This may just help you avoid negotiating
- by Andrew Bailey
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- 25 Jul, 2023
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Here’s a thought
And something I increasingly start with at my price negotiation workshops
Don’t negotiate – odd as that’s what people have to come to learn abou
Why would I say this
If you follow a value based selling approach – I use my Value Conversation Roadmap with my clients to take them through a simple, less stressful sales and price conversation – then you focus on…
- Building rapport and trust
- Being honest
- Understanding what your customers want and need – what impact you can have, the results they will get and so the values they gain
- You work with your customer to build value for you both
- You agree on the options and prices/terms that work for you both
This is actually a great model for negotiating too – focused on collaboration – to build value for both sides
Both sides use value creation to achieve better outcomes for each side
So if we use an effective value based selling process - Value Conversation Roadmap - during our conversations with customers, the need to negotiate is reduced because we have less disagreement
And we know that if we deliver great outcomes, results and value to customers through our products and service then our customers will have a higher willingness to pay – which further reduces the need to negotiate as the key are of disagreement - price - is not an issue
Of course it’s still useful to know effective negotiating skills so you can deal with those un-enlightened people who still like to be competitive and take a win – lose approach
If you’d like to know more about how you can use our Value Conversation Roadmap to build a more collaborative approach to selling AND negotiating please DM me and I’ll be in touch
We can get lulled into thinking that getting better at pricing and improving margins is about putting our prices up, however it doesn’t have to be that one dimensional.
Which is good news given how many people and businesses fear putting prices up because it will cause customer objections and lost business.
So if you can be better at pricing and grow your margins without necessarily ‘just putting prices up’, what can you do?
Here are some ideas for you to think about…
- Stop giving discounts – or reduce them or make them conditional or just don’t make them round numbers.
- Stop doing promotions or product / service give aways, 2 for 1 and so on. They rarely drive more business/profit.
- Implement the prices, fees and terms you have already agreed – many don’t.
- Don’t allow product or scope creep where you give more away than you intended to because the customer asks or you feel it will help the relationship.
- Charge for delivery, mileage etc, may be small amounts but they all add up.
- Find out those customers who are under priced and address those issues.
- Introduce a new product and service at a higher price.
- Sort out your value messaging and create marketing content that positions you as more premium so your customers are more willing to pay when you do increase prices or for your premium product.
- Renegotiate cost prices with suppliers.
- If your deals are not delivering the price and margin you agreed then renegotiate them.
- If customers are not fulfilling the conditions in the deal you agreed to, go back to them and consider penalties or price adjustments.
Not an exhaustive list but something to think about.
One of the best ways to understand where you may be able to plug some margin gaps and be more effective with your pricing is by conducting a price waterfall analysis . I recently did this work with a client and we identified around £50,000 p.a. of margin that could be gained/recovered in about 3 hours worth of work (let me know if you’d like help with this). Simple areas where they were losing margin for no valid reason. You may be surprised how many businesses do this.
In the last two days I’ve had emails from service providers who have offered me an ‘introductory discount of 15%’ and another offering an ‘early bird’ discount of £500 off their programme – that’s even before they have spoken to me.
It seems as though they have spent a lot of effort (and cost) writing their marketing material and copy, highlighted the features and benefits of what they do and the value I would get from using their programmes – only to bin all of that effort at the end and give me a discount I didn’t ask for – effectively saying “buy my programme because it’s cheaper” – it’s also a bit lazy.
Pricing is THE most powerful profit lever and your margins are precious – don’t just dilute them through weak marketing, feature led selling and weak negotiation.
Focus on value, sell on value and protect your margins.
If you’ve been abroad and hired a car lately – here’s Anchoring in action
Anchoring is one of those psychological biases we have – the idea that we focus too much on the first things we hear and that influences our view in the future and decision making
If like me you travel and hire a car then there are some great examples of anchoring you’ll experience
When you go to the hire desk they will discuss the following, probably in this order…
- You haven’t got any additional insurance and even if you have it’s not valid for the car/country
- The amount of deposit you will have to lodge with them for potential damages – around €1500
- Then a deposit for fuel used (if you don’t give the car back full of fuel) at a much higher rate than usual - €150
- Then the impact of having an accident or damage to the car at around €500 per scratch/dent – even if you haven’t caused it
- If you do have damage on the car then you need a police report/number – which is difficult to get hold of
- You’ll have to really check the car for damage before you take it away as if there is anything, anything not noted then you’ll have to pay for it
- So if you take our low cost insurance it will solve all this and will take all this worry away – nothing for you to pay regardless of what damage may occur
- Given the deposit of €1500 and cost of damage of €500 per issue - it’s only €135
Sounds like a snip compared to the very much higher costs they have mentioned?
