Most every sale rep has heard that phrase, “Just meet your competitor’s price point and the business is yours.” One could discuss for hours how and why the sale rep has gotten himself in this position but we’ll leave that for another blog post.
Clearly the negotiation has broken down at this point, and closing the deal is now all about price; the sales rep has lost control of the sales cycle. The buyer no longer wants to talk about the value of your product or service. If your organization finds itself in these situations more than you care to admit, you should be concerned. These types of “bank stick-up” negotiations will only increase the likelihood of product or service commoditization and margin erosion.
Sure, a price will have to be agreed upon in order to transact business and will always be the star of any negotiation. That said, most companies design pricing proposals that include non-price elements. Among these are rebates, revenue/unit commitments, warranty programs, payment terms, product consignment and service-level agreements to name just a few. This is a great way for you to negotiate on more than just price. The issues arise when companies inconsistently apply the value of these elements.
Make sure you take the initiative to put a value on these non-price elements to ensue your sales team is negotiating a complete deal package on a consistent, repeatable basis. Without arming your sales team with the ability to model different versions of a deal, based on different combinations of price and non-price elements, your organization runs the risk of uneven deal execution. Your deal waterfall will graphically depict the complete view of the deal by combining invoice price and non-price elements as either off-invoice discounts or cost-to-serve elements. The sales team can easily compare how different combinations of elements drive different pocket margins.
Take the following simple example: Your sales rep proposes an internally approved price of $850 for a product. The customer will get the standard package of a three-year warranty and no condition of hitting a revenue target to receive the proposed price. The customer comes back a few weeks later and says he now needs a price of $775 which is below a company set floor price. Believing this is a real threat and you don’t want to walk away from the business, start changing your non-price elements and move away from simply lowering the upfront price. You might say that $775 is fine, BUT it will have to be in the form of a rebate for $X of revenue. The rep could create a third version of the deal by removing the warranty program. One can only imagine the creative combinations a rep could design. If you‘ve properly structured non-pricing element valuations, the sale rep could still have a deal that wouldn’t need management approval even though the invoice price is lower than $850.
By designing a consistent framework from which to negotiate, you provide sales the latitude to craft a deal that meets the needs of the customer and your company. Moreover, management has the peace of mind knowing that the sales rep is going to market with a full set of negotiating tools that align with business strategies. This will increase productivity by reducing deal exceptions and, in turn, increase customer response time.
If your sales team isn’t armed with these negotiating tools, I’d suggest it’s time to evaluate how to help them be even better equipped to win. PROS offers your sales team the complete solution of price guidance, non-price element trade-offs, an easy way to compare versions of a deal’s pocket margin, and ultimately provide a deal score aligned with corporate objectives and goals. This how we help customers every day manage their deals. Your company deserves this type of strategic capability to outperform in today’s ultra-competitive marketplace.
In an environment of increasing complexity, negotiating on more than price can be a challenge. I encourage you to take a hard look at your business, ask how well your organization negotiates and what you can do better. PROS is here to help you take your sales negotiations to the next level by providing the infrastructure to build and sell deals based on more than price and that align with corporate goals and strategies.