Negotiating with a Customer You Can't Afford to Lose

Whether you're negotiating an arms deal with the Russians, ... however, because sales bargaining requires a dual focus—on the customer and on the best ... Youhave1freearticlesleftthismonth. Youarereadingyourlastfreearticleforthismonth. Subscribeforunlimitedaccess. Createanaccounttoread2more. Negotiationstrategies NegotiatingwithaCustomerYouCan’tAffordtoLose by ThomasC.Keiser by ThomasC.Keiser FromtheMagazine(November1988) Tweet Post Share Save GetPDF BuyCopies Print Tweet Post Share Save GetPDF BuyCopies Print Leerenespañol Leremportuguês “Ilikeyourproduct,butyourpriceiswayoutofline.We’reusedtopayinghalfthatmuch!” “Acme’sgoingtothrowintheservicecontractfornothing.Ifyoucan’tmatchthat,you’renotevenintherunning.” “Frankly,Ithinkwe’veworkedoutaprettygooddealhere,butnowyou’vegottomeetmyboss.IfyouthoughtIwastough…” “Tellyouwhat:Ifyoucandropthepriceby20%,I’llgiveyouthebusiness.Onceyou’reinourdivision,youknow,you’llhavealockonthewholecompany.Thevolumewillbehuge!” “Ican’teventalktoyouaboutpaymentschedule.Companypolicyisironcladonthatpoint.” “Lookhere,atthatprice,you’rejustwastingmytime!Ithoughtthiswasaseriousbid!Whodoyouthinkyou’retalkingto,somegreenkid?” Thiswasn’tsupposedtohappen.You’veinvestedalotoftimeearningacustomer’strustandgoodwill.You’vedoneneeds-satisfactionselling,relationshipselling,consultativeselling,customer-orientedselling;you’vebeenpersuasiveandgood-humored.Butasyouapproachtheclose,yourgoodfriendthecustomersuddenlyturnsintoAttilatheHun,demandingabetterdeal,eagertoplunderyourcompany’smarginandrideawaywiththeprofits.You’releftwithalousychoice:dothebusinessunprofitablyordon’tdothebusinessatall. Thiskindofdilemmaisnothingnew,ofcourse.Dealsfallthrougheveryday.Butbusinessesthatdependonlong-termcustomerrelationshipshaveaparticularneedtoavoidwin-losesituations,sincebackingoutofabaddealcancostalotoffuturedealsaswell.Somebuyersresorttohardballtacticsevenwhenthesalespersonhasdoneaconsummatejobofselling.Thepremiseisthatitcostsnothingtoaskforaconcession.Sellerscanalwayssayno.Theywillstilldothedeal.Butmanysellers—especiallyinexperiencedones—sayyestoeventhemostoutrageouscustomerdemands.Shrewdbuyerscanlureevenseasonedsalespeopleintodealsbasedonemotionratherthanonsolidbusinesssense.Sohowdoyouprotectyourowninterests,savethesale,andpreservetherelationshipwhenthecustomeristryingtoeatyourlunch? Joiningbattleisnotthesolutionunlessyou’retheonlysourceofwhateverthecustomerneeds.(Andinthatcaseyou’dbetterbesureyouneverloseyourmonopoly.)Leavingthefieldisanevenworsetactic,howevertemptingitistowalkawayfromareallyunreasonablecustomer. Surprisingly,accommodationandcompromisearenottheanswerseither.Oftena10%pricediscountwillmakeatrivialdifferenceinthecommission,sothesalespersonquicklyconcedesit.Butbesidesreducingyourcompany’smarginsignificantly,thiskindofeasyaccommodationencouragesthecustomertoexpectsomethingfornothinginfuturenegotiations. Compromise—splittingthedifference,meetingthecustomerhalfway—maysavetime,butbecauseitfailstomeettheneedsofeitherpartyfullyitisnottheproverbialwin-winsolution.Acompetitorwhofindsacreativewaytosatisfybothpartiescanstealthebusiness. Thebestresponsetoaggressivebutimportantcustomersisakindofassertivepacifism.Refusetofight,butrefusetoletthecustomertakeadvantageofyou.Don’tcavein,justdon’tcounterattack.Duck,dodge,parry,butholdyourground.Nevercloseadoor;keepopeningnewones.Trytodrawthecustomerintoacreativepartnershipwherethetwoofyouworktogetherforinventivesolutionsthatneveroccurredtoanyofyourcompetitors. Thereareeightkeystrategiesformovingacustomeroutofahardballmentalityandintoamoreproductiveframeofmind. 