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StreetSmart: Negotiation Question #2b: Mastering Commoditization Pressure
18 Plays22 days ago
In this episode, Brian Dietmeyer talks to Carrie Welles about navigating price pressure in negotiations. They explore effective strategies to de-commoditize offers and handle common negotiation tactics, such as competitors offering lower prices. This insightful discussion is crucial for anyone looking to enhance their negotiation skills and achieve more favorable outcomes by creating and dividing value fairly in business deals.
Timestamps:
00:12 Introduction to the episode's focus on price pressure in negotiations.
01:25 Discussing the importance of de-commoditizing offers to handle price comparisons.
03:30 Benefits of expanding value in negotiations to facilitate easier deal-making.
06:10 Exploring the theory of reciprocity and its impact on negotiations.
09:02 Practical examples and strategies for expanding value in negotiations.
13:43 Importance of preparing sales teams with a catalog of potential trades.
15:50 Preview of the next episode's focus on preparing for common negotiation tactics.
Recommended
Transcript
Introduction to Price Pressure in Negotiations
00:00:01
Brian
Hello and welcome to another episode of street smart, the negotiation podcast. I'm Brian Deidt, my, our CEO of think Inc business negotiation redefined you as well.
00:00:11
Carrie Welles
And I'm Carrie Wells, vice president and partner with Think Inc. Hello, Brian. Nice to see you. So today in our episode, we're talking about price pressure. And let's just tee this up a little bit for our
97% of Negotiation Tactics Follow Patterns
00:00:23
Carrie Welles
listeners. So in our last episode, we had mentioned through our research that 97% of negotiation tactics follow a pattern. And as a reminder, those patterns fall into two big categories, two buckets, something to do with the alternative or something to do with concession pressure.
00:00:41
Carrie Welles
So those of you who are listening, the most common tactic, which we hear all around the globe is I can get the same thing from your competitor cheaper.
Critical Questions for Dealing with Price Pressure
00:00:51
Carrie Welles
So Brian, you had said that we can deal with 97% of those tactics by answering three questions. And the first was, what are the consequences if we do not agree?
00:01:07
Carrie Welles
and The goal there was to for our buyers to Decomodidize our deal and focus on the same thing and that first part of that sentence Okay, so in this episode we promised to get to the second half of that question, which is the cheaper part So what is that question?
00:01:23
Brian
Yep. Yeah. And for, for those, uh, who haven't seen the other episode, it's, it's helpful. We're going to take the most pressure, right. Carry off of cheaper by decommoditizing our offer and saying we're not the same thing.
00:01:37
Brian
We're they're never going to pay more for it if it's the same thing. So we will talk about price here, but these two are so inextricably interlinked. So two big words for a Monday.
Creating and Expanding Value in Deals
00:01:48
Brian
okay.
00:01:48
Brian
so Yeah.
00:01:48
Carrie Welles
he freak because that
00:01:52
Brian
Yep. So yeah, what does a great deal look like for both sides in the event? We do agree. and And I think you know more often than not, we're negotiating one thing. buy Buyers are trained to sort of line item, right? You you and I have been in a ton of deals where they're like, one thing at a time, we're gonna we're going to go after that concession. And the problem with that is mathematically, that's that zero sum, right? so if If you tell me to decrease my price by 10% and I do it, I just took 10% from my wallet and put it in your purse. And all we did is move value around. We didn't do anything to make the deal bigger, better, which we're going to talk about in a moment. So I think of it as we're rearranging value, not creating it. So concessions, concessions are death, but again, buyers do it and we see it in real life practice, a bunch of deals we've coached on where the buyer's demanding a concession on a thing. And then the reps come back to us and they're like, well, how do we do it?
00:02:48
Brian
So that's that's what we're going that's what we're going to talk about today. But I want to tie this into a negotiation goal. And Cara, you probably remember our old partner Max from Harvard. He prescribed any negotiation goal as ah what what we want to do is create joint value and then divide it, given concerns for fairness in the ongoing relationship. and And that's not how a lot of people think about negotiation, right? I think they think about negotiations about dividing stuff. It's somewhat counterintuitive to say,
00:02:48
Carrie Welles
right but
00:03:18
Brian
Let's make the pie bigger, before we divide it.
00:03:21
Carrie Welles
Yeah, so let's talk about that. So what is the benefit of expanding value? Why does everyone need to do that?
