Apr 20, 1997 12:00 PM, Ted Tate
* Increased volume: Give a price cut in exchange for a larger order.
* Additional items or services: Give a price cut in exchange for the customer giving you an order for some other product or service, which increases the amount of business your receive overall.
* Trial use: Instead of a price cut, offer a full refund if your system doesn't live up to expectations. This kind of offer needs to be in writing and should be limited to 10 to 30 days; after that it's like any other sale. Don't offer such a deal unless you really feel confident.
* Free delivery and installation costs: Have the buyer pay for the product at the regular price but give free or low-cost installation or shipping instead of a price cut.
* Modified product or service: They get less for a lower price.
* Changed specifications: Cut price in exchange for dropping specifications that add cost to the sale.
* Extended standard warranty terms.
* Service contracts: Give a price cut in exchange for an extended warranty purchase at regular price.
* Spare parts included: I know a sound contractor who would offer one or two free loudspeakers instead of a price cut. This was for future use in event of repairs, wear out or physical damage. If he knew the customer was expanding in the future he'd tell them he'd have his people install the loudspeaker at no charge. (He believed that if they expanded, chances were they'd need more than just one loudspeaker, and he wanted to make sure they called him.)
* Free move job: My brother Bob, my business partner in the alarm business, came up with this idea. He'd tell the customer we couldn't cut the price, but if the customer ever moved within our service area, we'd move his alarm system free. It didn't, of course, include wire.
At first this tactic sounds risky, but in reality it isn't. We always charged for rewiring the new facility (new wire plus labor), and most firms move to bigger or at least totally different spaces. Bigger spaces means they paid us for additional equipment. I can't remember any time we did this that we ever lost a dime. On top of that, the customer stayed ours; competitors couldn't get a foot in the door.
* Start out at your highest price and conditions. Otherwise you have no place to go. This is a real mark of difference between the small businessperson with little experience and the larger firms. Small businesspeople are often afraid of losing an opportunity, so they start out low. If you knew how many people will gladly pay full price with just a little salesmanship, you'd be amazed. Always assume the opponent is doing the same unless you find out otherwise.
* Don't give the first big concession. You look too eager.
* Don't assume you have to match your customer's concessions one for one.
* Don't give a concession away for nothing. The best time to get a concession from an opponent is when you are giving one.
* Don't grant concessions without making sure the customer understands the value of the concession. "If you order 1,000 at a time, we'll pay for the delivery. That's about $360 in freight." Free delivery doesn't mean as much as $360 does.
* Make concessions in small amounts. When you give large concessions, the opponent feels more are available. Small concessions, hard won, give the impression little is there. Don't overact, but let the opponent see you work with pen and paper or calculator as you thoughtfully consider what you can do. Each additional concession should be in smaller and smaller amounts, as if you are hitting rock bottom.
* Don't advertise your willingness to make concessions. "Our price is $4,500, but I can get you a discount of 15%." It's the mark of a rank amateur salesperson to offer any concession without being asked.
* Don't jump to accept a "Let's-split-the-difference" proposal.
* Handle the ridiculous offer carefully. Avoid the desire to say something rude. Try to find out what's behind the ridiculous offer; sometimes people simply have no clue what the value of a service or product is. You can also try to pass it off as a joke. You should also requalify the prospects' true needs. They may have no real need and therefore just don't value what you sell. In other words, the buyer is not a good prospect. If the prospect persists with a ridiculous offer, tell him you'd like to do business with him but you are simply too far apart. You'll check back with him in a few weeks and perhaps things may change.
* Keep track of your concessions. If you've given more, you can point that out to the prospect to see if he will give you one. Remember, until you actually sign a deal, all concessions are open to give and take. You can withdraw a concession if you need to.
* Make sure you fully understand all the prospect's requirements before you negotiate and before you grant a single concession. Ask under what terms the customer will buy, today. If the person is not planning to buy, it's pointless to negotiate anything; it means nothing. Again, wasting time with unqualified prospects is the salesperson's fault, and no negotiation strategy in the world works on people who are just playing it as a game. I can't emphasize enough the value of qualifying prospects.
