In whose terms do you value the concessions you make?
A large B2B service provider recently posed the problem of their long-term Enterprise clients who at contract renewal time regularly propose price reductions. There is a shallow understanding of both parties' businesses and experience has taught the client to make proposals on price, yielding positive results for them, so why change?
The sweet spot in trading is where you can offer low-cost concessions that the other party value greatly - in return for areas that are of high value to you and easy or low cost to them. However, your negotiation counterpart may not be as motivated as you to value your concessions on their terms. Instead reducing your concessions to a simple dollar. This is simply distributing value, rather than creating it.
So how do you motivate them to look beyond price? Here are 3 tips to try next time you feel a bit stuck:
- Remember, behind every proposal lies a need. When you are asked for a direct or indirect price reduction, an opportunity to understand your counter parts’ real need has just presented itself! After all their proposal is simply their best idea of how to meet their need. You may have a different idea at a lower cost to you. For example: “We need a cost reduction because we have lost market share and sales are down in a very competitive market.” The need in this example is to increase market share, and their unimaginative proposal is a cost reduction. Do you have a more creative one at a lower cost to you? NPD perhaps?
- Bringing your Power to the table in order to motivate your counterpart to negotiate can be done at any time. However bad news is often best delivered early in the proceedings. For example: “Continued erosion of our margin is unsustainable. We have reached the point where questions are being asked internally around redirecting our investment in time and resources to other client partners’ return. However, we are here today to work on creative collaborative solutions of mutual gain…”.
- Open the door to possibilities. For example: “Just suppose we were to consider investing in X together. How would X add value to your business?
In the absence of creativity, a lack of deep understanding of your business and theirs – price is all too often the blunt instrument that results in nothing more than value distribution. To create value through trading – both parties should be fascinated by each other’s position and proposals.
Good luck and happy negotiating!