Pop quiz: Avoid the unexpected in sales negotiations by familiarizingyourself with these common tactics.
Oct 1, 1997 12:00 PM, Ted Tate
Of all the questions people ask me, situations involved with customers andprospects heads the list of topics. This article is devoted to negotiatingmethods beyond what I've previously written.
Before your sales callIf you follow professional sports, you know that a great offense is rarelyenough to yield a winning season. No matter how many .300 hitters abaseball team may field, they cannot win with bad pitching. How manyfootball teams with a great quarterback and offense lose every year becausewhen the defense takes to the field, they can't stop the opposing team?
Great defense is a cornerstone of a great sports team. Great defense isalso the cornerstone of a great negotiator, and part of that isunderstanding these strategies so that you can recognize them when theyappear and avoid falling victim.
These strategies are commonly used among buyers and salespeople. Even ifyou don't sell personally, learn them. Most of these can be used in a widevariety of situations successfully with little or no adaptation.
Your limited authority in negotiatingSome people love to have big job titles; it makes them feel important. Butin selling, that's a mistake. In selling situations, if potential buyersknow that you have the power to make big concessions on your own, then theywill pressure you for the concessions and may become angry with you if theycan't get you to concede.
Use the negotiation strategy of deferring to a higher authority. Whensomeone demands an unacceptable concession, reply with, "Gee, I can'treally do that. I'd have to run it by my boss (or the board of directors,the committee, etc.) first." Then, if you refuse or come back with acounter proposal, some anonymous authority will be responsible. Youmaintain their goodwill so that you can either continue to negotiate orcome back at a later time without any animosity directed at you.
Avoiding endless negotiationsAmateur negotiators will start out with small concessions and escalate tolarger ones. This always makes an opponent feel that as the concessions getbigger and bigger, there's more. If the last concession you made was thebiggest yet, just how big might the next one be? It gets to the point whereyour opponent is afraid to stop, so they go on continuously. Even when theyend, they always will feel there was more they could have had they didn'tget. They don't leave feeling good about the negotiation.
Professional negotiators reverse that by giving their biggest concessionfirst. As the negotiations continue, the concessions that they grant willget smaller and smaller. They seem to resist a little more each time you gofor something else. The opponent will feel as though he is getting close tothe end even before an agreement is actually made. When it's over, theopponent feels like he's gotten you down to the bottom line; there waslittle if anything to be gained from further negotiations.
Keep in mind that in win-win negotiating, you want your opponent to feel asthough he is a winner and believe he's done his best. You also want toavoid long, drawn-out negotiations that waste a lot of time and may noteven go anywhere.
Negotiation planning check listWhat do you know about your prospect's needs, wants and problems that canbe solved by your proposal?
What is your original asking price and conditions of sale? Is it highenough? Do you have room to give concessions if you have to?
What price cuts can you make, in what order? Remember the strategy ofmaking price cuts in increasingly smaller increments.
What is your price bottom line or walk-away number?
What non-price concessions can you make? Make a list.
What's negotiable? Make a list of price trade-offs.
The secret of good sales negotiation strategies is to have decided, inadvance, what you can ask for in return for a price cut. Remember thatbuyers, like everyone else, tend not to value anything that they can geteasily. In fact, if you are too quick to cut prices, no matter how low yougo, buyers will always have a feeling that they didn't really get your bestdeal. Every time you see them, they'll go for a price cut immediately.
If buyers have to work for a price cut, however, giving up something inreturn, they will feel that they have done their job well and additionally,feel like a winner. Moreover, when they know they are going to have to givesomething up to get a better deal, they will tend to make fewer demands forlower pricing on future sales calls.
Making concessionsStart out at your highest price and conditions. Otherwise, you have noplace to go. Always assume the opponent is doing the same unless you findout otherwise.
Don't give the first big concession. You will look much too eager andpossibly even desperate.
Don't make the assumption that you have to match your customers concessionsone for one.
Don't give a concession away without some sort of compensation. The besttime to get a concession from an opponent is when you are giving one.
Don't grant concessions without making sure the customer understands thevalue of the concession. "If you order 1,000 at a time, we'll pay for thedelivery. That's about $360 in freight." Free delivery may not carry asmuch meaning as a monetary value such as $360.00.
Make concessions in small amounts. When you give large concessions, theopponent will feel like there is more. Small concessions that are hard wongive the impression that there's little there. Don't overact, but let theopponent see you work with pen and paper and perhaps your calculator as youthoughtfully consider what you can do. Each additional concession should bein smaller amounts, as if you are hitting rock bottom.
Don't advertise your willingness to make concessions. "Our price is $4,500but I can get you a discount of 15%." It's the mark of a rank amateursalesperson to offer any concession without being asked.