With a lot of preparation, a lot of calm and keen powers of observation, negotiating a sale should be an exhilarating and challenging experience, not a frightful one.
Win-win negotiation is defined as helping people to get what they want while you get what you want. Information is especially critical here. Different people want different things, so you must know as much as possible about the person with whom you are doing business. Negotiate with a person, not a company; if you keep it personal you can better determine needs. If you don't know what the buyer needs, you might think all you can do is cut the price, but having only one issue, especially one as critical as price, with which to negotiate is a losing game. Price is not always all important. Often a buyer will say that price is a reason for not buying as a face-saving method; she doesn't want to tell you her needs in some other area are not being met (such as she doesn't trust your ability or your firm is too small or doesn't have a good reputation).
At the conclusion of a negotiation, it was win-win if:
* Both sides feel the other side was fair.
* Both sides feel accomplishment.
* Both sides feel the other side cared.
* Both sides feel they would deal again with the other.
* Both sides feel confident the other will keep the agreement reached.
A sales negotiation might seem like a battlefield, but the smart seller makes sure everyone feels like the victor. Sales negotiations are especially trying for the sales person. After all, if the buyer loses the price battle with this salesperson, the war isn't lost; several competitors would be more than happy to make the sale. The salesperson can't just surrender and give the system away, but too cut-throat an attitude might make the buyer walk; at best, it won't bode well for future business. The question is, how do you make the buyer feel good about buying from you and still make a decent profit?
Not a one-trick ponyMost salespeople only know three negotiation strategies: cut the price, cut the price, cut the price. But successful salespeople use plenty of other ways to handle the situation without losing the customer.
Many buyers, both purchasing agents and other customers salespeople call on, have some formal training in negotiating tactics. In these cases the salesperson is at a distinct disadvantage immediately. Salespeople must understand negotiation strategies if they are to recognize them when prospects use them and, more important, counter them positively.
Before you can understand why specific strategies work, and how you can keep them from working against you, we need to understand the three factors of successful negotiations: power, time and information.
About powerMany negotiating strategies work because they play on our natural respect for power. Some people think power is bad or evil, but it isn't. It is only when people use power unfairly that other people object. Power can ease your negotiations.
Take the power of the printed word, for example. We have been taught from our earliest days to respect the printed word. With few exceptions, most people give great weight to the truth of anything printed. How does the power of the printed word relate to negotiations? You can use that power to influence your opponent, perhaps to accept a statement at face value - "It's in writing, so it must be true." Your opponent might also pay more than expected - "It's more than I was wanting to pay, but less than list, so it must be a good deal." So if you have a price increase coming, have a letter with you about it, and always have your prices in writing. It validates what you charge and gives people the feeling anything you knock off during a negotiation is a valid concession.
Another positive aspect of written-word power is the power of legitimacy. People are conditioned to regard with awe anything printed, be they awards, printed words, documents, diplomas, signs or testimonials. Most people tend not to question them.
Of course, the most powerful power is that of expertise. In any negotiation, it's best to establish your credentials as an expert early on. Most people will not challenge you; in some circumstances, your expert status can actually cause an opponent to back off a hard stance.
It really isn't who you are that's important, it's who people perceive you to be. When people believe you have some specialized skill, technical knowledge or experience they don't, they treat you with a consideration ranging from awe to respect. Always establish your expertise early in the negotiation. Often your statements and claims will go unchallenged.
Using the "competition" also increases your power during negotiation. Whenever you create competition, what you have goes up in value. The minute people think someone else wants what you have, the more they want it. No matter how business is, always act as if you have more than enough. Give the impression you'd like this person's business but will get along fine without it.
Hand-in-hand with the power of competition is the power of options. Never enter a negotiation without options or without letting the other side think you have options, or your opponent will treat you lightly. As long as an opponent thinks you have other options, he'll worry about your taking them. If your opponents ask questions about your other options, it's best to be vague. If they keep pressing, say, "Let's leave that alone for now and focus on how what you have measures up." If your other option is lacking, you must never convey that to your opponent.
