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StreetSmart: Negotiation Problem #2: Price Pressure
25 Plays29 days ago
In this StreetSmart episode, Brian Dietmeyer talks with Carrie Welles, Vice President and co-founder of Think Ink, about the common negotiation tactic of "I can get the same thing cheaper." They delve into why this tactic is so effective and dangerous, costing companies millions annually, and discuss strategies to combat it effectively. This conversation is crucial for sales professionals and negotiators looking to maintain value and avoid unnecessary discounts in their deals.
Timestamps:
00:16 - Introduction to the episode's topic on negotiation tactics.
00:37 - Discussion on why the "cheaper" tactic is dangerous.
01:57 - First steps to combat the "cheaper" negotiation tactic.
02:03 - Exploring the issue of commoditization in negotiations.
05:00 - Analyzing the consequences of no agreement.
07:36 - Importance of understanding stakeholders in negotiation.
10:45 - Competitive intelligence and its impact on negotiations.
13:50 - Strategies for maintaining commercial terms in negotiations.
16:10 - Closing remarks and preview of the next episode topic.
Recommended
Transcript
Introduction to Street Smart Podcast
00:00:01
Brian
Welcome to another episode of StreetSmart negotiation podcast. I'm Brian Dietmeyer C E O of Think! Inc. business negotiation redefined.
00:00:10
Carrie Welles
And I am Carrie Welles vice president and co-founder of Think! Inc.
00:00:15
Brian
What are we talking about today? Carrie Welles
00:00:16
Carrie Welles
Yes. Okay. So what are we talking about today?
Common Negotiation Tactics: Cheaper Offers Elsewhere
00:00:20
Carrie Welles
All right. So we're going to reach back to that last episode where we introduced the most common tactic, which is drum roll.
00:00:27
Carrie Welles
I can get the same thing cheaper.
00:00:27
Brian
Yep.
00:00:29
Carrie Welles
So today we wanted to give some very practical how tos for all of you listening on how do we combat that?
00:00:33
Brian
Yeah.
00:00:36
Carrie Welles
And we're going to start with just the first part of that. But let's, I guess, back up to say, so Brian, in your experience, why is this tactic so dangerous?
00:00:47
Brian
because it works, it works, it works, it works, it works for almost 20 years. We've been working with frontline sellers and their bosses and and deal pursuit teams and deal desks on renewals and new opportunities.
00:01:01
Brian
And it works. People scramble, people go running back to the deal desk or their boss and and they ask for a discount. There was a couple of years ago and I'm sure it's it probably even worse now.
00:01:11
Brian
There was an HBR study that said the end of quarter discounts cost the average company 98 million dollars a year and a lot of it I think is tied to this is this is what's happening buyers also know it's the end of our quarter that sort of thing but those who addressed this also had a 27% revenue increase but that's why it's so dangerous because it's costing lots and lots and lots of money and it works
00:01:35
Carrie Welles
It is pretty
Commoditization and Its Impact on Negotiations
00:01:36
Carrie Welles
insane. And another quick note. So for those of you who may not know, we also work with procurement professionals and procurement professionals would say, Hey, look, I asked for that that discount or for that last concession at the 11th hour for one reason only because 99% of the time I get it for no other rational reasons.
00:01:54
Brian
Yep. Yeah.
00:01:56
Carrie Welles
Yeah. Cause salespeople usually cave. Okay. So let's talk about them. What do we do first?
00:02:02
Brian
So I think as you mentioned in this episode, we're only going to talk about one half of I can get the same thing from someone else cheaper. Let's go with same thing first. and the, the underlying problem with same thing is commoditization, right? That's, that's really, what's happening. So we have to.
00:02:19
Brian
The first thing we have to do is think about, uh, so 97% of tactics follow a pattern. There's three questions. The first question is what happens to both sides? If we don't reach agreement, what are the consequences to both sides? If we don't reach agreement and that the underlying problem with this commoditization thing.
00:02:35
Brian
is then the only thing that differentiates us is price. And we also have zero power if everybody's ah ah order offering the same thing out there. and and And by the way, neither of those things are true. We mentioned often mention our previous co-founder Max Bazerman at Harvard. Max said there are very few commodities and many organizations commoditize so them themselves so there might be someone similar to you and some pieces of it might be the same but you do not have a professional seller on one side and a professional buyer on the other side if it's a commodity. You put it on the internet or you put it in a catalog and boom, you you order it online.