1.Preparebyknowingyourwalkawayandbybuildingthenumberofvariablesyoucanworkwithduringthenegotiation.Everyoneagreesaboutthewalkaway.Whetheryou’renegotiatinganarmsdealwiththeRussians,alaboragreementwiththeUAW,oracontractyoucan’taffordtolose,youneedtohaveawalkaway:acombinationofprice,terms,anddeliverablesthatrepresentstheleastyouwillaccept.Withoutone,youhavenonegotiatingroadmap. Increasingthenumberofvariablesisevenmoreimportant.Themorevariablesyouhavetoworkwith,themoreoptionsyouhavetooffer;thegreateryouroptions,thebetteryourchancesofclosingthedeal.Withanimportantcustomer,yourfirstpriorityistoavoidtake-it-or-leave-itsituationsandkeepthenegotiationgoinglongenoughtofindaworkabledeal.Toomanysalespeoplethinktheironlyvariableisprice,butsuchnarrowthinkingcanbethekissofdeath.Afterall,priceisoneareawherethecustomer’sandthesupplier’sinterestsareboundtobeatodds.Focusingonpricecanonlyincreaseanimosity,reducemargin,orboth. Instead,focusonvariableswherethecustomer’sinterestsandyourownhavemoreincommon.Forexample,asalespersonforaconsumer-goodsmanufacturermighttalktotheretaileraboutmoreeffectivewaystouseadvertisingdollars—theretailer’saswellasthemanufacturer’s—topromotetheproduct.Byincludingmarketingprogramsinthediscussion,thesalespersonhelpstobuildvalueintotheprice,whichwillcomeuplaterinthenegotiation. Thesalesperson’sjobistofindthespecificpackageofproductsandservicesthatmosteffectivelyincreasesvalueforthecustomerwithoutsacrificingtheseller’sprofit.Forexample,anautomotivepartssupplierbuiltupitsresearchanddevelopmentcapacity,givingcustomersthechoiceofdoingtheirownR&Din-houseorfarmingitouttothepartssupplier.Havingthisoptionenabledthesuppliertoredirectnegotiationsawayfrompriceandtowardcreationofvalueintheproduct-developmentprocess.Itsrevenuesandmarginsimprovedsignificantly. Evenwithundifferentiatedproducts,youcanincreasevariablesbyfocusingonservices.Acommoditychemicalssalesperson,forexample,routinelyconsideredpaymentoptions,quantitydiscounts,bundlingwithotherpurchases,eventherelativecostsandbenefitsofusingthesupplier’stankcarsorthecustomer’s.Regardlessofindustry,themorevariablesyouhave,thegreateryourchancesofsuccess. 2.Whenunderattack,listen.Collectasmuchinformationaspossiblefromthecustomer.Oncecustomershavelockedintoaposition,itisdifficulttomovethemwitharguments,howeverbrilliant.Underthesecircumstances,persuasionismoreafunctionoflistening. Here’sanexamplefrommyowncompany.Duringaprotractednegotiationforalargetraininganddevelopmentcontract,thecustomerkepttryingtodrivedowntheperdiempriceofourprofessionalseminarleaders.Hepleadedpoverty,cheapercompetition,andcompanypolicy.Thecontractwasabigone,butwewerealreadyoperatingatnearcapacity,sowehadlittleincentivetoshavetheperdiemevenslightly.However,wewerealsosellingbookstoeachseminarparticipant,andthatbusinesswasatleastasimportanttousastheservices.Thecustomerwasnotaskingforconcessionsonbooks.Hewasonlythinkingoftheperdiem,andhewasbeginningtodiginhisheels. Atthispointoursalespersonstoppedtalking,excepttoaskquestions,andbeganlistening.Shelearnedagreatdeal—anduncoveredanissuemoreimportanttothecustomerthanprice. ThecustomerwasdirectorofT&Dforalargecorporationandamanwithcareerambitions.Togetthepromotionhewanted,heneededvisibilitywithhissuperiors.Hewasafraidthatourprofessionalswoulddeveloptheirownrelationshipswithhiscompany’stopmanagement,leavinghimoutoftheloop.Oursalespersondecidedtogivehimthecontrolhewanted.Normallywewouldhavehiredfree-lancerstofillthegapbetweenourownavailablestaffandthecustomer’sneeds.Butinthiscaseshetoldhimhecouldhirethefree-lancershimself,