Finally, a successful negotiator will maintain a power of nonattachment. Keep your emotional distance at all times. The minute you become emotionally attached or involved, others can manipulate you.
Remember the old saying about negotiation: "The one who wants something the most loses." No matter how perfect a deal may seem tobe, you have lived to this point in your life without it. You'll survive if you have to walk away from the deal, and you must let your opponent know that that's your position. Don't ever tell an opponent how great whatever it is you are negotiating for is.
Also, don't get emotionally entangled with a prospect. Forget all the heart-tugging stories the prospect may casually mention. Ignore all you may have in common. Don't let an opponent do or offer to do anything that obligates you even slightly. The minute you feel sorry for your negotiation opponent, you're at the beginning of a long trip down a slippery slope.
All of these forms of power can make the deal you're offering look better and make the buyer feel more comfortable saying yes to it. If you're happy with the profit margin and the buyer is happy with the price, you both win.
Gathering informationNegotiating strategies rely on information. If you don't have a clear feeling for what your competitors charge, for example, you are vulnerable to several strategies that play on your uncertainty and could lead you to charge too little. The more you know about your prospect and her needs, the more opportunity you have for success. The reason many people don't ask is fear, especially fear of rejection. You must overcome this feeling.
You have many avenues for gathering information and for using it:
* Get people in your own organization to gather information for you.
* Understand your own product and service trade-off possibilities.
* Gather accurate, up-to-date cost and pricing information.
* Try to get a feel for what this may mean to the prospect.
* Understand the prospect's decision-making process.
* Understand who the real decision maker is.
* Find out the opponent's probable objectives, alternatives and risks.
* Get to people inside your prospect's organization for information.
Time: yours and theirsTime is a factor that negotiators can use to apply pressure to their opponents. If your opponent can get you to panic, you might make more concessions than you normally would. Time is more under your control than you may think. After all, who creates deadlines? We do! Ask yourself, if I continue on beyond my deadline, what are the consequences? How certain are those consequences? How big is the risk I'm taking?
* If I know your deadline, and you don't know mine, who has the advantage?
* Don't forget the 90-10 rule: 90% of all concessions come in the last 10% of the negotiation.
* Watch for people who delay key factors until the last minute. They then can play hardball, knowing you are under pressure and running out of time. The person under the worst time pressure usually loses the most. Understand that your opponent has time constraints also. Try to determine what they may be.
* Do everything you can to hide deadlines or other pressures you may have.
Buyers' strategiesBuyers use several strategies to push a seller into selling at an unreasonably low price. As you read through these common strategies, try to see how the power, information and time factors are being used against you or could help you.
* The unreasonable initial demand: A buyer tells the salesperson up front, "I can't pay more than $15 per unit, including all delivery expense."
The best defense is to understand your market. This means having a good idea of what competitors are charging and what prospects can buy elsewhere.
Then ask, "Why do you say you can't pay more than $15?" People may say set such limits for several reasons; if you don't understand why, you can't respond effectively.
Prospects might set an unreasonable limit because they have serious money problems or your product or service doesn't seem to be worth any more or doesn't satisfy the prospect's needs. They might even have a prejudice against the product or service, you or your company, or they just might not like the proposed situation. They might be stalling to compare other situations, or they might already have a better bid. Perhaps they have a supplier and are resistant to rocking the boat. And then there's the most obvious reason: They simply don't need what you sell.
If it is the last reason, the salesperson has not properly qualified the prospect. In the other cases, the salesperson must do some additional selling. Here's an old sales axiom: "When the price is too high, the interest is too low." In most cases, the salesperson must start selling.
* Promises of rewards in the future: It's rare, almost never, that promises prospects make about future business in exchange for special price cuts ever happen. "If you'll give me the end column price, we'll see you get plenty of business during the year." They try this with everyone; it works when some desperate salesperson talks himself into believing this lie.