00:03:11
Carrie Welles
Yeah, yeah. OK, good.
Counter Strategies to Tackle Commoditization
00:03:13
Carrie Welles
So do you want to talk about the three counter punches that set up for those questions?
00:03:20
Brian
Yeah. So well let's let's talk about the first counterpunch, which is really getting after, same thing, uh, because this this, this is the root of all problems. This is the soul of all problems with negotiation. If you are a commodity, you're going to get beat up on, on risk and, and legal teas and sees and on price and that sort of stuff all day long. If you're out there selling a commodity. So we have to do the number one thing and doing deals is to decommoditize. So how how do we decommoditize is that.
00:03:48
Brian
We ask that question, as as I mentioned before, that you know what what but for this particular episode, let's focus on the customer. What is the customer's likely to alternative alternative to us? And the analysis goes like this. What's that likely alternative? What are the hard and soft costs, the hard and soft benefits for the short and long term of them?
00:04:09
Brian
choosing that alternative. And we need to be objective about that analysis. And the reason this is important is is we we often like to change this to a decision-making frame. The other side's making a decision. Let's forget about negotiation. They're making a decision between us or something else. And and they they might be lying or misinformed about what that alternative is. and And we don't care because either way, our prescription is the same. You need better data.
00:04:36
Brian
than the other side about their alternative, you need better data than your competitor about that alternative.
Importance of Analyzing No-Deal Scenarios
00:04:41
Brian
And the thing that's important is people accept a rejected deal based on how they see that alternative.
00:04:43
Carrie Welles
Mm
00:04:47
Brian
And so our and first number one goal is to understand how they really see it and to bring them objective data and facts, whether they're lying or have misdiagnosed, the solution's the same.
00:04:47
Carrie Welles
hmm.
00:04:56
Brian
We need to know what that alternative looks like and two or three reasons why us.
00:04:57
Carrie Welles
Yeah.
00:05:02
Carrie Welles
Good. Okay. So we call that consequence of no agreement specifically. It is an alternative analysis.
00:05:07
Brian
Yeah.
00:05:08
Carrie Welles
That's the short of it. And, I remember when working with salespeople and, and them saying, look, I don't want to think about what happens if there is no deal.
00:05:18
Carrie Welles
I don't want to think about what happens if the consequence of no agreement. And yet you you really have to. You have to, because that's that's up for the power dynamics, as you well know.
00:05:26
Brian
Yep.
00:05:28
Carrie Welles
OK, so many people know the term BATNA. That's the alternative to negotiated agreement.
00:05:32
Brian
Yep.
00:05:33
Carrie Welles
That is a really common term known within the negotiation world. So so help our our listeners understand why it's different, why consequences are different.
00:05:42
Brian
Yeah, it's, it's sure. And directionally, it's the same idea, right? It's so what, what is the other side's alternative? And, and I think the BATNA ended up like falling a little bit short because it was most, most question is what is the other side's BATNA, right? And that's just the first level of our thing is what, what is their most likely alternative to us? And then it's the hard and soft cost of benefits for the short and long term and netting out the two or three reasons why us, right? Where where is their higher risk, maybe for them to go somewhere else and and understand that. The other part is that we also look at ours, right? And that's what we've seen. And I remember Kerry, you and I worked with a consultant, Steve Thompson, and Steve used to say all the time, we, our
00:06:25
Brian
alternative to reaching agreement is forefront in our mind. We lose the deal. We miss our number. We miss our bonus. You know, our kids can't get braces. Our kids have crooked teeth, right? So it's all horrible. And so what Steve would say is we go in selling scared. So one part of, and that's readily available in our brain, and that's what's informing us as a negotiators when we're out there. It's like, Oh, I cannot lose this. I need to make my number.
00:06:47
Brian
If you're 170% of your goal, then it's not quite so scary. But most most of us are working just to make the number. you know The earlier in the year, the more we go in selling scared, the antidote to that is understanding the other side's alternative and and finding the funding the reasons why us. and And by the way, this stuff follows patterns. If you're selling this solution against this competing alternative, and you you do this 15 times,
00:07:14
Brian
the the the data of putting us side by side with that alternative follows patterns, but what nets out on this deal
Stakeholder Analysis for Competitive Advantage
00:07:20
Brian
is a little bit different. I think you you often say we can sell for 70% of it by having that form field out there about, okay, we're up against this alternative, but 30% is going to be tied to this deal.
