My grandfather Sidney was raised during the great depression. Often hungry growing up, he learned the value of a dollar the hard way. It stuck with him the rest of his life. When I was in college, he never let me call him because he would say it was long-distance.
I told him that the distance was long, but the call didn't cost anything. Still, he could barely stay on the phone for 5 minutes. I could visualize the nickels clinking in his mind, making him uncomfortable with the cost of the call.
When I was around 10 years old, we went to Lechmere, a department store in our area. He wanted to buy a specific $30 Dustbuster. I figured he'd pick it up, bring it to the register, and pay for it. But no.
He found an associate on the floor and told him he wanted to buy it, but for $20. The associate looked shocked, but my grandfather kept working on him, asking for the manager.
The manager came and my grandfather didn't let up, trying one strategy after another. "I buy so much here. You don't want to lose my business." "This one also looks like it's been opened, maybe returned already." "It costs less at Sears I saw, but we're closer here so I came here first. I'll go to Sears next."
Eventually, we left with a new Dustbuster for $25. My grandfather turned to me and said, "Mike, everything is negotiable."
It was a part of his mindset to get the best price. His first strategy was making an offer below the stated price for what he wanted. Then he pushed the importance of his repeat business (I shop here all the time). Then he made a value challenge (this one has been opened already so it's worth less). Then a competitor challenge (Sears).
His goal: get the seller to cave.
You might think, "This is a business-to-consumer retail example. This wouldn't happen in a business-to-business major sale."
It happens all the time. Buyers frequently test what we call "cave tolerance." The buyer says, "I want it, but I want it for less." All too often the response is, "Where do we need to be?" This opens the door to caving.
When some buyers know a seller is willing to cave, they push and push until the seller holds their ground. If the buyer and seller work together again, the buyer will know there is wiggle room in whatever price the seller puts forward.
How Often Do Sellers Cave On Price?
To put it simply, very often! It's better to flip the script and focus on value over price.
According to our research, most buyers seek and achieve price concessions. We asked 449 buyers to respond to the statement: "In general, I/my team achieve pure price concessions from suppliers, that is, if we don’t change terms or deliverables materially, we still get the price to come down."
59% of buyers achieve pure price concessions from suppliers. This means that, in these situations, sellers flat out cave. Frequently.
Now for the disclaimer: discounting isn’t inherently bad for sellers when it’s a part of a planned strategy, and not every situation is the same.
But caving on price without trading for value is rarely a good strategy.
Ask and Ye Shall Receive
The second most effective negotiation tactic buyers use is to simply ask for a better price. We call this the Whack Back. Regardless of how reasonable the first offer is, the buyer pushes back on it. They say things like, "we need a lower price," or, "is that the best you can do?" In fact, 83% of buyers find this tactic effective.
Buyers ask for price concessions and sellers give them. But do sellers have to? Are buyers really going to walk if sellers don’t lower their prices?
Buyers' Price Sensitivity
While most buyers use tactics to lower seller pricing, only 20% to 30% of buyers are highly price sensitive.
That means approximately three-quarters of buyers are not overly price sensitive. In fact, 62% of buyers in our study, Top Performance in Sales Negotiation, agreed with the following statement:
“We had the flexibility to pay more for this solution if the supplier demonstrated why doing so was worth it.”
Perhaps more telling, only 16% of buyers disagreed with this. (Some buyers were neutral in their answer.)
Buyers are focused on value. Consider the second part of the statement: "if the supplier demonstrated why doing so was worth it." That’s the very definition of value, with ROI being more important than the price itself.
Sellers need to do a better job of focusing on value and taking the focus off price.
Let's take our example at the beginning of this article and play it out a bit differently…
Seller: "Based on your requirements X, Y, and Z, with setup and our 90-day implementation excellence process, the price for the project will be $475,000."
Buyer: "Is this the best you can do? It’s more than I was expecting. While I’d prefer to go with you, [competitor] said they can do it for less."
Seller: "In our experience, our competitors don't offer anything quite like, or as effective as, our 90-day implementation excellence process. This process provides us insight that often uncovers significant cost savings. Our average ROI after the 90 days is 14X, measured through our ABC process, and certified by our customers themselves. It’s also true that the failure rate of these kinds of initiatives is quite high. Ours is less than 4%, with the industry average around 25%. Our 90-day process does, in fact, cost more, but the returns are consistently much higher, and risk is much lower. Curious to know your thoughts.”
Don't have or know differentiators with metrics to back them up? Your product or service will always be seen as a commodity to buyers.
