Dear Dave:
I think the art of negotiation is dead. Over the past two years we have won over prospects on our product capabilities, but then lost out on price to inferior products. In all recent cases the prospect never once negotiated with us for a lower cost but clearly their staff preferred our product. I am baffled by the lack interest in negotiation among these generally price-sensitive buyers. It has become a guessing game of sorts for us to figure out what someone can afford. What do you think is going on?
Dear Reader:
I believe the customer is not negotiating because they are not interested in your offering, even at a lower price and despite the fact that the recommending team may strongly prefer your product. I agree that the buyers in your segment are price-sensitive so this may be counter-intuitive, but I also believe the buyers in your segment are quite conservative. So I think you are getting your legs cut out from underneath you “up the chain” at a business level on business issues like risk, “safe choice,” and company size.
While my take is pure speculation it would certainly explain how you can win the product evaluation with the buying team and then lose the deal without even having a price negotiation. So the problem isn’t a lack of interest in negotiation, it’s that your deal is getting killed up the chain, probably by a sales manager or regional VP from a mega-vendor who is hitting both the business buyer and probably the CIO with “safe choice” message. (As in, you aren’t one.)
Thus, I don’t think price experimentation is going to help your problem. In fact, and sorry if this irks you, I’d bet $100 that the customer is paying more – maybe 2-3x more – to buy from the mega-vendor. The customer is, in effect, paying a hefty risk premium on the “nobody ever got fired for buying IBM” logic chain.
So here’s what I recommend to improve your odds:
- Ask your marketing person to call several recent losses, ask for a debrief, and try to validate this hypothesis. Most important words: “I am not trying to sell you anything, I am researching this issue so we can do better next time.”
- Get you and your sales team working higher in the organization, and building relationships with the business buyer and the CIO/CTO. I can 100% guarantee you that mega-vendor has these relationships.
- Once working at that level, inoculate the customer against the safe choice message. Remind them of mega-vendor’s 50% operating margins (“Gee, I guess none of the profit is coming from you; it must be their other customers.”) Document and remind them of the total cost of owning mega-vendor’s solution vs. yours over the lifetime of the project. Shares stories of peer organizations who have been successful with your solution. Offer peer-level, senior business references to validate your claims.
Remember what you are trying to do is de-value the risk premium that the mega-vendor is selling.
- Mega-vendor’s argument: [1] we might cost 2-3x more, but we will eventually get the job done, and [2] even if we mess it up, remember that no one ever got fired for buying from us.
- Your argument: [1] why pay 2-3x more for worthless insurance policy – our customers are successful and I can prove it, [2] and while no one ever got fired for buying from mega-vendor, nobody ever got promoted either.
We can deliver this project better/cheaper/faster and tee you up for additional success downstream. To paraphrase the classic old Harvard Business Review direct mailer: isn’t your career about more than not getting fired?
Good luck and let me know how it works out.
Dave always has great advice. That is why I bring him two dozen sales and marketing managers every year from France.
Let me add to Dave’s advise. In Europe we tell sales people to sell through the price not with the price. You have to be able to make a ROI case. Secondly, for many smaller players it helps to have board members engage with clients. They typically have more experience and their commitment can be a key sales tool.
Good Luck
Michael Segalla, Professor of Management, HEC Paris
A different perspective: I recently had a start-up present a product that I could certainly have used. When I asked for budgetary pricing, they came back with something wildly out of line with the value the product could deliver. I ended the discussion. The sales management team then came back with a half price “deal”, and would clearly have gone lower to make the sale. I’m not interested.
While I realize this is a “sales tactic”, and there needs to be pricing flexibility, giving me a wildly inflated start to the pricing discussion, and then quickly and dramatically devaluing it, you damage the perception of value you have created. Further, I now have a view of the management team as not understanding the value of their product, and either not understanding the market they want to sell to, or not knowing the market they need to be selling to. Whatever the answer, it makes me doubt the long term viability of the company, which is bad for a start-up.
This question itself suggests another possible roadblock… product evaluation by itself means very little without establishing agreement on quantifiable value. It may be true that higher ups are blocking the sale, and/or you may not have demonstrated and reached agreement with your prospect on the ROI and how it compares to competitors. It could be that you’re doing everything right, but that’s my two cents based on the framing of the question re “winning the product evaluation.”
One caution I would have is that ROI is not a magic bullet. As it was put to me by one individual (buyer from a big bank)) “if I did all the projects from vendors sitting on my desk (a pile a few inches thick) I would actually be printing money.” We’ve seen many times where the ROI is real but “hollow”. Most organizations faced with an ROI for example that involves cuts to people (or their budget)… damn self interest… will not sacrifice either. One of the key things we’ve focused on is surrounding the sale so that we are providing value to multiple points in the organization. Secondly is to focus on the value proposition and its direct tie to one of the top strategic organizational goals. Some areas receive strong ROI, others might see an increase in customer satisfaction (a softer measure). So IMHO be careful that ROI is not the only selling method.
I would really avoid the “better, faster, cheaper” approach because you have just made yourself, product & company a commodity. If there really is nothing different, then you are just another box of cereal on the shelf (and I know that is not true.) Yes, just about everyone is price sensitive, but they are more “failure sensitive” than anything else. Giving the prospect personal attention all the way up the management chain, showing that you know their business and technology pain, along with ruthless and relentless qualification can win the day.