00:03:26
Brian
Yeah. Well, it's, it's, it's easier to get deals
Focus on Win Rates and Deal Quality
00:03:29
Brian
done, right? If you, if you and I are arguing over 50 cents or 50 bucks, it's, it's easier to divide larger pies, uh, than it is with smaller ones and we're better off, right? We we just finished some research that you're aware of where.
00:03:44
Brian
Uh, the sales leaders we talked to set our, our goals for 2025 are increasing win rate and increasing deal quality. This is a real deal quality issue, right? Is, is, is broad expanding the pie and getting as much value there as we can, be between that two barter or the two parties.
00:04:03
Carrie Welles
Yeah. Okay. So we know it's important.
Holistic Deal Evaluation for Better Negotiations
00:04:05
Carrie Welles
We know we all should be doing it. So the, the bigger question is how, so how do we expand value?
00:04:10
Brian
Yep.
00:04:13
Brian
Yeah, I, it's it's funny over the years, I've probably said this to more sales leads or sales and album sales enablement leads that we have to get away. You know, my my rule is never, ever, ever negotiate one thing.
00:04:25
Brian
And if most companies did that, if most companies got into trading, if this, then that, that action alone.
00:04:32
Brian
even without the previous episode of the commoditization analysis, but that thing alone, just trading if this, then that, and thinking about the the more holistic aspect of the deal, right? There's a lot of moving parts in a deal and someone's pulling one little piece out of it and and focusing on it. So when when we ask what makes it a great deal for both sides, we're taking into consideration price, volume, length of contract, LSA's, ah you know, risk related stuff and T's and C's.
00:05:01
Brian
That's what we want to do is we want to think about the deal holistically and be trading stuff within all those moving parts.
00:05:08
Carrie Welles
you know When you say what makes a great deal for both sides, sales people tend to naturally think about that on our side. We rarely think about that on the customer side, what makes a great deal for them.
00:05:19
Carrie Welles
And it's not that we have to agree to everything they say, but it's certainly interesting to
00:05:19
Brian
Yeah.
Understanding Buyer Needs for Mutual Benefit
00:05:24
Carrie Welles
kick our hat or to move our head up and look at the bigger picture two to sort out what does make a great deal for them because there's so many
00:05:29
Brian
Yeah.
00:05:32
Brian
Well, Kerry, what you make me think of is is you and I have both, so sorry for anyone in sales who's listening to this, but you and I have both consulted to buying organizations. and And I often, you've probably done this as well, when I say to buyers, you should care about what makes it a great deal for the seller. It's not immediately intuitive to them.
00:05:52
Brian
But when we start talking about when you looked at the force ranked important stuff to sellers and you can find something in there that doesn't cost you a lot, that they value a lot buyer, you can then leverage that for the other things you want without crushing your supplier's margins.
00:06:06
Brian
And when they hear that story, they they tend to lean in like, look, you can either beat them up and rearrange value or you can trade them stuff and then go beat them up on price. But at least you traded them something and you kept the deal quality intact.
00:06:06
Carrie Welles
Hmm.
00:06:18
Carrie Welles
Yeah. Yeah. And it does make sense that if, that if you are willing to give more to the other side of what they want, it's likely you're going to get more of what you want.
00:06:27
Brian
Theory of reciprocity.
00:06:29
Brian
like yeah Yeah, it is.
00:06:29
Carrie Welles
Yes, sir.
00:06:33
Carrie Welles
All right. So you have often said it's illogical to focus on price just all by itself. So, so talk about why.
Why Focusing Solely on Price is Illogical
00:06:42
Brian
Well, for for any anyone who's listening, you don't, I don't think you just set price and go, this is the price for our thing, right? It's set based on what, you know, it should be set based on who are we competing against? What's that alternative look like, which we talked about last. It should be sent based on the customer volume, the customer length of contract, the the solution configuration they're buying from us, all all of those sorts of things we set our price. So it's not, it's not playing hardball per se, but it's just illogical for us to move price. Price is a function of who who knows four to 10 other levers we're pulling. And then and any anyone who uses a CPQ system knows that's how CPQ operates, right? But humans kind of have to operate the same as CPQ in that sense.
00:07:28
Carrie Welles
Yeah. Yeah. Yeah. And it's so myopic as well. So getting, so and Price is never going to leave the conversation. We know that.
00:07:36
Brian
Right.
00:07:37
Carrie Welles
So getting past that to understand more of what some of the more interesting trades could be. Okay.