And they’ve anchored you on high values so the charge for insurance seems really low, so you think about it!
However if you have bought insurance already you probably are covered, you can check the vehicle and take photos of all the issues easily and they only bother about scratches and dents over certain size anyway
But if you’re thinking about damage, costs and that driving abroad may be more risky, taking that worry away sounds good
Then €135 in the context of €thousands sounds like a good deal – and many people take it
I’m not suggesting you don’t, just be aware that you’re being influenced to buy insurance by making the figure sound really small compared to the potential costs
Imagine if they simply said “we can offer you additional insurance for €135 for 5 days
You’d compare it as a cost per day
Compare it to your annual premium at home for a whole year
Put in the context of the cost of the trip
Think about what else you could do with that money on your trip
And may well come to different conclusion on it’s value
Have you experienced similar? What did you do?
PS I have absolutely nothing against hire car companies and use them in the knowledge of the above and appreciate their people are just doing their job - quite well it seems
We’ve used research, experience and practice to develop an approach that enables you and your team to learn and master four skills that will help you win more deals, more often, at higher prices.
Research and experience shows that…
Most businesses feel they are undervaluing themselves or their customers do not pay what they should be for your products/service which means you’re leaving money on the table and missing out.
Sales people tend to focus more on the features of your product than the outcomes and value customers want to achieve which means you miss the point and customers don’t see why they should do business with you let alone pay a higher price.
People are anxious about price discussions and negotiations which means they don’t push for the deal.
This makes it difficult to simply know your value, ask for what you want and get it through the only mechanism that turns what you do into money – price.
There are ways you can address this imbalance and improve your chances of winning deals at higher prices.
Here are three that will have a big impact;
1. Find out what is really important to your customers – the easiest way to do this is to ask them – and then align your product and service to these areas the best way you can that delivers results for your customers. If you can’t then it may be you are trying to attract the wrong target customers or you may need to make some changes to what you offer.
2. When you have done point 1. You can price to your value. This may not be easy to begin with, however if you understand customer value then it’s about what is a fair price for the customer to pay. Fear of increasing prices can be debilitating, leading to inaction and frustration, however there are a number of low risk ways this can be achieved, for example offering customers options like Good, Better, Best versions of what you do and changing prices accordingly. You don’t need to do lots of data analysis or invest in IT systems to begin to address your pricing challenges. Build on where you are.
3. Create a framework and script that enables your team to talk confidently about your prices. Simply presenting your prices in a confident, non negotiable way, based on the value you give your customers will in itself work wonders. Customer price objections are driven by a lack of focus on customer value, poor justification and a nervous anticipation of objections and challenges. A well prepared – and practiced – price conversation solves these issues.
Achieving higher prices and better margins is not just for big brands, well known companies or trusted to luck.
We can all get better at some core activities that give us a better chance of getting what we all want – which is a fair price for what we do.
An example of a reference price in action
We flew out of the UK this week so it’s nice to be able to post something from some nice hot sunshine
Before leaving I was discussing travel to the airport with a friend, I mentioned to them that we had hired a car and driver to drop us off at the airport check-in
To arrive at the time we wanted, straight to the drop off point at the airport, collection when we land and delivering us back at home – in a bit a luxury too
- No worries about timings
- No worries about paperwork
- No worries about hidden charges
All makes perfect sense to me
When I was asked how much, I simply said the price - £100
The reply surprised me, “ How much, wow that’s expensive ”
Which equally surprised me
Here’s the thing, he was comparing the cost of £100 - for a full service to and from the airport to a local taxi ride of around £20 – his reference price - clearly expensive in comparison
However my reference and comparison points were;
- £120 cost of parking at the airport
- No fuel cost to pay
- Ease of drop off
- Comfort and less stress
My view £100 was great value
So two people, different views of the price, both comparing the cost to a different reference point and coming out with different emotions
Because people use their own experiences and past purchasing to judge prices, they come up with different views of what is cheap or expensive, good value or not
From a value selling and pricing perspective this is great news
It means we can influence how people perceive our prices – by changing the comparison points and price refences of people, we can influence their perception of our prices so they are perceived as higher value, worth paying for and leave our customers feeling good
Here’s some questions for you to think about – what comparison and reference points do your customers think about when evaluating your prices?
And what can you do to influence that perception in your favour?
What other reference points and comparisons could you get the customer to use?
Remember customers will perceive your prices based on their own views, experiences and preferences - never communicate your prices without an appropriate comparison to heighten value and influence their willingness to pay and price acceptance
We often talk about repetition and reinforcement in our pricing and negotiation programmes.
