The four critical elements for negotiating
Selling your products and services to customers involves negotiation. Speaking the buyer’s language will enhance your success. To do so, we must understand the buyer’s concept of Total Cost of Ownership (TCO). It says that a buyer will pay a higher price if it buys a lower TCO. I highly recommend a book written by an expert in purchasing and negotiation as well as a friend and colleague of mine, Robert Menard. All sales pros should read. “You’re the Buyer You Negotiate It!” available at www.YouNegotiateIt.com.
TCO (Total Cost of Ownership) = Quality + Service + Delivery + Price.
Quality is often the most important element of TCO but it depends on the product you’re purchasing. Quality is very important in the purchase of a fault tolerant computer system. Service depends upon the type of service contract you purchase and the coverage. For maintaining a computer system for a mission critical application like an airline reservation system you would want an immediate response time. Delivery’s importance varies depending on the industry. If you need to replace an air condition system in a hospital in Phoenix during July, immediate delivery would be critical and you most certainly are willing to pay for it.
The importance of Price depends on the product or service. A buyer will typically rank Price higher in the case of a “commodity” purchase. For instance, a Fortune 500 company buyer of ten thousand plain ball point pens determines that Price is has a far greater impact on the TCO than the service (none), quality (all pens are pretty equal) and delivery (no sense of urgency).
We must rank the most important cost elements to the buyer to determine our negotiation strategy. By doing so, we can concede on a point of low actual cost to to us but of high perceived value to the customer. For example, an upgrade may cost us pennies but may be extremely important to the customer. We can afford to stand firm on Price if our service is perceived as high importance and critical to the customer’s success and we can sacrifice delivery if the cost of it is negligible to us. We must know where we can concede without hurting our bottom line and how to provide the lowest TCO to the customer.
The objective of every negotiation is a win-win for both parties involved. Understanding the personality style of the customer can help us in anticipating their negotiation strategy.
Blues will focus on making sure a win-win is established for both parties with minimal negotiation and gaining agreement as soon as possible.
Golds will focus their negotiations on all of the financial aspects of gaining agreement. Give and take with excellent documentation along the way will be their approach.
Greens will negotiate by asking for reason and justification for each and every aspect of purchasing the solution. Greens need to know all the information and what they are getting in regards to service, delivery, price and quality in regards to the overall cost of ownership.
Oranges will focus on getting a great deal and rely mainly on service and price. If the Orange scores points they will feel they have accomplished their objective for making the purchase.
Going into the negotiation with information about the company and their issues, along with knowing the personality styles of the decision makers involved can give you the insight you need to close the sale as a win-win leading to a long term partnership. I highly recommend Robert’s book!
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