In this blog, we focus on the importance of price negotiation.
Final pricing is often a result of negotiation that follows the arduous work of developing your pricing strategies to optimize both price structure and price level. If you’re a pricing or a sales professional, being a good negotiator can yield even greater returns from a well developed pricing strategy. Conversely, failure at the bargaining table can undermine your pricing strategy and damage your brand image.
Negotiation is a large subject area, and can’t be fully addressed in a short newsletter. But it is worth highlighting some tactics of tough negotiators so you can try some yourself or be ready to parry your counterparty’s negotiation thrusts. Our list of common buyer negotiation tactics below is NOT exhaustive, but should give you some extra ammunition in a negotiation and raise your awareness of possible risks.
- “This is what I have to spend”. This tactic is a very clever attempt to abort negotiation before it starts. One way of turning this around is to redefine what you offer in return for the price ceiling (redefine the offer), understand the reasons of the limits, and/or seek a higher authority.
- “You need to match the competitor”. Also clever as it puts the seller in a defensive position. The counter is to drill deeply into the competitive offer, asking for detail. This often reveals how the competitor price is not truly apples-to-apples, and can shift the negotiation momentum.
- “Take it or leave it”. Attempts to put the seller at a disadvantage. Counter: sympathize with the buyer; understand the sources of the limits. Offer to work together to find ways to redefine the price structure, product definition or other combinations in an attempt to let the buyer save face, even at a higher price.
- “Deadlines”. Often very effective – deadlines force closure one way or the other, and most often flush out the party with the weaker hand. Note that time deadlines are often not a ploy, but set to address broader organizational needs. For example, public companies often have end-of-quarter quotas. You can sometimes know by when a prospect needs to spend his/her budget based on their fiscal calendar. The party that is willing to go without a deal usually wins in these situations. Counter: Stay firm with your offering price. Suggest creative strategies to meet the buyer’s deadlines so that prices can be fully realized by offering only part of the solution within the time frame.
- “Not in Charge”. How often have you been in a position when you’re told by a buyer “this is all I’m authorized to do”? The scheme here is to wring concessions at each escalating level of buying authority. Counter: understand the buyer’s organization and get to the decision maker when this tactics is used, or be prepared for a series of escalating price reductions.
- “Good and Bad Cop“. You’ve seen this before. The buyer is the good guy, and the CFO is beating him up. Counter: work against the bad guy by appearing to be supporting the “good” guy. Out the tactic; it deflates it quickly. Be prepared to see the “good cop” separately so you can “help out” with things.
- “Create Confusion”. Here a buyer throws out both relevant and irrelevant facts and figures with abandon in an attempt to hurt the morale of the seller by appearing more knowledgeable. Counter: slow things down and ask for more information. This quickly dulls the edge of this approach.
One last thought: always keep a realistic and positive view of your own power. Too many negotiators assume they are in the weaker position. Don’t assume this! Think about the other party’s pressures, and you may surprise yourself and realize higher prices.
Abbey Road Associates helps support negotiations following pricing strategy redesigns as part of our core service. Feel free to connect with us to see how we can help.