00:07:43
Brian
Well, and but I just want to stay on that point you were just making.
00:07:43
Carrie Welles
so
00:07:46
Brian
Yeah, it's thinking past it and it's also anticipating. I mean, I can think right now of ah of a deal, a quarter end deal, whereas helping a team prepare for this.
00:07:57
Brian
and And it's a pretty seasoned team and they were shocked with, oh, end of quarter, your competitor just came in and undercut you by 10%. This is the whole, why the whole 97% predictability thing's important.
00:08:07
Brian
You already know. You already know, do, you know, the line items they're going to go after first rule is don't do those one at a time and be ready, be ready for the, if this, then that stuff. do not be surprised. The, I think the only time Carrie, we should ever be surprised is at the end of the quarter when the buyer says, you know what? You're probably charging us too little. You should raise your price. That should, that, that should shock us. Right. But beating us up on something near the end of the deal or the end of the quarter. Why, why are we surprised? do We, I'm telling you it's going to happen.
Differentiating Your Product Against Cheaper Alternatives
00:08:39
Carrie Welles
I know it's so true. It's not if concession pressure happens, it's when it happens. I know we're always surprised.
00:08:43
Brian
Yep.
00:08:45
Carrie Welles
Yeah. Yeah. Okay. So so let's get more to the meat, more to the juice of expanding the value. So let's give our listeners some good examples of and practical concrete examples of how to expand value.
00:08:57
Brian
Yep. Right. And and yeah right before we jump into those, i do I do want to hit quickly because I know maybe someone listening, it's like, yeah Someone's gonna say it's the same thing lower your price because you're the same as someone else, right? So I just want to touch on that that previous episode a little bit because these two things are so interlinked That it's rarely ever the same thing. It might be similar aspects of your value might be similar but it's rarely ever the same thing unless you're selling a pure commodity, you know two bills pork bellies and Um, if people even in trade pork bellies anymore, I'm not sure if that's a thing, but the, those are, you know, it's, it's never the same product, nor is it the same deal terms, right? When someone comes to you and say it's the same thing, lower your price by 10%, the, or, you know, or your competitors under you by 10%, they might be, but they may have committed to a different solution configuration.
00:09:49
Brian
or a higher volume or longer length of contract with the other side. and We get
Evaluating Trades to Expand Deal Value
00:09:53
Brian
sucked into all that stuff. We not only need to think about it how does our solution config align with the customer's needs better than the alternative. We've got to think about all the commercial terms because they're not they're not talking about exactly the same commercial term. So again, we can't can't look at one thing out of context. But yeah, you're your your question about, you know so how how do we do this? The format that you and I use when we're coaching is we want to list All the possible trades, we want to look at ranges, high to low and acceptable ranges for each. And then we want to rank, right? What's most important. So what are all the things that are part of this deal? are the ranges, high to low for East and what is the rank? And I will add just a little bit to that. We, that list.
00:10:35
Brian
we chunk out into, so what are the products and services that are involved, right? So number two, what are the commercial T's and C's, or the are the legal T's and C's, and then number three are creative trades, things like case studies and access to other divisions. We want as many things, I often like to say that complexity is our friend in this area. We are trying to simplify negotiation, but in this area, we want as many moving parts as we can, as many trades as as we can.
00:11:03
Brian
And think about that, that what are the items? What are the ranges? What are the rankings for both sides? Yeah. Where's the buyer? How are they going to, and we're looking for stuff that's really high on our list. That's maybe low on theirs, you know, like an introduction to ah and and another division or another geo or a case study say, Hey, that doesn't cost you a lot.
00:11:17
Carrie Welles
Yeah.
00:11:20
Brian
I value that a lot, especially if it's a new solution and you need references or or case studies. want one of our One of our consultants that we've worked with in the past, I was sitting in the back auditing one one of our guys that was running a training class, and he uses the language, there might be a pathway to that.
00:11:39
Brian
When it was either, it was either Tim or Steve, to two of our older consultants. But I like that notion, like as soon as you get pressure on something, you already should know that pressure is coming. You should already know the couple things you might be able to, there might be a pathway to that, Kerry. Can we consider a more volume or length of contract or introduction to another division? And this happened years ago.
00:12:03
Brian
Oh, with Coca-Cola. And I loved this. I remember the woman that I called up for a reference said to me, there might be a pathway to that, Brian. And I was like, yes, you're using the stuff like, yeah, what what are you going to give me back?
