PRICE ISN'T ALWAYS MOST CRUCIAL
June 5, 2012A successful business colleague recently lost a seven-figure deal due to being 1 percent more expensive than a competitor. That’s $20,000 on a $2 million deal. My colleague was obviously disappointed. But, critically, he was searching for lessons he could learn from that negotiation so it would not happen again. Here are a few:
Explore and satisfy your counterpart’s critical needs
Best-selling author and business expert Harvey Mackay in 1959 bought an insolvent company with 12 employees, three outdated envelope-folding machines and one printing press. Today his thriving business can produce over 25 million envelopes a day
According to his website, “personal, quality service is the main reason that in 45-plus years of doing business, the company has never lost a major account.” Bottom line: Mackay hired and trained sales and service folks who fully explored and understood his customers’ personal and business needs and went the extra mile to satisfy them completely.
Push back on the commodity notion
Sometimes buyers in negotiations will set up reverse auctions, where they ask sellers to bid for their business in an auction environment, and consciously create the impression among possible sellers that they are commodities with the only difference being price.
This usually makes sense leverage-wise from a buyer, who thinks it gives sellers a huge incentive to lower their prices. If they don’t, the buyer suggests, the possible seller will completely lose out on their business.
The problem with this notion is that individuals and businesses are not commodities. In fact, each of us is unique in some way, even if we sell a commodity. And it’s our uniqueness that differentiates us from our competitors and provides us with the leverage to push back on this notion.
I recently bought a new Hyundai and set up a reverse auction among four different Hyundai dealers that had the car I wanted. Since I didn’t care much about service, as we would be using the car several hundred miles away at our vacation home, I indicated the major difference I cared about was price.
Surprisingly, I ended up buying from a dealer that was not the low price bidder. Why? That dealer fought back against the idea that it was a commodity by including a lifetime powertrain warranty on all its vehicles. It was a compelling value proposition.
Highlight your unique qualities
My business colleague truly understood the fundamental needs of the customer he lost. He knew that quality and timely service on the product he sold was crucial to the customer’s success.
And he more than satisfied the customer’s needs. One of my colleague’s unique qualities, like Mackay’s, is the extraordinary service he provides purchasers of his main product, a product also sold by his competitors. But the manufacturer required that he service that product even if it was sold by his competitors. So his unique value proposition in a reverse auction was seemingly neutered.
I suggested he highlight his uniqueness by offering two levels of service: a) general service to those who purchased products from his competitors, and b) a special premium level of service he provided only his own customers.
In effect, I suggested he change his value proposition to distinguish his unique service capabilities versus his competition.
I would bet good money a super-premium level of service to a big customer is almost always worth more than 1 percent of the price.
Explore and satisfy your counterpart’s critical needs
Best-selling author and business expert Harvey Mackay in 1959 bought an insolvent company with 12 employees, three outdated envelope-folding machines and one printing press. Today his thriving business can produce over 25 million envelopes a day
According to his website, “personal, quality service is the main reason that in 45-plus years of doing business, the company has never lost a major account.” Bottom line: Mackay hired and trained sales and service folks who fully explored and understood his customers’ personal and business needs and went the extra mile to satisfy them completely.
Push back on the commodity notion
Sometimes buyers in negotiations will set up reverse auctions, where they ask sellers to bid for their business in an auction environment, and consciously create the impression among possible sellers that they are commodities with the only difference being price.
This usually makes sense leverage-wise from a buyer, who thinks it gives sellers a huge incentive to lower their prices. If they don’t, the buyer suggests, the possible seller will completely lose out on their business.
The problem with this notion is that individuals and businesses are not commodities. In fact, each of us is unique in some way, even if we sell a commodity. And it’s our uniqueness that differentiates us from our competitors and provides us with the leverage to push back on this notion.
I recently bought a new Hyundai and set up a reverse auction among four different Hyundai dealers that had the car I wanted. Since I didn’t care much about service, as we would be using the car several hundred miles away at our vacation home, I indicated the major difference I cared about was price.
Surprisingly, I ended up buying from a dealer that was not the low price bidder. Why? That dealer fought back against the idea that it was a commodity by including a lifetime powertrain warranty on all its vehicles. It was a compelling value proposition.
Highlight your unique qualities
My business colleague truly understood the fundamental needs of the customer he lost. He knew that quality and timely service on the product he sold was crucial to the customer’s success.
And he more than satisfied the customer’s needs. One of my colleague’s unique qualities, like Mackay’s, is the extraordinary service he provides purchasers of his main product, a product also sold by his competitors. But the manufacturer required that he service that product even if it was sold by his competitors. So his unique value proposition in a reverse auction was seemingly neutered.
I suggested he highlight his uniqueness by offering two levels of service: a) general service to those who purchased products from his competitors, and b) a special premium level of service he provided only his own customers.
In effect, I suggested he change his value proposition to distinguish his unique service capabilities versus his competition.
I would bet good money a super-premium level of service to a big customer is almost always worth more than 1 percent of the price.
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