Discounting is expensive. Learn how to prevent a heated price negotiation by maximizing the value of the deal using fundamental principles and tactics.
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Discounting is expensive, yet in many sales transactions today it’s still the norm. All too often, sales people give discounts as a matter of course or they offer discounts as a last ditch effort to win the business. In either case, they destroy profit margins and, moreover, typically are not necessary to close the business.
Why Not Discount?
Many times discounts are given because Reps don’t fully understand the impact of a discount on the bottom line. Each dollar of discount may take three or four additional dollars of revenue to replace that margin dollar. If margin dollars aren’t part of their incentive plan, then it’s easy for the salesperson to give away a few points to get the deal done. Discounts may have minimal impact to the Rep on achieving their quota, while it may have disastrous consequences to the bottom line of the business.
Discounting also signals to the buyer that your prices are negotiable and undermines the premium value you have worked so hard to demonstrate with the customer. Discounting may also demonstrate a lack of confidence and sets a bad precedent for future negotiations. The buyer may say to themselves, “If I got 5% discount off the bat, what else can I get?” Once you’ve lowered your prices, it’s hard to get them back up. Customers will naturally expect the discount on future deals. The easiest way to avoid the slippery slope of discounting is to just not do it. Practice saying “We just don’t discount our prices, but I’m sure there are ways we can make this work.”
How Not to Discount
Price negotiation becomes important to the customer when they believe all the options are the same. If it’s hard to differentiate between the solutions, then price may win – but all solutions aren’t the same! In numerous surveys and research conducted on buyer behavior, price consistently comes up relatively low on the buyer’s priority list. In most B2B transactions, understanding the customer’s needs and having a better solution to address that need will win over the lowest price option.
Even if Reps do a good enough job selling value, and price becomes less important, they may still go through a lengthy negotiation process to get the deal done. Items such as agreement terms, delivery dates, additional training, customer support and warranties, may routinely come up as negotiable issues when closing the deal. With a well thought out negotiation plan, Reps can avoid discounting and maximize the value of the deal using appropriate negotiation principles and tactics.
Here are 13 tactics to successful negotiation that can help you avoid discounting and improve the value of your deals today.
- Plan: Plan every negotiation in detail! Planning is the single most important aspect of successful negotiating.
- Probe: Never assume you know what the customer really wants. Probe for interests behind positions and re-check them throughout the negotiation. Interests can often be satisfied in multiple ways that don’t involve discounting, where a position may sound like a take it or leave it proposition.
- Negotiate on Value: Know the value of what you are selling and the issues you can negotiate. Be prepared to communicate the tangible worth (value) of those issues to the customer.
- Pre-sell: Pre-sell sufficiently in the organization, both vertically and horizontally to build support at multiple levels. Having strong sponsorship and allies in the organization can help get past a deadlock.
- Power: Inventory your power before every negotiation. You almost always have more power than you realize, find out where your power lies with this deal.
- Compared to what? Always consider what the customer’s options are and how you compare to their alternatives. By doing your homework and positioning your solution to highlight your strengths you can often improve your situation without disparaging the competition.
- Shared Interests: Don’t forget that the customer negotiator is at the table because he or she has something to gain from buying from you. Use this shared interest as common ground to go back to when things get contentious or go off track.
- Options: Spend time developing creative options to satisfy the customer’s interests. The more options there are to consider, the better chances of coming to a mutually beneficial outcome.
- Trade: Ensure you get something of equal or greater value if you give something up. Know what the cost and value is of the negotiable items on the table. Unless you know the cost of the trades you’re making, you can give away more than you realize.
- Sequence: Don’t put everything on the table early in the negotiation. Hold back on certain offers and trade-offs until later in the negotiation.
- Walk away position: Know those issues you aren’t willing to negotiate and at what point it isn’t worth it for you to continue the negotiations.
- Tactics: Use appropriate tactics and countermeasures to advance your positions. Learn to recognize “tricks” or manipulative tactics that may be used against you, and understand collaborative tactics you can use to help advance the deal.
- Don’t take it personally: Remember that everyone has a job to do. Getting defensive or adversarial will only serve to increase the distance between the two parties. You are negotiating with a person and a company, and often the personal connection and relationship is what gets the deal done.
With an understanding of negotiation principles and thoughtful planning, Reps can come into a negotiation with more confidence, better options and the ability to trade value instead of discount on price. These principles provide the backbone of a successful negotiation.
About Ray Makela