00:07:22
Carrie Welles
Yeah.
00:07:32
Brian
What's important to the stakeholders in this deal?
00:07:35
Carrie Welles
OK, so let's just get a little bit deeper on that and and and get very specific on what would help those sellers who are listening.
00:07:38
Brian
Yeah.
00:07:44
Carrie Welles
So what are some key steps involved in analyzing consequence of no agreement? What must they do?
00:07:51
Brian
Yeah. So the it, it's again, it's reasonably easy. Uh, and you know what, by the way, if you only do this at the 40 or 50% effectiveness level, it's still way better off than not. This is the single most important thing and doing business deals is knowing the other side's alternative. So.
00:08:08
Brian
What is their likely alternative? And will we reframe it in terms of decisions? When they're making a decision between us and somebody else, who should be involved? What stakeholders? What titles? And what criteria should they be using when they put us side by side? Not every criteria, but the real key ones. What what should they be using? And then we net out. you know how How does this alternative look you know versus us? And what are the two or three ways we might be able to help them that the other side can't?
00:08:35
Brian
And by the way, and someone's thinking this right now. Oh, my stuff is pretty close to my competitor stuff. That could be true. You're probably not commoditized, but it's probably close to it. If you know better, if I can tell you, Kerry, okay, these are your objectives. Let me show you the ways I align but better than that alternative or even the way I align, I will get credit Right, for value, that is your value proposition, by the way. the the The way you align to their needs better than somebody else, that's your value prop. So those those are the steps. What's the likely alternative? Who should be involved? What criteria are they using? and And where do we have an edge? And we, organizations can help reps. If you're a sales leader or an ablement leader and you're listening to this. i We did a case study on this, so I can talk about it publicly, but we're working with Skillsoft
00:09:26
Brian
And we did this analysis of the stakeholders and their criteria when going side by side with some competitor. And we came up with 43 items across six stakeholders. And so when the customer says you're the same as someone else, what we, we use this template with the, you know, with the reps at Skillsoft to say, hey did they really go through 43 criteria? And, and in fact, all were exactly the same. No, not, not at all. So that's organizations can help by having that base model and then we can Use that and adjust it on the fly for each each deal we're working.
00:09:59
Carrie Welles
Yeah, I want to react to two things you said. One, multiple stakeholders. So it's not just procurement that we should be sitting with. It's all of the stakeholders up and down who care about your value proposition, who care about this potential optimization of a a purchase, whatever that purchase entails, whatever that scope is. So getting after those key stakeholders and hammering out the top three to five decision criteria is is huge.
00:10:24
Brian
Yeah.
00:10:24
Carrie Welles
And then the second thing about your the internal stakeholders that you talked about. So we often find that consequence of no agreement analysis shines this white hot spotlight on competitive intelligence.
00:10:37
Carrie Welles
So this is usually where organizations fall down.
00:10:37
Brian
Yeah.
00:10:40
Carrie Welles
They just don't have current good information to help salespeople really compare very specifically value to value.
00:10:50
Carrie Welles
so
00:10:51
Brian
That's, yeah, and Carrie, i would I would build on that to say, yes, it's granular. what they It's value proposition stuff. It's not for this stakeholder who is interested in reducing risk in this area of their business, right? this we We have an edge because of this new software we get. It's not at that level, that granularity where we can leverage it, that we think there's a sweeping value proposition. But yeah, I agree with you.
00:11:15
Carrie Welles
Okay. Okay. Good. So, so as we round out this episode, do we have other, any other stories, grabber stories that we can share?
Real-World Applications in Various Industries
00:11:25
Brian
Well, yeah, i'm I'm going to give you two quick examples of two completely different. So we're working with a ah Fortune 500 data and analytics company who were selling to a major telco. And so they're buying lots and lots of data from our customer. And the telco came back and and put some outrageous demand on them, right, to to reduce their fees or they threatened to to take this analysis in the house.
