In many B2B markets, a tough economic environment and heavy pressure on both businesses and individuals, a lot of sales professionals are reporting tougher negotiations and adverse terms of trade from the deals that close. Part of the challenge is clearly economic: because demand has shrunk while supply is readily available, sellers are more desperate and bargaining power has shifted in favor of buyers. For companies struggling with this dynamic, profitability can radically shrink, as both volume and price decline at the same time.
This macro effect can spiral out of control for companies that don’t establish a proper negotiation process and don’t train their sales teams how to negotiate effectively. At SPARXiQ, the negotiation seminars we’ve hosted illuminate the inconsistency. Results data from our in-class simulations show up to 20 percent variation in net profitability, deal size, and term length between top-quintile and bottom quintile participants who negotiate the same scenario. The same variability shows up in sellers’ real-world deal metrics, controlling for customer and product mix.
Negotiation is a core sales competency that determines whether a seller can not only create value for customers but also capture that value for their shareholders. Value creation without value capture can be a real peril in adverse economic times. Like any sports strength and conditioning program, effective negotiation requires motivation, intensive training, coaching, post-performance review and feedback, metrics of success, and accountability. In most industries, even brief investments in negotiation mastery can repay themselves in a single deal or two.
At SPARXiQ, our seasoned negotiation trainers have worked with tens of thousands of sellers over the last three decades, and they’ve uncovered several key points that can quickly clean up the most egregious negotiation errors. While they are no substitute for a systematic, focused training initiative to improve negotiation skills, I hope they may be helpful in assisting your sellers to negotiate successfully during a difficult business environment.
Dedicate Time and Effort to Prepare for the Negotiation:
Too many negotiations happen on the fly, with little or no preparation. Many adverse negotiation outcomes can be prevented by dedicating even a small amount of time (15 minutes?) to researching the other party’s needs or history, establishing goals, and developing concession or contingency planning.
The Golden Rule:
If there are pressures on me, what are the pressures on the other side? Most sellers are so focused on their pressures to sell more, they forget to discover what pressures are leading buyers to buy. Without a balanced view of the pressures on each side, sellers concede pricing too quickly, miss critical opportunities to differentiate themselves, and make excessive concessions.
Be Willing to Walk Away:
If you’re not willing to walk away without a deal, you’re not really in a negotiation – you’re in a hostage situation. It’s impossible to negotiate effectively if you have no alternative but to reach a deal at any cost. Don’t forget that it may be okay to deadlock at a moment in time and re-engage later.
Discover the Other Party’s BATNA:
You already know what happens if you don’t negotiate to a successful conclusion on this deal, but do you know what happens to the other party if they don’t reach a deal on their end? Will they incur a certain cost? Will they miss an opportunity? Until you know the other party’s Best Alternative to a Negotiated Agreement (BATNA), you don’t really understand your leverage and you can’t negotiate effectively.
Don’t Negotiate Price Until Differential Value and Preference Have Been Established:
Yes, it’s tempting to jump from demo to quote, to play the numbers game, but in negotiation (as in selling) it’s a self-sabotaging behavior. Until you have discovered the other party’s distinctive needs and preferences – and your distinctive abilities to satisfy them – you can’t effectively frame the negotiation from a value perspective. Remember that the buyer’s goal is to buy from the best-fit supplier at the worst-fit supplier’s price. Your job is to discover, quantify, and articulate the differences between the two – and to negotiate accordingly.
Anchor the Negotiation:
So, you’ve uncovered your distinctive value to the buyer (versus competition, “do nothing,” or DIY), and you’ve reached the appropriate time to provide a quote. It’s often valuable for you to anchor the negotiation by setting the opening terms of trade (price and other terms) – which is “anchoring”. Negotiation outcomes data show broadly that the party who anchors the price ends up with final terms that are closest to their desired outcomes.
Too many sellers open the negotiation at the price they hope to land at, leaving no room for concessions. Not surprisingly, if you don’t read the buyer’s behaviors effectively or neglect to build a buffer into your anchor, your final terms of trade are likely to land below your targets. If you want to land at $1,000, start at $1,200. If you want to land on a two-year deal, start at three years. If you want to get paid in 30 days, ask for 15 days. Etc. In a tough economy, this is a psychologically difficult but critical step. SPARXiQ’s trainers have decades of negotiation experience showing that up to one third of sellers start their negotiations at the terms they hope to land on, effectively setting themselves up to fail before the negotiation even starts.
Make Stingy Concessions:
Too many sellers drop prices in large increments, particularly numbers ending in zeros and fives: 10 percent, 20 percent, 35 percent, etc. Beyond giving up precious margin dollars to buyers, it signals to them that your pricing lacks principle or discipline and encourages even more aggressive buyer tactics. As with Aim High, prepare a concession-making strategy in advance.
Ask for Reciprocity:
When the buyer asks for a concession, ask them for something back. It’s a basic human expectation for many but not all professionals. Want a lower price? Give me a longer term or pay me upfront or sooner. Building reciprocity into the negotiation processes adds offsetting value to the deal, builds principle into the process, and slows the frequency and magnitude of concessions. You are fundamentally asking for give and take in the negotiation. Don’t be afraid to make the ask. Prepare in advance a list of potential reciprocating requests.
Grow the Pie:
If the negotiation appears to be headed for a deadlock, it’s usually because the two parties are in a Win vs. Lose negotiation. Often the key to escaping the deadlock is to identify and add new value dimensions to the negotiation that add value for one party at relatively low or no cost to the other party. Services, referrals, gain-sharing options, etc, all help to pivot negotiations into more of a Win-Win mode.
Negotiate Face-to-Face (Virtually):
Turn on the camera on your Zoom meeting! Seriously. Research shows that relatively anonymous forms of negotiation, such as email, produce more aggressive buyer behaviors than in face-to-face situations. In a world of pervasive virtual meetings, your visual presence can improve buyer behaviors by humanizing the negotiation.
Negotiation and Now
Whatever the state of the economy , better negotiation outcomes are readily available and within your control – if you’re willing to dedicate some time to learning, mastering, practicing and preparing to build your negotiation mastery. There are many ways to improve negotiation outcomes that are completely within your power to change.
Now, and increasingly over time, the art, the science, and the techniques of professional negotiation can exponentially change the growth and profitability of your business. In a tough economy, negotiation savvy can play a significant role in determining the winners within sales teams, within companies, within industries.
David Bauders, CEO, SPARXiQ.
SPARXiQ provides integrated analytics and training solutions that accelerate sales performance, profitability and long-term enterprise value. If you’re interested in exploring how to consistently achieve your desired outcomes in negotiation situations, Visit SPARXiQ’s profile page to learn more.