Make It Your Business: Avoid the Dreaded Premature Negotiation
Are you leaving money on the table when customers want to dicker?
One of the most memorable training sessions I’ve ever led was an assembly of 20 seasoned, highly accomplished national account managers at a Fortune 100 corporation, for a pilot program in sales negotiation skills. Each participant was asked to provide an example of a customer with whom he/she would soon have to negotiate.
Indeed, everyone completed their pre-work with diligence. But, ironically, among this esteemed group-with more than 365 years of combined sales experience-not a single one of their sales scenarios truly warranted the consideration of negotiation in the near future. That is, none of them had completed the selling process sufficiently to enter into negotiations on a level playing field. In short, we had 20 cases of premature negotiation.
I fear many sign and digital graphics business owners are unaware of their sales representatives negotiating on behalf of the company, and potentially leaving gobs of money on the table because of a severe skill deficiency in this area. I make this claim because I’ve witnessed it first hand at trade shows, on phone calls and when traveling with salespeople.
Psst. By the way, I realize many of the business owners reading this column are the sales arm for your company. For that reason, it’s imperative that four negotiation criteria be met prior to entering into the wheeling and dealing fray.
Unfortunately, most sales professionals don’t realize-until it’s too late-that they’ve been drawn into the vortex of arm-twisting and blood-sucking by a cunning customer. It’s pretty obvious there’s been no prior planning or discussion with management as to what position should be taken or what authorized alternatives are at their disposal. Isn’t it about time we address the issue of how to recognize potential negotiation situations and better plan for them?
Meeting the four criteria
Negotiations are a subset of selling. All negotiations are a form of selling, but not all selling skills should involve negotiation. First, let’s define what a sale is. A sale is an agreement to pay a price-or provide comparable value-in return for deliverables under specified or implied terms and conditions. I drive into a gas station, see the advertised price for a gallon of fuel on the gas pump, swipe my credit card, lift the nozzle and dispense gasoline into my SUV. When I am done, I replace the nozzle, replace the gas cap, collect my receipt and drive off. There was no negotiating involved in that sale.
But let’s say I then drive to a car dealership, begin looking at the models on the lot for mere seconds and I am intercepted-a.k.a. taken hostage-by a very assertive salesperson. “She’s a beaut, isn’t she? What would it take for you to drive home in this honey today?” Gosh, I love that sales technique . . . not! We have here the ultimate case of premature negotiation.
What was different between these two sales situations? The price of the car was clearly displayed on the sticker. I can determine the value relative to the sticker price. I know I would have to abide by the terms and conditions of the loan if I needed one to finance the vehicle. Thus, the answer to the question is that there was really no difference-or shouldn’t have been-in the two scenarios. What was different was the sales person’s assumption that I was disagreeable to the sale.
It may not be that extreme among your sales team, but are they volunteering price concessions to “sweeten the deal” whenever the client takes five seconds to think about it? Too often, salespeople misinterpret silence as a rejection of the offer, when in fact all the customer may be doing is trying to figure out how he/she is going to get it home, make the payments on it, or justify the decision to his/her boss, partner or spouse.
In order to improve the chances for a win-win outcome, these four qualifying criteria must be met before any negotiation begins:
- The salesperson or organization overtly states the price, deliverables, terms and conditions of the original proposition.
- The customer raises an objection that the salesperson or organization cannot overcome with benefits. (Typically, this objection represents a drawback of some kind.)
- The two parties confirm that all objections have been raised and are on the negotiation table.
- Except for these differences, the customer indicates there is a conditional commitment to do business.
And it’s not a case of “three out of four ain’t bad.” If any of the four criteria are not met, the salesperson or the customer will not be able to negotiate a win-win outcome. Without a doubt, someone is going to lose, period.
Think about it. How will you know what to negotiate if any one of the price, deliverables, terms and conditions are missing, or not stated up front? If you are having trouble identifying the terms and conditions, read the fine print. That’s where you can usually find them.
Drawbacks are a natural phenomenon in selling. Simply defined, a drawback is a customer’s dissatisfaction with the presence or absence of a feature or benefit. Smart sales professionals typically handle drawbacks by first acknowledging their existence, and then taking the customer a step back to look at the bigger picture. Sometimes the drawback is minimized by exclusive benefits that were previously accepted. Because most sales representatives do not know how to handle drawback objections, they default to negotiating prematurely-usually making a price concession.
Empower your negotiator
It’s not unusual for salespeople to ignore or overlook the last of the above list of criteria. Unless the salesperson consciously remembers to ask the prospect the question-“Except for the items that separate us, do we have a deal?”-she has not secured conditional commitment. Engaging in negotiation at that point could prove detrimental to the sales effort.
Once all four criteria are met, the salesperson should confer with management about what authority and latitude she has to negotiate. Any aspect of the price, deliverables, terms and/or conditions are up for grabs in well-run negotiations.
Sales reps often think that the price is the only thing that can be negotiated. That is the furthest thing from the truth. Along with the quoted price could be a trade-out of goods and services that can be substituted for money-a.k.a. bartering. Deliverables can be varied by quantity, quality, scope of services, specifications, substituting used for new materials, leasing versus outright purchase and the amount of technical support or training that comes with the product. Price and deliverables are the obvious bargaining chips in the negotiation game.
When one side or the other digs their heels in over price and deliverables, the negotiation typically falls apart. That’s where getting creative in modifying the terms and conditions can break the deadlock. There are many alternatives when it comes to massaging the terms and conditions. Consider the following list:
- Payment terms;
- Length of contract or exclusivity;
- Easing the delivery or installation dates or schedule;
- Inventory and warehousing considerations;
- Shipping and handling charges;
- Ongoing support, maintenance or training;
- Length or scope of the warranty;
- Return policy;
- Performance guarantees and penalty clauses;
- Volume rebates.
When preparing to negotiate, management needs to clearly communicate the latitude with which the negotiator can exercise during the process. If a negotiator does not think he is so empowered, guess what? He isn’t. When preparing for a negotiation session, the negotiator and management must brainstorm possible trade-offs and enhancements that can be added to the original proposal, where splitting the difference can help and when trivial concessions can be offered at the end of the discussion. Just as important is the company’s walk-away position.
The next time you detect your business is close to landing a new account but you find that there is still a gap between the two parties, take the time to ensure all four criteria have been reached, a significant number of possible alternatives have been identified and thoroughly analyzed, and the negotiating team is fully aware of its options and authority. Good luck!