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3. Be brutally honest about the worth of your added value. If it comes down to a price negotiation, your added value is worth only what the buyer is actually willing to pay for it. Say, for example, that the only difference between you and your prime competitor is that you have a better reputation in the marketplace. Is that of value? Of course. Is it important? Absolutely. Is it worth anything? That depends on the buyer. If a one buyer says, I'm willing to pay 2% more to go with Company A because of their better reputation, then it's worth 2% to that buyer. On the other hand, if another buyer says, I'm not willing to part with any hard, cold cash because of Company A's reputation, then for that buyer it is not worth anything."
For each sale where you have one or more potential competitors, you need to do a value-added analysis in order to figure out the most the buyer would pay you vs. your competitor. Let's make up a simple example where you have just one competitor, Company A, and let's assume there are just four different components of value: service, reputation, delivery, and problem solving ability.
Based on your knowledge of the customer and the competition, you believe the customer thinks that you have a better reputation, provide better service and have better problem solving capabilities, but that your competitor is a little better on delivery. Furthermore, although your customer likes your reputation, they won't pay more for it. They like your service and feel that's worth up to 2% more. They believe that your problem solving capability has helped them overcome significant difficulties and that thatís worth 4% more. On the other hand, you have had some delivery problems. While not fatal problems, the customer would be willing to pay your competitor up to 2% more for their better delivery. Your value-added analysis sheet would look like this:
|Value Added Item Vs. Company "A"||The Most Your Customer Would Pay Extra
for That Added Value
Under this scenario, your customer would be willing to pay you up to 4% more than your competitor. Of course your customer will often say, as our Albertson purchasing agent did, "You guys are all the same. You all provide good quality except your delivery isn't very good. You've got to get much more competitive with your pricing." If you've done the value-added analysis and it's accurate or reasonably accurate, you can see behind the purchasing agent's mask to what is really going on.
4. The negotiation starts when you say hello. At this point you may be saying, "Everything you say is true but if I'm the Baker sales representative talking to the Albertson purchasing agent and he says to me, 'Your competitors are lower and you have got to cut your price,' what do I do now? That purchasing agent isn't going to tell me their real scenario, what they said to each other, or what they really think our added value is worth vs. our competitors."
Correct. If the first time you thought that there might be a price negotiation was when you were talking to the Albertson purchasing agent, it's too late. You don't have the information you need, and it's going to be difficult to get it.
And that takes us back to our first point. Be prepared for a price negotiation while you try to avoid one. The negotiation starts when you say hello. The time to start finding out who potential competitors might be, how your customer views them vs. you, the problems theyíve had with competitors, whether anybody can do as good a job as you can, etc., etc., is from the very beginning of your discussions with your customer.
Have as many contacts with your customer and with as many people in your customerís shop as possible. Ask direct questions, indirect questions, feel people out gently, and try to get a picture of their whole situation.
Prepare vigorously for a price negotiation, and at the same time do everything that you can to avoid one.
About the Author
Michael Schatzki is a master negotiator who, for over 20 years, has provided negotiation training and coaching for thousands of people in the U.S. and globally.† More than 75% of Mike's programs are for satisfied, repeat customers. The Negotiation Dynamics® system really works.† Mike can be reached at (888) 766-3530 or at www.negotiationdynamics.com.
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Copyright © 2007 Michael Schatzki
Copyright © 2007, The Negotiator Magazine