00:12:13
Carrie Welles
yeah.
00:12:16
Brian
And but by the way, One of the reasons back, you asked me the question earlier about expanding value. When you're fighting over a shrinking pie, it gets it gets difficult, right? It gets, you're you're fighting. where Where you're growing value and and you're finding it's easier to to make these divisions. It's either easier to come to closure. So it's it's a relationship thing as well. it's when When as a seller, the buyer comes in at the 11th hour and says, lower your price by 10% and you do it.
00:12:46
Brian
You just told them that you were lying to them about your price.
00:12:50
Carrie Welles
So.
00:12:51
Brian
And then they wonder, where where does the lying end? you know How far can I push Gary on this thing? And and I think that's that's the problem. But when you start trading, it's a little bit different. Yeah, there might be a pathway to that.
00:13:02
Brian
right I wasn't lying about my price. But if you increase your volume or something, ah know possibly I can if we make the deal quality a little bit better.
00:13:09
Carrie Welles
So Brian, I just want to layer on to what you were just saying about the trading for a second. so So those sales leaders
Creating a Library of Trades for Sales Teams
00:13:15
Carrie Welles
or executives that may be watching this, the most valuable thing that you can give your sales team would be what we would call a cattle or a library of these trades.
00:13:26
Carrie Welles
So Brian was talking about the ranges, so what you want, what you can accept, and this would be how you know you can bounce back and forth by still turning in a great deal.
00:13:26
Brian
Yeah.
00:13:35
Carrie Welles
That is gold for your salespeople because they they need arrows in their quiver to understand how do I combat concession pressure.
00:13:42
Brian
yep
00:13:45
Carrie Welles
And the best thing that we can allow them is to give them some real ideas and to give them some concrete information and and but specific traits that they can use when they get that concession pressure.
00:13:56
Brian
yep Yeah, that it's a really good point. And then yeah, coming up with the list and then also what we call trade pairs, if this, then that look, you're going to get pressure here. Think about go, go to these two places first.
00:14:05
Carrie Welles
Yeah.
00:14:06
Brian
That's, that's in line with our strategy.
Creative Negotiation Solutions
00:14:09
Brian
You know, I want to, I want to give you a quick story about one of our consultants, uh, as we close out this episode. Uh, and this is what we call level three trade, a super creative one.
00:14:18
Brian
So a big box retailer who you've all been in. I was negotiating with one of their carpet suppliers and we were, we were consulting to the big box retailer and, and they both looked at the alternate alternatives and the big box could get carpet elsewhere. You know, the carpeting guys, we thought, yeah, they can probably sell it. Like their, their demand's pretty high right now. So that the power dynamic didn't help us. We looked at like level one and level two trades and we we tried all the typical stuff and we couldn't get it done. So we went to level three and I'm not going to go through the whole, how we got there.
00:14:49
Brian
But we started brainstorming or rather our consultant started brainstorming with both, with both sides.
00:14:52
Carrie Welles
right
00:14:54
Brian
And what they came up with is the big box retailer had a database of consumers that was different than the carpet manufacturer. And, and they got to this point where if we marry these databases data by maybe we call them, if we were the databases that the cost, the cost savings alone.
00:15:10
Carrie Welles
Yeah.
00:15:13
Brian
of not having to go out and create those was way more than any price thing they were arguing about, about the price per yard. Then they also, they did co-marketing campaigns and the revenue associated with the co-marketing campaign was more. And so it was like this, I love the story. Not everyone's going to be able to do this kind of thing, but that's the best of the best negotiators that I've seen. When you get stumped on all the usual suspects, you go to something like that and and dig and you can probably find it.
00:15:41
Carrie Welles
Yeah, yeah, that's a great story.
00:15:41
Brian
yeah
00:15:43
Carrie Welles
OK, good, good. So let's talk about what's what we're going to discuss next episode.
00:15:47
Brian
Yep.
Teaser for Next Episode on Negotiation Strategies
00:15:48
Brian
So 97% tactics fall into two categories, three questions. We can prepare what happens to both sides. If we don't agree, what's a great deal look like if we do agree. And the third one is how can I prepare three paths forward?
00:15:59
Carrie Welles
I know, same, same.
00:16:00
Brian
And I'm looking forward to chatting about that one.
00:16:04
Carrie Welles
That's going to be a great episode. OK, so join us then, and we'll see you all later. thanks for Thanks for stopping by.
00:16:11
Brian
Thank you.