Repetition and reinforcement are crucial in building the right skills and behaviours.
Whilst they may sound similar there are, in my view, some distinct differences.
Repetition is about repeating what you have learned, developing the behaviour or skill and practicing it until it becomes habitual, second nature, something you naturally do.
Repetition is a bit like developing muscle memory in sport – making sure you have the right skill and behaviour ready to use exactly when you need to, knowing it will work for you.
Reinforcement is about strengthening what you have learnt, new skills and behaviours. Strengthening is helped by repetition, however also means widening knowledge, deepening what you know and building greater awareness around the subject while focusing on the core ideas and methods.
Reinforcement of ideas and knowledge is more about having a great mindset and attitude – the way you do things.
In our programmes we incorporate activities that do both – have repetition and reinforcement - so you can build skills and behaviours to use just when you need them and create a great mindset and attitude for price negotiations.
Here are three activities you and your team can use to do both;
1. Broaden your knowledge by reading material from the best in the business. Listen to podcasts on the subjects most important to you. Subscribe to emails/newsletter/top tips that come straight into your inbox.
2. Discuss successes and failures with peers and as a team. Share experiences of what worked well and what you could improve. Collaborate to develop solutions for future price negotiation situations.
3. Practice your skills and behaviours with others in your team. Make it a safe learning environment. Bring in some external help to practice with and bring in new ideas and approaches.
If you continually develop your and your teams knowledge, skills and behaviours with a focus on repetition and reinforcement – stick to developing the few areas that will make the most difference – and master these, then you will be well on the way to growing in confidence and being effective price negotiators and winning more deals, more often at higher prices.
You may have heard of the sales velocity equation?
It goes something like this…
No. of leads x no. of leads converted x price / sales cycle time
Improve each of those areas by a small amount and profit increases dramatically
(It reinforces my ‘strapline’ of “winning more deals, more often, at higher prices, not that this was intentional)
There is also an equation that helps you focus your value proposition, it goes something like this…
Quantify (in £$€) your impact vs competitors x how easy it is to achieve that impact
Divided by
Price x Time (how long it takes to deliver) x Effort (needed by the customer)
You may not be able to put numbers to each of these areas, however we need to be able to justify and give evidence to your customers and prospects that we have the…
Most valuable impact (on the things that really matter to them) which take the least effort to achieve, delivering quick wins and a short payback, with little risk of not delivering - all at a fair price
If you can achieve that in your proposition it becomes compelling
A much better focus than trying to define a USP
Just imagine how confident you and your team would be delivering those price conversations and negotiations if you knew you had a proposition like this?
Fearless?
Compelling?
Unstoppable?
There’s even a step by step process you can follow to help you get there, just DM me if you’d like further details
Three actions you can take you're negotiating prices to win more deals, more often at higher prices .
This one is for you if you’re being asked to accept price increases from your suppliers…
1. Say “sorry, I won’t be able to accept any supplier increases at this time, then keep quiet. This may be the first position in an ongoing conversation where you have to give some ground, but make it clear increases are difficult.
2. Use what and how questions rather than why. This puts the onus on the other side to justify the increase and help you take action – try “how do you expect me to pass that increase onto my customers.” See how they justify the rise and they can help you – if they cite fuel costs as a driver of the increase, be ready when fuel costs come down to ask for a price reduction.
3. Think about your own goals and objectives – how high does their price rise need to be before you buy elsewhere, what are your alternatives. If you push back on the increase what will they do. Do you hold the power in the relationship or do they? Be as objective as possible.
We have a number of tools and techniques to help you with these actions, just get in touch and we can discuss.
And remember practicing your price conversations is crucial for success.
Have a good week and share your successes with your colleagues and teams.
In the last week I've read articles that focus on the use of data and how we can use analytics to find the right prices for our products which will either maximise or optimise prices and profit (not sure which the author meant (and I don't thing he did either). They are very different.
Also an article that discussed why we should have a rigid price structure that all our customers can clearly see and understand and choose how they want to do business.
Then another article that suggested we should price differently for each customer based on their willingness to pay, they demographics and perceptions of value (if it's possible to understand all that).
So if you're starting a business, introducing a new product or simply reviewing your pricing strategy (which you should do regularly) there's a whole lot of advice out there purporting to guide you to the right or perfect price for your product to make the most margin and profit. I can understand if you're a little frustrated.
Well here's the thing, I don't think there is a 'perfect' or 'right price', so don't bother trying to find it. It can take hours of research, significant sums invested in IT systems and more hours testing different prices - all to get to a figure that just doesn't exist.