To sell the value, you need to know and then communicate the impact of working with you versus others, and paint a picture of the New Reality a buyer will achieve.
Essential Rule of Sales Negotiation #5: Trade, Don't Cave
Always trade for value. Don't drop price in a vacuum. Don't get bullied.
Like Essential Rule of Sales Negotiation #1: Always Be Willing to Walk, trading (and not caving) is about mindset as much as skill.
When pressed for concessions, some sellers want the sale so much they simply cave. Others value harmony so much that they are willing to make concessions to preserve the peace, giving in quickly and without asking for something of value in return. Others simply don't know what to do, so they open the door to caving.
The good news is that sellers with these habits can retrain their brains. When you know that giving unilateral concessions almost never leads to a good place, you'll catch yourself before you do it. Consider practicing the mantra "If you...then I. If I…then you." Say out loud a few times. "If you...then I. If I…then you." It'll remind you that you should never give something up for nothing.
What does trading look like? It means asking for something in return when something is asked of you. It also means offering something proactively when asking for something from the buyer.
At its core, trading is about reciprocity. It's about mutual give and take. It means putting the mantra "If you…then I. If I…then you." into practice.
Think of it this way: If you don't trade, anything they ask for that you are willing to concede must not have value. If it doesn't have value to you, don't expect the buyer to value it. By proposing trades, you are establishing two things:
- What each issue is worth and, as well, the overall value of the agreement. If you let the buyer chip away at parts of the solution framework, price, and agreement terms without adding anything of value to you, you're allowing the entire deal to dwindle.
- Your own gravitas. If they can bully you into caving, the dynamic between you and the buyer becomes awkward and unproductive.
Instead of allowing the pie to shrink, the act of trading can increase value for both sides. The classic trade is where both sides concede something of lesser value to them in return for something of greater value. This mutual gain is at the heart of collaborative negotiations. For example: "I can offer the customer more regular deliveries to off-set their warehouse space problem which is no problem as their facility is in the same industrial park as another customer. In return, they lengthen the contract to coincide with their planned factory refit."
Tips of the Trade
Changing your mindset is the foundation. Once you've steeled your mind to respond to buyer requests with requests of your own, there are several ways to maximize your trading success.
First and foremost, prepare your trading possibilities. Create a trade list with value assigned. Be creative and exhaustive. Consider both strategic and tactical agreement components.
Also, when trading:
- Avoid single-issue bargaining. This is "horse trading," not negotiating. Every time you make a trade offer, you don't change just one thing, you change the whole picture. Bundle issues creatively.
- Focus on objectives before trades. Make sure to engage the buyer, asking them for their ideas and zooming out to see the big picture. Think buying first, selling second. Have the buyer consider how the trade will impact their own objectives and how it meshes with their requirements.
- Pace yourself. Don't make two concessions/trades in a row. Invite response from the buyer. Don't agree too quickly. Think. Deliberate. Make sure the buyer knows you value what you give up.
- Make increasingly smaller concessions. If you have to make concessions, make them increasingly smaller. This signals to the buyer that your tolerance for giving up more is wearing thin.
Again, it all comes back to mindset. Caving is not an option. A senior seller at a company we worked with recently shared with us how ingrained trading had become to even casual conversations with long-term clients.
"We'd been working with this client—a cybersecurity firm—for several years. In the third year, the CEO came to me with a price pushback on our customization fees:
'Aren't you using similar materials as last year? Don't you know us well enough by now?'
I said to him, 'Yes, we know you well, but if we don't engage with each team we work with, they won't feel engaged going into the process. Plus, your business has changed a lot in three years, hasn't it? Our process is similar to what it was then.'
I could tell, however, he was hoping to get a lower fee. I asked myself what it was worth. Since our work has been so successful for them, I thought a case study would be well worth a fee reduction.
I asked my client, 'If we lower the fee, will you participate in a case study for us?'
In this case, it was easy. We had a good relationship with the client. But it would have been just as easy—but a mistake—for me to agree without asking for anything in return.
Sometimes it's less straightforward. However, if you know what's of value to the client, and the value to you of various trades, you'll be in the ballpark."
Learn about the other Essential Rules of Sales Negotiation:
- Essential Rule of Sales Negotiation #1: Always be Willing to Walk
- Essential Rule of Sales Negotiation #2: Build Value
- Essential Rule of Sales Negotiation #3: Lead the Negotiation
- Essential Rule of Sales Negotiation #4: Effect Emotions
- Essential Rule of Sales Negotiation #6: Plan to Win
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