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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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!
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