subjecttoourtraininganddirection.Thepeoplewealreadyemployedwouldbebilledattheirfullperdiem.Hewouldsavemoneyonthefree-lancershepaiddirectly,withoutourmargin.Wewouldstillmakeourprofitonthebooksandtheprofessionalserviceswedidprovide.Hewouldmaintaincontrol. Moreover,wewereconfidentthatthecustomerwasunderestimatingthedifficultyofhiring,training,andmanagingfree-lancers.Wetooktheriskthatsomewheredowntheroadthecustomerwouldvaluethisserviceandbewillingtopayforit.Ourjudgmentturnedouttobeaccurate.Withinayearwehadobtainedtheentireprofessionalservicescontractwithoutsacrificingmargin. Itwasasolutionnocompetitorcouldmatchbecausenocompetitorhadlistenedcarefullyenoughtothecustomer’sunderlyingagenda.Evenmoreimportant,thebuyer’swarygamesmanshipturnedtotrust,andthattrustshapedalloursubsequentnegotiations. Whenunderattack,mostpeople’snaturalresponseistodefendthemselvesortocounterattack.Forasalespersoninanegotiation,eitherofthesewillfuelanupwardspiralofheateddisagreement.Thebestresponse,howevercounterintuitive,istokeepthecustomertalking,andforthreegoodreasons.First,newinformationcanincreasetheroomformovementandthenumberofvariables.Second,listeningwithoutdefendinghelpstodefuseanyanger.Third,ifyou’relistening,you’renotmakingconcessions. 3.Keeptrackoftheissuesrequiringdiscussion.Negotiationscangetconfusing.Customersoftengetfrustratedbyanapparentlackofprogress;theyoccasionallygobackonagreementsalreadymade;theysometimesraisenewissuesatthelastmoment.Onegoodwaytoavoidtheseproblemsistosummarizewhat’salreadybeenaccomplishedandsketchoutwhatstillneedstobediscussed.Briefbutfrequentrecapsactuallyhelpmaintainmomentum,andtheyreassurecustomersthatyou’relisteningtotheirarguments. Thebestnegotiatorscanneutralizeeventhemostoutspokenoppositionbyconvertingobjectionsintoissuesthatneedtobeaddressed.Thetrickistokeepyourcool,payattentiontothecustomer’swordsandtone,andwaitpatientlyforacalmmomenttosummarizeyourprogress. 4.Assertyourcompany’sneeds.Effectivesalespeoplealwaysfocusontheircustomers’interests—nottheirown.Theylearntotakeonacustomerperspectivesocompletelythattheyprojectanuncannyunderstandingofthebuyer’sneedsandwants.Toomuchempathycanworkagainstsalespeople,however,becausesalesbargainingrequiresadualfocus—onthecustomerandonthebestinterestsofone’sowncompany.Thebestnegotiatingstanceisnotasingle-mindedemphasisoncustomersatisfactionbutaconcentrationonproblemsolvingthatseekstosatisfybothparties.Salespeoplewhofailtoasserttheneedsoftheirowncompanyaretoolikelytomakeunnecessaryconcessions. Thestyleofassertionisalsoextremelyimportant.Itmustbenonprovocative.“Youuseourservicecenter50%morethanouraveragecustomer.We’vegottobepaidforthat…”willprobablysparkadefensivereactionfromacombativecustomer.Instead,thesalespersonshouldbuildcommongroundbyemphasizingsharedinterests,avoidinginflammatorylanguage,andencouragingdiscussionofdisputedissues.Thisisabetterapproach:“It’sclearthattheservicecenterisacriticalpieceoftheoverallpackage.Rightnowyou’reusingit50%morethanouraveragecustomer,andthat’sdrivingupourcostsandyourprice.Let’sfindadifferentwayofworkingtogethertokeepservicecostsdownandstillkeepservicequalityhigh.Tobeginwith,let’sfigureoutwhat’sbehindthesehighservicedemands.” 