You can always say company policy - "standard practice" - forces you to quote on a per job basis. You may want to tell the person that if the customer buys at the quoted price, you'll work to get her a discount on future business. Don't ever allow someone a discount based on promise alone. Experienced salespeople know it's a sucker bet.
* Budget limits: "We can't exceed $50,000 for the entire project" are chilling words when your bottom line price is $65,000.
When dealing with buyers, you'll often find they're working under a budget constraint. This is frequently true with large corporations and government agencies. But in cases where the buyers really want to buy, they'll find creative ways to do so.
Asking questions is the best way to judge what negotiation tactic should be used. "When is this budget effective? What happens if you can't find something at that price? Could we sell this to you in segments? Can the budget be expanded?"
If the buyer is seriously interested, she will respond in a genuine fashion. On the other hand, if her answers are evasive or vague, the buyer is either just trying to get rid of you or may be trying a tactic to lower your price.
All salespeople should try to have a lower price alternative they can suggest. It's important you point out the reasons the price is lower: the disadvantages. Just don't go overboard in doing so. It may be the only way to sell some prospects, and you don't want to discourage them.
Don't forget to reconfirm, which you should have done before the negotiation process, that the buyer is the real decision maker. If not, it's important you see that person. The decision maker may have the power to make a deal.
Some products or services can be sold in parts. Perhaps they can buy part now and part under a new budget. A word of warning: If you are going to sell something in more than one installment, make sure the first installments are profitable to you. Never allow anyone to bluff you into losing money on an initial deal, with your profits in the back end. That way you won't get stuck if the buyer refuses to complete the deal or is replaced, the deal collapses, or the company goes bust.
The courts are filled with firms who sold merchandise or services to companies that went out of business shortly thereafter. When companies are on the verge of collapsing, the people in them become desperate to hang on. They try to hide their problems and find vendors who'll sell to them on extended terms. Never sell at a loss based on future promises, and always check credit references very carefully.
You can try safer bets; perhaps they can do something to reduce the cost, such as being responsible for delivery or doing the installation. Perhaps you can split or defer some of the billing.
Also, another way is to sell at the lower price in exchange for additional business. Just be sure you have the additional business deal up front, in writing. Don't rely on promises. Many salespeople have lost big by selling to shady operators because they were promised big opportunities that never came. Most buyers have strategies to buy over budget if they think it's justified.
* Time pressure and deadlines: Buyers use this strategy to get to your bottom line quickly. You'll hear statements such as: "I need your final offer to take to our committee by tomorrow afternoon," or "All bids are opened at 9 a.m. Monday," or "Your competitor will be quoting us a price tomorrow," or "Our budget expires the end of this month so I'll need your best offer before then."
Buyers use deadlines to put salespeople under pressure, a tactic that often gets them a more favorable price. Most deadlines are self imposed; they can be changed by someone if they choose.
Always test deadlines. If the buyer gives you a limited time and it's important to you to have more time, you can say: "Gee, I don't think I can meet that deadline. How else can we handle this?" Or you might just ask, "Does that mean if I can't get you a quotation by that time I shouldn't even bid?"
Another strategy is to qualify what the deadline means. "Does that mean if I give you the best offer that I'll get an order on the tenth?"
* "I'll have to check with a higher authority": It is common for prospects to let you believe they have the actual authority to make a purchase. It's only after you've spent long hours and gotten down to what you think is the final deal that they hit you with the higher authority. Not only should you ask this question during the prospecting stage, but again confirm what you believe during the sales presentation.
If the prospect says someone else must be consulted, then insist on seeing that person, although sometimes you can't. In that case, negotiate with the understanding that you are also free to reconsider your position while the decision maker reviews it, that nothing is guaranteed.
Again, the best way to do things is by speaking directly to the decision maker. Anything else is a poor second best.
* Good guy-bad guy (Good cop-bad cop): This is an old strategy; most people know it. But it is still used today for one main reason: It still works. One version will have the salesperson interview two buyers. One buyer is rude, loud and ill-mannered. He'll make very unreasonable demands and can even become nasty. If this is an existing customer, he may also start yelling about previous business experiences and problems he's had with the company.