00:11:48
Brian
And so the VPS sales, it's it's very interesting because the VPS sales, they had just hired us to do global work with them. And he called me up 48 hours later, said this just happened. I said, when's the negotiation? He said Thursday. And I remember the moment where I said, Bill, this was Tuesday by the way. And it said, Bill, so you're this far into the deal. You just got slammed with this. You know, my probability of helping you is quite low. And he said, my confidence in hiring you as a negotiation consultant is quite low right now as well. So I was like, with with that aside.
00:12:18
Brian
Let's look at the reality of these guys designing building installing and maintenance maintaining the level of data that you're bringing to them and ten minutes. It was just like there's no way in the world.
00:12:31
Brian
They can actually pull this off. So that's one story. The other one that's probably more close to home is you and I did a lot of billion dollars worth of consulting on renewals with a cloud and computing company. And and the most common tactic, the most common alternative for their buyers was was Go Dark. I'm going to do nothing, right? And so I'm stuck with the existing agreement.
00:12:52
Brian
And, and that they panicked. They're like, well, customer could just can do nothing. And we started doing analysis of do nothing for different customers based on the the new changes in our client's value prop doing nothing. There was some pain associated with that. So.
00:13:07
Brian
It's, it, it doesn't many times that this is a, if you got 10 or 15 minutes, it's a 10 or 15 minute exercise. What's the alternative? Who are the stakeholders? What are the criteria and where can, where can we win? You know, and, and it's more often than not, I've seen this happen in 10 or 15 minutes where it's just like, okay, boom. We now, you often talk about courage, Kerry, that now my courage as a seller went up because I was only focusing on, on the, the, the lack of, uh, orthodontist work and the bad teeth. And, and I missed.
00:13:35
Brian
you know, the client's alternative. And now I'm feeling more confident, which then gets us into the next episode of how do we stick tighter on our commercial terms.
00:13:44
Carrie Welles
Yeah. Okay. So let me just tell a quick story as well, uh, as we run round out this episode. So this is a water treatment, multinational customer that we were working with and they were being sold. They were sole source for a huge food and beverage company. They were doing all their water treatment and the food and beverage company had said, look, we need a 20% decrease or we're splitting up the business. We're going elsewhere and we're going out to RFP and all that.
00:14:10
Carrie Welles
So they were fully ready to address that 20% discount. And they're thinking maybe we don't need to do 20, but we better sort out like what's the maximum discount we could do. So we did the same thing.
00:14:21
Carrie Welles
We sat down and had with their whole account team, a really productive one hour consequence of no agreement analysis laid out all of the differentiation and the value between them and that closest competitor.
00:14:25
Brian
Hmm.
00:14:33
Carrie Welles
And after that one hour, they looked at each other and said, what are we What are we even thinking about a decrease in in our price?
00:14:38
Brian
Yeah. Yep.
00:14:40
Carrie Welles
We should be taking our price up because of all the value that we provide.
00:14:43
Brian
Yep. Yeah. And it, and of course it doesn't, it doesn't always happen, but I'm going to say more often than not.
00:14:49
Carrie Welles
Yeah.
00:14:49
Brian
In my experience, you're gonna find something, and even if it is similar, you're gonna find something and communicate it better than the alternative, so you're gonna get that perceived value. i will I will leave you all with one thing. Carrie, you might remember years ago, we did research on what we called value creation and value capture systems. And part of that value capture system was looking at the internal negotiation or the deal approval process. And we asked how many deal desks and and the like used alternative analysis to inform what position they should take on commercial or legal terms.
00:15:23
Brian
And it was like 10% of the organizations we spoke to were somehow deciding how to respond to concession pressure without understanding how much power they had in the deal.
00:15:35
Brian
And so that is, if if you're a deal desk person,
00:15:35
Carrie Welles
Yeah.
00:15:39
Brian
To me, that's where you start. So anyway, sorry, I extended our episode, but that's a really important and sort of corporate objective to to help reps to have the deal desk be thinking about this as well.
00:15:50
Carrie Welles
ah ah great Agreed.
Episode Wrap-Up and Next Topic Tease
00:15:50
Carrie Welles
Agreed. Okay, so good. so So thanks for the time, Brian. And we'll see you all back at our next episode, which is going to tackle that second half of the of the question, which is the cheaper part.
00:16:01
Brian
Yep.
00:16:01
Carrie Welles
So get ready, because we'll come back to some really good stuff.
00:16:02
Brian
Thanks.
00:16:04
Carrie Welles
Okay.