How an Integrated Pricing and Negotiation Strategy Drives Profitability—and Customer Satisfaction
In today's highly competitive market, companies are constantly looking for ways to boost profitability. An untapped source of profitability can be found in the financial benefits of a well-negotiated contract. Ironically, most companies spend the least amount of time planning and executing on the most important part of positioning their organization for a win—determining how to price and negotiate an opportunity.
Among the biggest mistakes organizations make on pricing and negotiation strategies are (1) not having a formal, documented road map of how to price and negotiate the deal, forcing reaction to customer demands as opposed to driving the interaction; (2) not anticipating what the customer needs to be successful and incorporating those elements into your strategy—price reduction, improved SLA's, better balance of trade, access to developing technology, etc.; (3) not rejecting requests or providing partial requests on demands early to set the tone that negotiation is two-way; (4) not building into the solution elements that can be given away in the negotiation; (5) not taking into consideration the real value of your product/service to the customer—strong executive relationships, balance of trade, proprietary products, etc.
Companies make these crucial mistakes for a number for reasons. For most, sales organizations have not been trained to approach the pursuit and negotiation of deals systematically. Often, vendors are so focused on quarterly results that they won't invest the time to develop the skills and processes necessary to create the proper strategy. Many sales organizations have no formal decision-making process to get buy-in on the strategy. With differing goals from constituents (sales, delivery, finance, product development), making the correct trade-offs to get the optimum deal is difficult. Additionally, this lack of defined process opens the door for executives with limited information to intervene and force decisions that are often shortsighted. These strategies require careful planning and execution and the conviction to stick to the plan. Executives concerned about making the quarter often don't have the patience to play them out and give in to costly demands just to get the deal done.
All of these mistakes can have disastrous consequences for the deal. The most common is that the vendor has to discount far beyond what is considered a good deal for them. Because a deal at this stage has been forecasted and has significant visibility in the organization, they have to win at all costs. This "win at all costs" dilemma usually goes far beyond price. Customers that sense that you have to have the deal will leverage this knowledge to try and improve all aspects of the deal for themselves, often going back to reopen areas in the negotiation that were previously closed. Once you've set the precedent that you are willing to do most anything to close the deal, it is very difficult to change course and stand firm.
So what can organizations do to avoid these mistakes and ensure that they negotiate a deal that drives profitability and customer satisfaction? Below are a few of the most important steps you can take:
- Gather as much info from as many sources as possible about the opportunity and company dynamics. Knowledge is power!
- Base your strategy on all aspects of the opportunity/company dynamics.
-New account / incumbent vendor
-Current account and executive relationships
-Reason for pursuing business
-New revenue, renewal, save troubled account, unseat competitor, grow new product placements, etc.
-Growth / acquisitions, downsizing, incumbent problems, etc.
- Determine the issues that are important to the customer and develop your strategy to let them win on those issues. Everybody likes to win—make it easy for them to say yes to you.
- It’s not all about price…it never is! You have to be competitive, but you don’t have to be the lowest.
- Start your strategy by focusing on your optimum end result.
-Scope of project, revenue commitment, profitability, account reference, future / ancillary business, etc.
- Be deliberate in your response to requests.
-Give concessions slowly/provide partial requests where appropriate.
-Decrease size of concessions as you proceed in negotiations.
-If you give, ask for something in return.
Join my session at CRM Evolution (Wednesday, Aug. 19) and learn how to create an integrated pricing and negotiation strategy based on the specifics of the customer, opportunity, and your company’s reason for pursuing the business. We will also discuss how these differ in new business deals versus renewals and provide successful real-world examples of both. It is possible to orchestrate a deal that meets your company’s financial goals while ensuring the customer is also happy with the deal and its deliverables. It takes planning and thoughtful execution, but the rewards are plentiful. I hope to see you there!
Paul Harney is a veteran sales executive with over 25 years of success closing multimillion dollar sales with three of the largest global technology and services companies—HP, Xerox, and NCR. In addition, Harney has contracted over $448 million of business with Fortune 500 companies such as Bank of America, FedEx, Delta Air Lines, Disney, and International Paper.