5.Committoasolutiononlyafterit’scertaintoworkforbothparties.Ifacompetitivecustomersensesthatthesalespersonisdiggingintoaposition,thechancesofsuccessfullyclosingthedealaredramaticallyreduced.Abetterapproachistosuggesthypotheticalsolutions.Comparethesetwoapproachesinsellingacommercialloan. “I’lltellyouwhat.IfyougiveusallofthecurrencyexchangebusinessforyourEuropeanbranches,we’llcapthisloanatprimeplusone.” “YoumentionedthecurrencyexchangeactivitythatcomesoutofyourEuropeanbranches.Supposeyouplacedthatentirelywithus.Wemaybeabletogiveyouabreakinthepricingofthenewloan.” Thefirstislikelytodrawacounterproposalfromacompetitivecustomer.Itkeepsthetwoofyouonoppositesidesofthenegotiatingtable.Thesecondinvitesthecustomertohelpshapetheproposal.Customerswhoparticipateinthesearchforsolutionsaremuchmorelikelytowindupwithadealtheylike. Somesalespeoplemakethemistakeofagreeingdefinitivelytoanissuewithoutmakingsuretheoveralldealstillmakessense.Thisplaysintothehandsofanaggressivecustomertryingtogetthewholeloafonesliceatatime.It’sdifficulttotakebackaconcession.Instead,wrapupissuestentatively.“WeagreetodoX,providedwecancomeupwithasuitableagreementonYandZ.” 6.Savethehardestissuesforlast.Whenyouhavealotofpointstonegotiate,don’tstartwiththetoughest,eventhoughitmayseemlogicaltobeginwiththedealkillers.Afterall,whyspendtimeonsideissueswithoutknowingwhetherthethorniestquestionscanberesolved? TwoCommonMistakes Combativebuyersarehardenoughtohandlewithoutprovokingthemfurther,yetmanysalespeopleunintentionallyannoybuyerstothepointofcompleteexasperation.What’sworse,thetwomostcommonmistakescropupmostfrequentlyattimesofdisagreement,theverymomentwhenpokingsticksatthecustomeroughttobethelastitemonyourlistofpriorities. Thefirstmistakeisbelaboring.Somesalespeoplewillrepeatasinglepointuntilcustomersbegintofeelbadgeredorheckled.Chancesaretheyheardyouthefirsttime.Youcanalsobelaboracustomerwithlogicorwithconstantexplanationsthatseemtosuggestthatthecustomerisnonetobright. Thesecondmistakeisrebuttingeverypointyourcustomermakes,whichisalmostcertaintoleadtoargument—pointandcounterpoint.Don’tsay“night”everytimeyourcustomersays“day,”evenifyou’reconvincedthecustomeriswrong. Therearetworeasons.First,resolvingrelativelyeasyissuescreatesmomentum.Supposeyou’reworkingwithacustomerwho’sboundanddeterminedtoskinyoualivewhenitcomestothemainevent.Bystartingwithlessercontestsandfindinginventivesolutions,youmaygetthecustomertoseethevalueofexploringnewapproaches.Second,discussingeasierissuesmayuncoveradditionalvariables.Thesewillbehelpfulwhenyoufinallygetdowntotheheartofthenegotiation. 7.Starthighandconcedeslowly.Competitivecustomerswanttoseeareturnontheirnegotiationinvestment.Whenyouknowthatacustomerwantstobarter,startoffwithsomethingyoucanaffordtolose.Obviously,gameplayinghasitsprice.Notonlydoyoutrainyourcustomerstoaskforconcessions,youalsoteachthemnevertorelaxtheirguardonmoneymatters.Still,whenthecustomerreallywantstowheelanddeal,youhavelittlechoice. Thecustomertoocanpayapriceforplayinggames.Aclassiccaseinvolvesacustomerwhoalwaysbraggedabouthispokerwinnings,presumablytointimidatesalespeoplebeforenegotiationsgotstarted.“Ialwaysleavethetableawinner,”heseemedtobesaying.“Sayyourprayers.”Whatsalespeopleactuallydidwasraisetheirprices10%to15%beforesittingdowntonegotiate.They’dlethimwinafewdollars,praisehisskill,thenwalkawaywiththeorderatareasonablemargin. Anumberofstudieshaveshownthathighexpectationsproducethebestnegotiatingresultsandlowexpectationsthepoorest.Thisiswhysalespeoplemustnotletthemselvesbeintimidatedbythecustomerwhoalwaysbargainseverypoint.Oncetheylowertheirexpectations,theyhavemadethefirstconcessionintheirownmindsbeforethenegotiationgetsunderway.Thecustomerthengetstotaketheseprematureconcessionsalongwiththenormalallotmenttofollow. AmanIusedtoknow—theCEOofacompanysellingsoftwaretopharmacies—alwaysinsistedonabsolutecandorinallcustomerdealings.He’dbeginnegotiationsbyshowingcustomershispricelistandsaying,“Here’sourstandardpricelist.Butsinceyou’reabigchain,we’llgiveyouadiscount.”Hebroketheicewithaconcessionnoonehadaskedforandgothisclockcleanednearlyeverytime. Thekeyisalwaystogetsomethinginreturnforconcessionsandtoknowtheireconomicvalue.Rememberthatanyconcessionislikelytohaveadifferentvalueforbuyerandseller,sobeginbygivingthingsthatthecustomervalueshighlybutthathavelittleincrementalcostforyourcompany: