposal? For example, you might say to your spouse, “If I agree to do a cruise with you this year, would you then agree to come to the Grand Canyon with me next year?”

  2. Try “Sweetening the Deal.” This tactic is used extensively in business to make a deal work. When a buyer balks at a price or condition, the seller often says something like, “Of course, that comes with a full three year warranty at no extra cost, and we’ll even throw in the delivery for free.” The same approach could work well in negotiating your vacation. You might get your spouse to agree to your travel plans by adding, “If you came with me to the Grand Canyon, we’d stay three nights at the historic Yavapai Lodge on the South Rim of the canyon, and then how about we spend the next four days at that spa you like so much in Sedona?”

  3. Use a “Trade off Concession.” Effective negotiators aim to never concede a deal point without getting something in return. Using this tactic to negotiate your quest to get to the Grand Canyon, you might try this approach. “Honey, I know the cruise is important to you, and I like cruising also. But, we’ve only got so much money in the budget and not much time off. Rather than doing a week long cruise, would you consider the three day Mexican Riviera cruise departing from San Diego? If we did that, we’d still have time left for our visit to the Grand Canyon.”

In our book, “The Only Negotiating Guide You’ll Ever Need,” we refer to the tactic of walking away as, “These Boots are Made for Walking.” In any negotiation, you have the power to end the negotiation by leaving, or threatening to leave. Our recommendation: pick your strategy carefully, considering other options and the ultimate consequence or damage to the relationship if you exercise your ability to walk away from the negotiation. If the negotiation is a one-time only negotiation, or you hold all the power in the relationship, you may well benefit from taking a hike. However, if you exercise your options under situations where on-going relationships are important, we recommend that you use caution and pick your strategy carefully.

We invite you to join us next month, when we will present the flip side of using “These Boots are Made for Walking” and share with you how a mass merchandiser effectively uses this strategy to their advantage.

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Everyone Loses in a Price War – January 2010 Master Negotiator

April 29, 2010 By Leave a Comment

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“Nowadays people know the price of everything, but the value of nothing.”

-Oscar Wilde

As we learn about the current price wars going on between competing retailers, it is easy to be reminded of the above Oscar Wilde quote. Retailers who constantly lower prices to beat competitors may bring more traffic to stores, but does this really bring any long-term value to their bottom line or are they discounting themselves into oblivion? This is something that you should heed if you ever find yourself in a negotiation situation involving a price war with a counterpart.

In this issue, we will provide you with some ammo in case you ever see a price war coming your way. Please feel free to contact us with any negotiation questions or article ideas. We’ll do our best to address them in upcoming issues. (peter@pbsconsulting.com)

Remember, almost everything in life is negotiable.

Peter B. Stark & Jane Flaherty

The question we are asked almost as frequently as, “How do you negotiate with a bully or shark?” is, “What do you do when the only thing your counterpart cares about is price?” What makes the situation even worse is only having one strategy in your tool bucket when you reach a roadblock in your negotiation; lowering your price. Negotiating solely on price is a long-term losing proposition, unless you have a huge cannon and losing money or operating on extremely low margins does not hurt your ability to operate as a strong, sustainable business.

The greatest recent example of two companies that are in a price war, without their counterparts even asking them to lower their prices, are Wal-Mart and Amazon. Wal-Mart started the war when they marked down the prices of their top ten best-selling books to $10.00. Amazon, determined not to be beat, matched Wal-Mart’s price. In turn, Wal-Mart lowered their price to $8.99. Then Target joined in by selling their top ten best-sellers at $8.99, forcing Wal-Mart to lower their price to $8.98.

Keeping in mind that retailers can buy books from the publishers for one-half of the retail price, it becomes apparent that, by lowering their prices to $10.00 and below, all three of these retailers were losing money on every book they sold. The retailers are probably thinking, “If we are losing money on each sale, let’s lower the price even more to increase sales and steal our competitors business.” This makes no business sense. In a price war, almost always, everyone loses.

The good news for Wal-Mart, Amazon and Target is that they all have big cannons and these sales leading to losses will not hurt their business. It is important to note that these three giants actually had a goal: entice new, on-line shoppers interested in the top ten best-sellers, and introduce other items to them which they, otherwise, may never have been exposed to in brick and mortar stores. Indirectly, this price war helped Wal-Mart, Amazon and Target, but I will bet that anyone smaller who tries to participate will lose this price war in a big way.

A second retail arena where we see constant price wars is in the electronics industry. Just ask a former Circuit City or Good Guys employee; they will agree that very few people win long-term in a price war strategy.

So, what can you do to effectively compete in an environment where it seems like the only thing that matters is price?

  1. Recognize that people seldom buy things solely based on price. If it was really true, we would all be driving YUGOs and the YUGO car company would still be in business. Although the entire auto industry is in a world of hurt trying to sell based on huge price incentives, over the last 18 months it became obvious that sometimes people are unwilling to buy even when you lower your prices to well below your costs. The positive example is that most cars are bought, not because of their price, but because of the implicit needs they meet for the buyer. Many a car salesperson has closed the deal by simply saying, “You look really good in that ride.” Focusing on the value that your product provides for the customer, rather than boasting low prices, will give you a competitive advantage.

