In a previous blog post, we offered five guidelines to navigate the often slippery slopes of customer price pressure in a negotiation. But in the words of a prospective customer when you concede too much too quickly: there’s more where that came from. Here are five more guidelines to help you ensure you never undermine your organization’s self-interest in the face of price pressure from a difficult customer.
1. Avoid negotiating on price alone
Price can be a very loud and distracting part of any negotiation. But it’s important to remember that, on its own, it doesn’t really mean anything. Just like feet or inches don’t exist without an object being measured (30 feet of what? Rope? Steel piping? Spaghetti?), a price doesn’t exist without the product or service being sold. This is why it’s so dangerous to negotiate on price alone: it encourages both parties to lose sight of the entire package, and how that package as a whole addresses key customer needs. From the outset of the negotiation, demonstrate clearly that price is inextricably linked to the scope of the offering – if pricing changes, so will the scope. Customers who understand this to be the case will be less inclined to exert price pressure excessively.
2. Don’t talk about price prematurely
Never jump the gun and discuss price too early in the negotiation. This is because price needs to be anchored to two concepts in the customer’s mind: the value of your solution, and how it addresses their underlying needs. Only once you have covered these issues in detail – and you’re confident that the other party clearly understands both – then price can take center stage as you move toward closure.
3. Address what the customer really needs
If you spend the first half of the negotiation uncovering the customer’s genuine needs – as opposed to their stated wants – then you’ll be better prepared for price pressure when it arises. This is because customers often ask for price discounts to meet a non-financial need of theirs. For example, they might simply want to feel like a preferred customer or to look good to their direct superior. Once you’ve identified these needs, you can find creative ways to meet them while still maintaining your desired price points.
4. Figure out why they’re asking for a cheaper price
Never offer a discount simply because your customer insists the price is too high. If you do, then they’ll have little reason not to continue pushing for a lower price. After all, if it worked once why wouldn’t it work again? Rather, it’s far more effective to probe deeper and uncover the entire rationale behind the request. Getting the customer to articulate a reason that’s more detailed than “I want to pay less” will also force them to think more carefully before exerting additional price pressure. Common motivations include budget problems, cheaper competition, low perceived value, as well as pressure from their manager.
5. Slow dooown!
Our last guideline for dealing with price pressure in a negotiation is the simplest: take your foot off the gas! You’ll never have to commit to a discount immediately – if they really were pressed for time, they wouldn’t have pressed for a discount in the first place. So instead of reacting one way or the other in a matter of minutes, inform the other party that you need to go back to the office to discuss their discount request with your boss. This will give you time to strategize and ensure the discount you end up relinquishing is as low as possible. This will also show the customer that making such a concession is difficult for your organization. As a result, they’ll likely apply less price pressure in your next encounter.
RED BEAR Negotiation Company is dedicated to maximizing the profitability of the agreements negotiated with customers, suppliers, partners, and colleagues. If you’re interested in empowering your sales team with world-class negotiation skills, contact us to start the conversation.