Avoid accepting a let's-split-the-difference proposal.
Handle the ridiculous offer carefully. Avoid the desire to say somethingrude, and try to find out what's behind the ridiculous offer. Sometimespeople simply have no clue what the value of a service or product is.Additionally, you can try to pass it off as a joke. At this point,re-qualify the prospect's true needs. It may be that they have no realneed, and therefore, they just don't value what you sell. In other words,they are not a good prospect. If the prospect persists with a ridiculousoffer, tell him that you'd like to do business with them but you are simplytoo far apart and that you'll check back with them in a few weeks with thehope that things will change.
I know I sound like a broken record, but I must repeat this. In the vastmajority of sales calls where either the prospect refuses to close (despitecommon sense), the prospect makes ridiculously low offers, or the prospectseems to be negotiating in bad faith, it's because the salesperson isdealing with a poorly qualified prospect. When the price is too high, theinterest is too low. Have the courage to qualify people before you invest alot of time in sales efforts.
Keep track of your concessions. Sometime, if you've given more you can,point that out to the prospects to see if they will grant you one in return.
Remember, until you actually sign a deal, all concessions are open to giveand take. You can withdraw a concession if you need to.
Make sure you fully understand all the prospects' requirements before younegotiate and certainly before you grant a single concession. Askspecifically under what terms they will buy, today. If they are notplanning to buy, it's pointless to negotiate anything - it means nothing.Again, wasting time with unqualified prospects is the salesperson's fault,and there are no negotiation strategies in the world that work ondisinterested people who are just playing a game. I can't emphasize thevalue of qualifying prospects enough.
The power to walk awayThis is the number one power in negotiating - to say no and be able simplyto walk away from any negotiation. The problem is that we care too muchabout ourselves. Pretend you are negotiating for someone else. If you were,you'd be more relaxed, more objective and you wouldn't care as much. Itwould be more of a game, which negotiation really is.
There's a point where you get too involved, and you doom yourself to loose.Remember, there's nothing you can't live without. If you are determinedthat you must have something, then you've just lost.
Learn to force yourself not to get too caught up in the process. Care, butdon't care too much. Look at it this way. If everything goes wrong, will mylife end? What's the very worst that can happen?
Of all negotiation skills, this is one that really separates the amateursfrom the professionals. Decide at what point you will be willing to walkaway and not look back well in advance of any negotiations.
Never offer to split the differenceWhenever you get down to a small amount separating you and your opponent,always fight the desire to split the difference and be done with it.Instead, start talking about what a shame it is that you can't get togetherover such a small amount. It's a shame because you've both got a time andenergy investment. If you keep on going your opponent will eventually offerto split the difference.
You answer, "Let me understand. I'm offering $84,000 and you are at$90,000. This means we are $6,000 apart. You're saying you'll take $87,000,is that correct? It sounds great. Let me just run this by my boss (higherauthority) for approval, and I'll get back to you tomorrow."
The next day, you come back and say, "Gee, he's really tough on thesedeals. He ran the numbers and said we shouldn't even be at $84,000, buthe'll honor it. He won't go for $87,000 as I thought he would".
Again you tell them what a real shame this is and that you feel bad becausenow you are at $84,000, and they are at $87,000 with a separation of only$3,000. It's really too bad because you'd like to do business, and you bothhave worked hard on this. Keep focusing on the small amount that reallyseparates you. Again, wait for them to offer to split the difference oncemore.
What would happen if...?Salespeople and buyers will often use the words what if just to test thesituation. A prospect might say, "What if I take 6,000 units over the nextyear? How much would they cost me then?" If the salesperson cuts price, thebuyer has no obligation to take anything. He does, however, have an idea ofwhat you can really sell for. One good way to handle this is the futureprojection.
"Assuming I can quote you a satisfactory price, are you prepared to sign anagreement to go ahead on that quantity today?" This gives the salespersonthe power. You've quoted no lower price, but you have asked the buyer tocommit to a large size order. The response should tell you if the buyer isbluffing.
If the buyer claims to be interested in an unusually large order, you canqualify with, "I understood you used these in lots of 500. What companyhave you purchased from in that large of a quantity?"
The missing higher authorityThis is a strategy used frequently by automobile dealers, but it can alsooccur in many other negotiating situations. Example: You dive a demo carand like it. Next, you spend time picking out the car you'd like to own -color, seating and optional accessories. The salesperson then takes youinto his/her little cubicle (closing room) to negotiate price. After atime-consuming, tiring back-and-forth negotiation session, you finallyarrive at a price. The salesperson says "Great, I'll just take this to mymanager for his approval". You sit there with a mental picture of drivingthat exciting new car home. After a long wait, the salesperson comes backwith a sheepish look and says, "Well, I'm sorry, but he just won't go forthis deal. Here's what we have to get."