And here's why.
Different industries, markets and sectors operate in different ways. How you price for some is different to others - for example if we buy on line we expect to see a price on line, if we don't buy on line then is there a reason to publish your price on line? Maybe not but some businesses feel obliged to do it. There are a whole range of benefits and risks of doing so.
Contexts change. We know on a very hot day (we've just had some of those) we're more likely to pay more for an ice cream than on a dull wet day when we may even choose not to buy one at all.
Situations change. Buyers may be unwilling to pay a high price for something one day, only for their situation to change the next meaning they need the product and service and will therefore have to pay a higher price.
We're dealing with people. And people have differing views of what they value and therefore will be willing to pay different prices for the same products. Or different brands of products that do exactly the same thing.
Here's a few example...
Anyone in UK will know that at the moment it's impossible to understand the price of a litre of fuel when service stations a short distance apart can charge up to 30p more for the same product.
Why is it one person is happy to pay for a premium pen priced at £450 when there is a perfectly good one that does the same job for £0.50.
When we go to the pub and order a beer why is the price £3.75 and not £3.55 or £3.95? It will have nothing to do with ingredients or tax, everything to do with location, pub positioning, brand positioning, service and so on. And we'll buy it at either of those prices because when we go to the pub we're there to enjoy ourselves not look at the price list. We're not price sensitive - which is a whole other area to get into.
Given these variables, and there are more, trying to come up with the perfect for right price may be wasted time.
However remember that pricing is THE most powerful profit lever - much more so than cost cutting or selling more. So it' a subject you should take seriously. a 10% increase in prices can double your profit, but if you decide to discount to make up margin you're more likely to make a loss, seriously, do the numbers.
So when you're starting your business or launching that new product take some advice - there are so many ways you can monetise what you do, different frameworks you can use, ways to influence your customers to pay more through pricing techniques - you can stack the deck in your favour.
While it may be difficult and a fruitless task to try and find the 'perfect' price, you should spend time on your pricing strategy. There are so many things to consider that getting it right should be one of the most important business decisions you make.
And because there are so many buyer psychological factors at play - such as the impact price has on positioning, our view of quality (the price/quality bias), impact on the buying process and many others - if there was ever an aspect of your business you should invest in support, help and guidance - this is it.
My recommendation for getting pricing right?
Do some research and test your market - decide on the pricing and price structure you think is about right.
Seek some professional advice, the subject is too important not to. There are lots of us who live in this world and can help.
Test the market and find out how your customers react to that pricing.
Focus on how you implement pricing - communication, messaging, positioning is all influenced by how you price.
Review the outcomes and adjust if necessary (again advice is a good idea here).
Keep evolving your pricing approach, taking into account changes in the market, what competitors are doing, new and different ways to monetise your offer.
And don't forget prices increase to take account of inflation.
Hope this helps, please get in touch if you'd like to discuss further.
Do you consider these four things before negotiating prices?
I ran a Negotiating skills workshop webinar last week and was reflecting on a great question from one of the delegates at the end of it ...
"If there were three things that will have the biggest impact for us after the session, what would they be?"
Great question and an issue I would have summarised as part of my top ten Negotiating Rules.
So what are the top three out of the top ten?
Here goes ...
1. Always prepare for a negotiation. No matter how valuable, complex or impending, always do some preparation.
2. Understand your (and the other person's) negotiating strength. This will enable you to choose the right strategy and leverage your position to get the best deal on pricing.
3. Know how to recognise, understand and deal with the various negotiating tactics that people use. Not everyone negotiates in the same way or has win - win in mind. So be ready for devious tactics (and use them yourself if appropriate).
And there's a fourth I would add ... make sure you understand why your negotiating first, do you need to, are there other solutions such as providing options and choices that means you don't need to negotiate.
Are you experiencing suppliers putting their prices up leaving you wondering what you can do about it?
If you are then have a think about these possible responses (I’m assuming you don’t want to pay more!);
1. Ask them to justify why, if it’s not a good reason challenge them.
2. Ask them what additional value they will provide you for the higher price.
3. Ask them what you can do/offer them to keep the price the same (or even lower).
4. Say “that’s an interesting coincidence, I was just about to call you and ask for a reduction”.
It’s always good to have an alternative supplier, so if prices do rise you can go somewhere else.
Saying “No” also works as most sales people won’t want to lose a customer.
Or you could try and negotiate a better deal with the supplier and aim for a win – win deal.
If you’re experiencing suppliers who want to put their prices up and would like to discuss some tactics to avoid this or get the most value from it please message me, thanks.