One of the main characteristics of Value Based Selling is that the sales professional takes control of the sales process from start to finish – this includes of course the all important negotiation phase. So what are the top tips that Value Based salespeople do well?
Many confident sales people find negotiations tough – after trying to keep the focus on value and competitive differentiation during the selling phase, the negotiation is often where the emphasis shifts to price and it’s easy to feel that the buyer holds all the cards…
It’s difficult in these situations to feel you are in a strong position and during our negotiation workshops “I’d like to be a strong, confident, negotiator’ is the top objective for many of our participants. So, when times are tough, how can you control the process, negotiate from a position of strength and bring back decent margins as well as closed deals?
In this first article, we are going to look at three key elements that may help you:
Rule 1 – Feeling OK about walking away
Many salespeople find this a really difficult concept – walking away from a deal is the last thing you want of course – but having a clear, positive, view of the options you do have should you decide to walk away is vital – as is using this during a negotiation to discourage extreme buyer tactics.
The phrase often used to describe this is BATNA or ‘Best Alternative to a Negotiated Agreement’ – a term originally used by Roger Fisher and William Ury in their well-known ‘Getting To YES’ book.
Knowing your BATNA means that you know what you will do or what will happen if you fail to reach agreement in a negotiation. It is vital that you always know your BATNA before entering into a negotiation – without one you will not know whether a deal makes sense or when to walk away.
If your BATNA is strong you can negotiate with more confidence knowing that you have something substantial to fall back upon if a deal cannot be agreed. However, an uncertain BATNA can make you desperate to secure the deal at all costs – putting you in weak bargaining position, especially if this leaks out to the buyer. So anything you can do to strengthen your own BATNA will improve your position – as will of course understanding and weakening the buyers BATNA….
Let’s look at the case of Jo, an employee negotiating with her boss for a pay increase. Jo starts off by considering her BATNA; ‘if an increase in pay cannot be agreed I will resign and look for a job with another company’. The strength of this BATNA depends on how easy it will be for Jo to find another position at the salary level to which she aspires. If Jo wants to strengthen her BATNA then a bit of research can help – for instance she could identify and then point out the market rate for her capabilities – or ideally already have an alternative offer in her pocket….
Of course her boss will also have a BATNA (eg finding somebody else to do Jo’s job!) therefore it is important for Jo to understand what this is and then weaken it during the discussion – eg by checking the costs of temporary staff versus the additional cost of her increase, the time needed to bring a temporary person up to an acceptable level of performance and the possible impact on customers and therefore business during this period of learning.
In a typical sale
In our negotiation workshops, we ask salespeople to identify both their and their organisation’s BATNAs (note these could be different) and how they can strengthen them. This often comes out something like this:
|Typical Sales BATNAS||Strengthen these by….|
|Use your companies resource (account management, support etc) on more profitable customers instead||Being clear who these more profitable customers are, building a strong pipeline.
Making it clear how busy / successful you are “this product has really hit the mark with our customer base”
|Avoid a reputation as easy discounters||Making it clear that you are aware of your competitive position and believe you have given them a fair price|
Of course – even if you are feeling in a weak position, it doesn’t mean that the buyer is in a strong position – both parties can be weak or both can be strong. Good Value Based salespeople will understand the buyer’s position and seek to actively weaken this during the negotiation. For example:
|Typical Buyers BATNAs||Weaken them by…|
|Do nothing||Refer back to the business case for the sale and the benefits they have (hopefully!) already acknowledged|
|Do it internally||Make sure they understand the benefits of using you rather than a home-spun solution (and the risks of an internal solution). Again it helps if earlier in the sale they have already stated this.|
|Go with a competitor||Spend time reinforcing the reasons why they chose you – refer back to their selection criteria if you know what they were (and you should!).|
Top Value Based salespeople aim to control the negotiation by being very clear from the start of the meeting – without being arrogant – that they do have options (other clients, scarce resources etc.)
Rule 2 – Understand your Reservation Price
The reservation price, sometimes called the ‘walk-away’ price identifies the least favourable deal at which you would make an agreement. Your reservation price should be derived from your BATNA, but it is not always the same thing.
For instance, when buying a house your reservation price will depend on a variety of factors; market value of the property, the level of mortgage you can afford, whether there is a chain involved, and how much work/investment would be needed to bring the property up to an acceptable level for you to make a home.
Having seen a property that you like and taking all of the above factors into consideration you might decide to set a reservation price for the property at £250K. Any offer above that level would be unacceptable.
For salespeople, their reservation price is often set by the companies discounting rules!
Rule 3 – Estimate the Bargaining Arena
The Bargaining Arena is the area or range in which a deal can be made which satisfies both parties. Each party’s reservation price determines one end of the Bargaining Arena. In the example above the buyer has a reservation price on the property of £250K. Unknown to you the seller has a reservation price of £230K which is the least he will accept for the property. The Bargaining Arena therefore is the range between £230K and £250K. There may still be some tough bargaining but any deal within this range will satisfy both parties.
We find that even good salespeople rarely spend time considering what the maximum price is that their client will pay – all too often they are unduly influenced the buyer’s statements, which might of course not be entirely true!
Top Value Based salespeople continue to control the sale during the negotiation – making the most of their BATNA so that the buyer realises that, whilst they want to do a deal, the salesperson is not desperate. Equally they understand what the buyers BATNA is, use this to estimate their reservation price and therefore approach the negotiation with an informed confidence…..