So there you sit, tired and disappointed. You are also emotionally involvedwith wanting to own that car. If your spouse and/or kids are there, youwill have to contend with their whining, "How come we can't get a new car?"or worse, your spouse, who is not as interested in the money end as you aresays, "Look, just pay the difference. The kids are hungry and have to be inbed early, and it's a school night." Naturally, the salesperson is sittingthere, taking it all in. Talk about being powerless in a negotiatingsituation.
Here's the best way to deal with decision makers who hide behind someoneelse - counter the missing higher authority by demanding they showthemselves and negotiate. Period. End of story. You can't honestlynegotiate with people who are not there. The car dealers know this and bynow, so should you. If that means walking out, then walk. For every cardealer or business prospect who pulls that, there are scads of people whowill sit down and honestly negotiate with you. Remember the strategy ofwalk-away power. Don't be surprised if there is no higher authority andjust someone your negotiating opponent invented to keep the price higherwithout taking responsibility for doing so.
You have to do better than thatThis is a common tactic where people sell a fairly uniform product and arein a competitive environment. The buyer sounds like he/she is beingfriendly, informing you of a desire to buy from you, but your price is higher than some other bids.Of course, the buyer tells everyone that, even the verylow bidders. The idea is that they know there must be some cushion inhighly competitive priced items, and this is their strategy to get to thebottom line. Salespeople should have some cushion added to their initialpricing to cover this.
Take it or leave itWhen used by a buyer, this tactic is designed to undercut your feeling ofpower and lower your expectations of what you can get. Again, you must knowwhen you have to walk out of any negotiation. When facing this strategy,restate your last position and its benefits to the opponent. Make it clearthat the take-it-or-leave-it offer is unacceptable. You should, asexplained elsewhere in this course, never use these words yourself. Theycreate anger and ill will.
If you use this in a negotiation as a bluff, and they call your bluff, thenthere goes your walk-away power. They have you, and they will now know it.No matter what you say, you've lost a lot of your negotiation power.
Miss informationIn any negotiation, always verify facts or figures generated by the otherside, even if the other person is an expert. It isn't uncommon for peopleto exaggerate or even lie, hoping you won't check. If you can't verify,then at least ask questions. For instance, an opponent might say, "Yourasking price of $5,000 is way out of line. I saw at least three of these atprices from $4,000 to $4,300. You'll have to do better than that".
You might ask, "What's the name of the places where they were for sale?Were they new or used? What condition were they in? When was that?"
If what they are saying is very important to the negotiation results, youcan also take a break in the negotiations. Tell them you have to verifythrough a third party before you'll continue.
When people who are lying or stretching the truth think you are going totest or check up on their statements, you'll see them start shuffling allover the place. If they are serious, chances are they may back off theirclaims and continuing negotiating. If they are insincere about doingbusiness with you anyway, they may pretend to get highly insulted and stormout to avoid the embarrassment of being shown up.
It's standard practicePeople fall for this all the time. Unless your opponent comes down from amountain in sandals and a robe carrying stone tablets, nothing in the worldis standard. Nothing in the world can't be adjusted or changed so long asboth parties agree.
Opponents use this so you'll assume no one would want to (or even can)change anything because it's "standard". Nonsense. Sign nothing you can'tfully understand. Agree to nothing that's not acceptable.
Good luck and good selling!
* Increased volume: Give a price cut in exchange for a larger order
* Additional items or services: Give a price cut in exchange for thecustomer's giving you an order for some other product, give a price cut inexchange for an extended warranty or service contract purchase or offergoods on consignment.
* Cancellation clause
* Trial use
* Free delivery costs: Have the buyer pay for delivery, installation orshipping if applicable in order to get a price cut.
* Modify the product or service
* Change specifications: Cut price in exchange for dropping specificationsthat add cost to the product.
* Spare parts included
* Return privilege
* Training of users
* Free training manuals
* Free literature
* Promotional arrangements
* Free storage of product
* Expert consultation
* Deposits, advance payments: In some businesses, you may offer a price cutfor advance payment, early payment or deposits on orders.
* Extended or special payment agreement
* Cash discount for early payment
* Rebates from manufacturers
* What else can you trade off?: All businesses are unique in some way. Thislist is by no means complete. Do some brainstorming and add some of yourown. Think in terms of what you can give in exchange for selling at yourprice.
A word of warning, never make concessions on "future" promises of moreprofitable business or additional sales opportunities. No one can predictthe future. Any concession you make should be based on the present dealbeing negotiated. Anything else is day dreaming.