Buyers expect discounts. Sellers expect to discount to get the business. Buyers squeeze sellers on price. Sellers expect to get squeezed. It is a generally accepted barbaric ritual of buying.
So it never should come as a surprise when, early in the negotiations, the buyer asks the seller for the "best possible price," or words to that effect. One of the most common, least appropriate, and most expensive responses a salesperson can make to such a request is, "Where do we need to be?" These six words give the buyer the following impressions:
The seller is not controlling the discussion.
The seller has already acknowledged that discounting is necessary and appropriate.
The seller has wide latitude and authority to discount.
Lawyers cross-examining hostile witnesses are taught never to ask a question to which they don't know the answer. The same holds true for salespeople starting negotiations. Whether a buyer's answer to those six words is reasonable or not, the question allows them to put a stake in the ground that the seller is forced to address. Smart buyers will cite a figure well below what they are willing to pay.
Here are some common errors made by salespeople (often with the support and direction of senior management of the companies they represent) during the negotiation process. Some will be familiar from previous chapters; others are new.
In the absence of an agreed-on Sequence of Events, the attempted closing is timed to serve the salesperson's agenda, rather than the buyer's. The most common way to get buyers to sign earlier than they want is by enticing them with discounts.
Salespeople attempt to close non-decision makers. This can be demeaning to a "buyer" who in fact is merely a messenger. Beyond that, whatever discount is offered becomes the starting point for further negotiations, if and when the decision maker gets involved.
Salespeople selling noncommodity offerings mistakenly believe they can negotiate their way into Column A by treating price as the only variable. Ideally, negotiating should take place after the buyer makes the decision to buy from a particular salesperson.
Many salespeople have difficulty tolerating silence while negotiating. Smart buyers remain quiet for a few seconds after asking the salesperson the price, or after being asked to buy. In the closing process, many sellers experience a marked loss in their ability to listen, understand, and respond (a phenomenon we call vapor lock).
Many salespeople get (unnecessarily) defensive. Defending or explaining the price during negotiation is generally counterproductive. At this stage, the buyer is merely doing his or her job. He or she simply wants the best deal, and really isn't interested in whether or not the pricing leaves your company sufficient profit.
Salespeople compromise their power by saying things like, "That's the best I can do for you." This statement alone can make it impossible to close that day. Smart buyers ask who within the organization can do better—and pointedly instruct the seller to bring that person to the next meeting.
Sellers who are behind quota should not negotiate large transactions without the involvement of their manager. The good cop (seller)/ bad cop (manager) game can be played to the seller's advantage.
We were teaching a workshop recently, and one of the attendees—let's call him Bill—seemed distracted for the first day and a half. At one of the breaks, we asked him if everything was all right. He told us that the buyer's decision on a major transaction was being made that Friday. He had quoted $960,000, but his Coach had let him know that the organization had budgeted $850,000—a price that Bill was ready to meet. The CIO was the decision maker, and had requested a new quote. Bill's manager happened to be a role-play Coach at the workshop, so at lunch, we took the opportunity to brainstorm about how Bill and his manager should proceed.
During the workshop, Bill had come to understand that he was Column A, having initiated the opportunity with a cold call. He was concerned, though, because Column B had been called in, and was the acknowledged industry leader in that market space. Based on our discussion, Bill and his manager agreed on a course of action, which Bill then set in motion before the lunch break was over. First, he called the CIO and said that he was not going to provide a revised quotation. He also asked for a meeting with his manager and the CIO on Friday afternoon at 4:00 PM, and this request was granted.
This was good news. Our sense was that if they were not going to get the business, it was unlikely that the CIO would give them an appointment late in the afternoon on the day the decision was supposed to be made. After making the phone call, Bill looked as though the weight of the world had been lifted from his shoulders on his return to the workshop. He and his manager had agreed on the proper course of action and were now pursuing it—something that they evidently had not done much of in the past.
The workshop ended Thursday, and we asked Bill to get back in touch with us and let us know how the situation played out. On Monday, Bill called and told us that he had closed the order on Friday for $960,000. He admitted again that he had been ready, and even anxious, to drop $110,000 from the price, and probably would have gone even lower if it had looked like he had to. The result was a windfall of $110,000 that went straight to the bottom line of Bill's company.
While "always" and "never" seldom apply to sales, this situation (and others like it) leads us to conclude that sellers should always negotiate as though they are Column A. Why do we break our own rule in this way? In the situation just described, what if Bill was Column B and had rebid $850,000? That number would have been used to negotiate a better price from Column A, the preferred vendor. When he refused to rebid, one of two things was going to happen: Column A would get the business anyway, or the buyer would come back to Bill because he was the vendor of choice. Therefore, when you are asked for a best and final price, we suggest asking the buyer if (1) you are the vendor of choice and (2) price is the only remaining obstacle to doing business. If the answers are not yes and yes, we suggest that you ask the buyer to get back to you if and when you become the vendor of choice, at which point the negotiation can take place.
Traditional selling behavior dictates that if you are losing, you should discount as much as possible. You will either get the business yourself—by discounting yourself into becoming Column A—or force your competitor into significantly dropping the price. We disagree with both aspects of this tactic. Desperation discounting late in the buying cycle seldom secures the business. And since all vendors drink from a common well of pricing, irresponsible low-ball prices are bad for all vendors.
There is another reason not to offer "fire sale" discounting if you are losing late in the buying cycle. Assume Column B offers ridiculous pricing, but still loses to LMN Company. The following month, the roles are reversed. As Column B this time, the salesperson from LMN Company gets the bad news from the prospect that Column A has been chosen. What is the LMN representative likely to say? How about something like,
I appreciated the opportunity to compete for your business and gave it my best shot. While I don't agree with your decision, I understand that you are doing what you believe is best for your company. And hey—just so you know—last month we were awarded a bid competing against Column A at MNO, Inc., but not before they offered an unbelievably low price. If you want to do business with Column A, you may want to contact Joe Jones at MNO to get details on the pricing that he was offered. In any event, I wish you well. Please contact me if I can be of service in the future.
In other words, the aggressive discount offered in a losing situation now comes back to haunt the vendor who has moved from Column B to Column A. Assume that one way or another, the word will get out as to how your company is selling. If it does get out, will you be happy? Will you be well positioned for your next negotiations? What happens to the perceived value of all the vendors' capabilities in your target markets?