I was speaking at a recent event, and I asked the audience to all shout out the three things they should do if their clothes were to catch on fire. In unison, everyone shouted: "Stop, Drop, and Roll." I then asked the same group to shout out the three things they should do if confronted with pricing pressure from their client. In unison... everyone laughed. Without proper training, your team might stop what they are doing, drop your price, and roll over.
This highlights the greatest challenge with price negotiations: Most executives and sales professionals are better prepared for the unlikely event of catching on fire than dealing with pricing pressure. If you work as a firefighter, then you can skip this article. The rest of you are thankfully more likely to face pricing pressure than to catch fire... so keep reading.
It's Never about Price
If you believe that you are a true commodity, then your only weapon is price. For most organizations, "commodity" is a typical excuse. I have clients who are insurance brokers, IT consultants, accountants, lawyers... and at one point each of them thought they were a commodity.
Negotiations are all about the balance between cost and value. Price pressure either comes out of the fact that you did not help the client appreciate your unique value, or they just want to see if they can pay less.
Their price is less -- can you match it?
Susan received a call from a client who said, "We really want to work with you, but the other vendor is $10,000 less than you. If you can match their price, we'll work with you." My advice to Susan was that if the other vendor was offering a lower price for the same value, then they would not have called you. Instead, we taught Susan to say, "What was it about us that makes you want to work with me and my team?" The client spent about five minutes convincing Susan (and themselves) why Susan was their preferred vendor. Susan ended up using some of the following concepts to win the deal without discounting.
Stop, Swap, and Trade
There are some buyers who have gone through extensive training on negotiating. You'll encounter them in less than 10 pecent of the situations. Briefly, let me summarize a few steps that are part of a rather detailed training program.
When your client raises a pricing objection, those without training will either ignore the comment, or immediately offer a concession. Instead, stop and ask questions to clarify what's going on. You might ask questions like "You said the cost is too high. Are you taking about the initial purchase, or the long-term cost?" This starts a dialog about value and ensures you understand what you are facing.
If you give a concession without getting anything in return, we call that a unilateral concession. In that case, you are telling your client two things: 1) You were overcharging them before; and 2) All they have to do in the future is whine and you'll cave in. Your discount might even cost you the business.
Instead, empathize with their need for a lower price, and ask where you can work together to reduce the scope to reach a lower investment. The swap might sound like "I appreciate that you need to drop the cost by $10,000. I'm sure that if we put out heads together, we can probably remove some tasks/options/requirements that would drop the scope by at least $10,000.
If you are dealing with an expert negotiator, you might need to give something modest just so they know you are willing to work with them. In that case, we still need to avoid a unilateral concession. This is a good time to trade for items that could be of value to you without costing them money. It might sound like "I can probably sell this internally if I can get you to participate in a video testimonial and case study." The lesson is that even when you give in a little, they need to return the favor.
Avoid the urge to Stop, Drop, and Roll. Instead focus your team on the notion of Stop, Swap, and Trade. What tools have you found to be effective in dealing with pricing pressure?