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?
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:  we might cost 2-3x more, but we will eventually get the job done, and  even if we mess it up, remember that no one ever got fired for buying from us.
- Your argument:  why pay 2-3x more for worthless insurance policy – our customers are successful and I can prove it,  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.