  2. Realize that very seldom does your counterpart hold all the price power. Many salespeople have told us that if they want to make the sale, they have no option but to lower the price. We always respond by asking, “Does the counterpart call you back, return your emails or agree to meet with you?” If the answer is yes, you have more price power than you think you do. If you did not, the counterpart would instantly call your competitor and place the order with them. It would be your counterpart’s most productive and profitable call of the day. When your counterpart continues to talk with you about price, they are telling you that you have something of implicit value to them other than price.

  3. Differentiate or die. If everything is truly apples to apples, and there is zero difference between you and your competitor, then you are right, the only thing that will differentiate you is a lower price.

  4. Innovate if you want to be a price winner. One of the companies that I resisted supporting for most of my life was Apple. They were so innovative that I did not fully understand their products. I was an idiot. Then I had kids. Through my kids I was introduced to iPods, MacBooks and so on. The reason the new generation loves Apple products is because they are so innovative and so cool. When a company is so cool and innovative that a customer cannot buy any other competitor’s product and achieve the same experience, price is not negotiable. Last week, I took the kids to the Apple store. It was packed! Not one person was asking for the sales price or a discount. After we bought the new MacBook Pro, they slipped it into a plastic backpack so we could walk though the mall advertising to everyone that we just paid full price and loved the experience.

  5. Practice détente with your biggest competitors. Let your competitors know that if they lower their price to try and steal business, you will lower your price as low as you need to go not to lose. If both competitors have the price cannon faced at each other, each will be less willing to play the price war game.

  6. Concede small. If you are going to concede and lower your price, in the opening round of the concessions, concede small. Your first concession sets the stage for all future rounds of concession.

Do price wars work? Yes, if you are Wal-Mart, Target and Amazon. For the rest of us, put these six strategies into action and play a different, more profitable game.

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Negotiating with Sharks – December 2009 Master Negotiator

April 28, 2010 By Leave a Comment

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“Spectacular achievement is always preceded by spectacular preparation.”

-Robert H. Schuller

In this issue of The Master Negotiator, we will share with you three strategies for successfully negotiating with a bully, someone whose main negotiation strategy is intimidation.

Based on our research from seminars and training on negotiation skills, we have learned that the most difficult person for many people to negotiate with is a bully, more effectively referred to as a shark in our book, The Only Negotiating Guide You’ll Ever Need.

There are many different ways to negotiate with a shark, but the three that we outline here are the strategies that are most likely to help a challenging negotiation end with a win-win outcome. In this issue you will also find a complimentary video which expands on these three strategies.

We are proud to announce that we will soon be releasing an additional negotiation resource, the Negotiating Tactic of the Week. This mini-newsletter will provide you with an insider’s look at hundreds of strategies and tactics, and will ensure that you know more than your counterpart by profiling a specific tactic each week. If you are interested, please update your mailing profile by entering your email address and select the Negotiating Tactic of the Week.

Please feel free to contact us with any negotiation questions or article ideas. We’ll do our best to address them in upcoming issues. (peter@pbsconsulting.com)

Remember, almost everything in life is negotiable.

Peter B. Stark & Jane Flaherty

When most people encounter a shark, their number one goal is to get away from the shark. No one likes to deal with a jerk. The problem is, to get away from a shark in a negotiation, many people tend to give in. It is a simple strategy – give the shark, bully or jerk something they want and then GET OUT.

The problem with this strategy is that this is the worst thing you can do when negotiating with a shark. Giving in only rewards the shark and increases the chances they will rely on bully tactics the next time they negotiate with you. The best strategy is to get closer to the shark. We have three different strategies that will help you do that:

Strategy Number One is designed for negotiators who represent the behavioral style of the Directors, who are also sometimes known as the Reds. When these types negotiate with sharks, we recommended leaning forward in the table, or taking a step closer to the shark if you are standing and saying something like, “John, most people get frustrated and intimidated when you raise your voice…but I need you to know something…it kind of excites me. I love working with people who have passion and you have it. Buddy, give me a hug.” The key to this tactic is to tell it like an Amiable would.

Strategy Number Two is designed for the Amiables, who are sometimes known as the Blues. People of this negotiating type could catch the shark off guard and say, “Most people don’t feel the need to raise their voice at me, but you do. I am curious: why?” Most likely the shark will not even answer your question. Since they don’t want to answer your question, they probably will not use the bully tactic on you again.

Strategy Number Three is to ask for it. When a shark begins to bully you, ask this person to promise you that at least once in the negotiation, they will lose it and raise their voice at you. Asking for it renders their tactic useless.

When you master these three tactics, you are going to discover that it is actually fun to negotiate with sharks. It is also important to remember that sharks tend to have less strategies and tactics in their negotiating repertoire. Because of this, when you master the ones they do use – like raising their voice, swearing or getting in their counterpart’s face – they become less effective in attaining their goals.

Click here to view a video describing these three strategies in greater detail.

Our homework for you is to go find a shark and have some fun!

We wish you great success in all your negotiations!

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