The second guy is soft spoken and says little in the beginning. Eventually he starts to defend the salesperson and his company. Usually he'll send the bad guy out of the room to get something or to cool down. He'll then start to commiserate with the salesperson, apologizing for his nasty buddy.
"But you know, I have no real authority to stop him. Perhaps we could do XYZ." He'll suggest something way below what the salesperson planned to sell for but much better than the bad guy demanded. He may promise the salesperson that he'll make it up the next time.
How hungry the salesperson is and how scared this makes him are the keys to whether this will work. When you're faced with the good guy-bad guy situation, never respond with anger. You only feed the flames. If the person goes on a tirade, wait till he's expended some energy. And when you do respond, respond only to business issues. Never let someone get you into a personal exchange of insults.
One of the best ways to defuse the good guy-bad guy situation is to call it: "Look, don't tell me you guys are going to play good guy-bad guy, are you?" Usually this ends it.
If the bad guy is particularly mean and threatening, walk out. You say, "Look, I want to do business, but I'm not willing to be abused verbally or threatened. I'll call you in a few days. If we can discuss this without abusive behavior, I'll come back." Nobody has the right to abuse or demean another human being. You have the right to be treated with dignity. Accept no less.
The person playing the good guy will always act like a friend who is trying to help you. Remember, he is worse than the bad guy. At least the bad guy is honest with his feelings. The good guy, in addition to anything else, is a liar. The good guy is your enemy, too.
* "I don't have a lot of time, give me your best price, right now": This can panic an inexperienced salesperson into giving the best price and terms immediately. A good answer might be, "Well, I think a fair price is ABC, (whatever your regular price is). Don't you think so?" This lets the buyer know you may negotiate, but from a stronger position.
You can also answer with a question, "Assuming I can quote you a suitable price, are you ready to go ahead right now?"
Another strategy is to say, "I can understand you may be busy today. Why don't we get together when you have some time available?"
* "What's your cost break down?" (cherry picking): Some products and services are sold as part of a complete package, such as sound systems or security alarm systems. The total bid given will include labor, cost of major equipment, cost of materials, business overhead, sales commission and company profit. Pick-and-choose buyers will demand detailed bids - a breakdown of labor and materials.
Sometimes they will want to have you supply model numbers and brand names. When you come back the second time, they will then start to negotiate each and every break-down item to the lowest point. They may even call manufacturers for equipment prices.
Keep in mind they'll be doing this with several bidders. When they get the lowest bids from everyone, they'll pick the cheapest source for each. For instance, they may buy the control panels from one source, the wire from another, sensor devices from a third and ask a fourth company to do the installation using these materials. In these cases, the last dime of profit has been squeezed out before you even get to the job.
Your best defense is to quote a complete price and politely decline any break downs, lists of manufacturers or model numbers of equipment. People who go to these lengths to save a few dollars are usually very difficult and demanding. They want everything for nothing or next to it. They think they are doing you a favor. They hardly ever use the words "thank you," but they certainly know how to complain loudly if things are not just right. As I've said repeatedly, instead of trying to outthink or be more clever in your strategies with these kinds of accounts, focus on finding new business where they don't do this.
What is negotiable?Make sure you've decided, in advance, what you are willing to do in return for a price cut. Remember that buyers, like everyone else, tend not to value anything they can get easily. If you are too quick to cut prices, no matter how low you go, the buyer will always have a feeling he didn't really get your best deal. Every time you see that person, he'll go for a price cut immediately.
On the other hand, if the buyer has to work for a price cut by giving up something in return, he will feel he has done his negotiating job well and will feel like a winner.
When buyers know they are going to have to give something up to get a better deal, they tend to make fewer demands for lower pricing on future sales calls. And that's the mark of a successful negotiation: when everyone leaves the bargaining table feeling like a winner, looking foward to future business.
Tate is a business consultant based in Mentor, OH.