Controloftheprocess Assuranceofquality Convenience Preferredtreatmentintimesofproductscarcity Informationonnewtechnology(forexample,sharingR&D) Credit Timingofdelivery Customization Service There’sanoldsaying,“Hewhoconcedesfirst,loses.”Thismaybetrueinahardballnegotiationwherethecustomerhasnootherpotentialsourceofsupply.Butinmostcompetitivesalessituations,thesalespersonhastomakethefirstconcessioninordertokeepthedealalive.Concedeinsmallincrements,getsomethinginreturn,andknowtheconcession’svaluetobothsides.Takingtimemayseemcrazytosalespeoplewhohavelearnedthattimeismoney.Butinanegotiation,nottakingtimeismoney. 8.Don’tbetrappedbyemotionalblackmail.Buyerssometimesuseemotion—usuallyanger—torattlesalespeopleintomakingconcessionstheywouldn’totherwisemake.Someuseangerasapremeditatedtactic;othersarereallyangry.Itdoesn’tmatterwhethertheemotionisgenuineorcounterfeit.Whatdoesmatterishowsalespeoplereact.Howdoyoudealwithacustomer’srageandmanageyourownemotionsatthesametime? Herearethreedifferenttechniquesthatsalespeoplefindusefulinhandlingacustomerwhousesanger—wittinglyorunwittingly—asamanipulativetactic. Withdraw.Askforarecess,consultwiththeboss,orreschedulethemeeting.Achangeintimeandplacecanchangetheentirelandscapeofanegotiation. Listensilentlywhilethecustomerrantsandraves.Don’tnodyourheadorsay“uh-huh.”Maintaineyecontactandaneutralexpression,butdonotreinforcethecustomer’sbehavior.Whenthetiradeisover,suggestaconstructiveagenda. Reactopenlytothecustomer’sanger,saythatyoufinditunproductive,andsuggestfocusingonaspecific,nonemotionalissue.Therearetwokeystothistechnique.Thefirstistiming:don’trushtheprocessoryouriskbackingthecustomerintoacornerfromwhichthereisnogracefulescape.Thesecondistoinsistthattheuseofmanipulativetacticsisunacceptableandthentosuggestaconstructiveagenda.Don’tbetimid.Theonlywaytopullthisoffistobestrongandassertive. Forexample,imaginethisresponsetoacustomerthrowingafit:“Thisattackisnotconstructive.[Strongeyecontact,assertivetone.]We’vespentthreehoursworkingtheissuesandtryingtoarriveatafairandreasonablesolution.NowIsuggestthatwegobacktothequestionofpaymenttermsandseeifwecanfinalizethose.” Ofcourse,thereissubstantialriskinusinganyofthesetechniques.Ifyouwithdraw,youmaynotgetasecondchance.Ifyoulistensilentlyorreactineffectively,youmayalienatethecustomerfurther.Thesearetechniquestoresorttoonlywhenthediscussionisindangerofgoingoffthedeepend,butatsuchmomentstheyhavesavedmanyanegotiationthatlookedhopeless. Theessenceofnegotiatingeffectivelywithaggressivecustomersistosidesteptheirattacksandconvincethemthatacommoneffortatproblemsolvingwillbemoreprofitableandproductive.Yourtoughestcustomerswillstopthrowingpunchesiftheyneverconnect.Yourmostdifficultbuyerwillbrightenifyoucanmaketheprocessinterestingandrewarding.Theoldtoe-to-toescufflehaditspoints,nodoubt.Tradingblowforblowwasafinetestofstaminaandguts.Butitwasnotestatallofimagination.Indealingwithtoughcustomers,creativityisabetterwayofdoingbusiness. AversionofthisarticleappearedintheNovember1988issueofHarvardBusinessReview. ReadmoreonNegotiationstrategies orrelatedtopics CustomerstrategyandSalesandmarketing TK ThomasC.KeiserisseniorvicepresidentoftheForumCorporation,atrainingandeducationconsultingfirminBoston. 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