(Part 1 of my conversation with Ron Hubsher, a pre-eminent expert in negotiation)
Whether looking to purchase capital equipment, a professional service, or other “big-ticket item,” the corporate buyer is going to want to be sure that they are getting the best deal. Especially given the current economic environment, purchases will be evaluated and assessed much more closely as financial decisions are exposed to much greater scrutiny now than they might previously have received. However; negotiation and sales expert, Ron Hubsher, of Sales Optimization Group (www.salesog.com), author of the book; ”Closing Time: The 7 Immutable Laws of Sales Negotiation,” cautions against sellers trying to acquire business by using price discounting alone.
The sales person has a tough sale to make before the first contact with a customer. The first sale is to him or herself. If the sales person does not believe that the offer (defined as more than the product or service -rather the totality of what is being provided by the company in the transaction) is worthwhile or has value, then the default or fallback will often be to rely on price to complete the sale and create the transaction. Once that “sale” has been made, the next sale is to the prospect.
Hubsher recommends that sales people remember that resources are constantly being allocated and re-allocated on both the prospect and the seller’s side of the relationship. The prospect’s organization may “pull” budget to cover shortfalls in other areas within the company or re-prioritize objectives; the seller has to make determinations of where to expend resources across numerous opportunities; Hubsher identifies that, “the great negotiators know that they have to provide rationale for why the time is now to act. The prospect has a problem that needs to be fixed immediately and the seller has the capacity and ability to commit to providing or contributing to the solution currently.” The recognition that the two parties need each other to succeed and that there is an urgency to resolving the problem is at the core of Hubsher’s approach.
Hubsher dissuades sellers from relying on discounts to close sales and refers to it as “BS.” However, what he means by that is Belief System. He shares a story of how a client of his promoted an SE (Service Engineer – a technically proficient person who often helps with scoping out the technical needs of a computer installation or assists in implementation) to sales person, but Sales Management had told him that he is not permitted to offer discounts as part of his selling activities. Given that he believed that discounts were not permitted, he then went out and outsold all of his peers and was surprised when he received a sales award for his performance to hear that all of his peers had actually been using discounts (and were less successful than he was).
Importantly, Hubsher points out that discounts do not create value. Value is not about hitting a price point as much as it is about providing a reduction in risk. The buyer is evaluating the risk of going with one vendor or solution over others by looking at:
- Professional or business risk – will the solution accomplish the business purpose it is designed to meet?
- Personal risk – will there be personal jeopardy or opportunity afforded to the individual if one vendor/solution is chosen over others?
As opposed to offering a lower price, Hubsher counsels that providing greater value that equals or even exceeds the discount requested is the preferred approach. So, training, implementation support, providing references of previous installations, etc. should be offered to reduce the perceived risk and enhance the value of the purchase (often at a relatively low expense to the selling organization). Increasing the “premium” nature of the offer, rather than racing to the bottom by stripping cost out of the purchase serves both parties more positively.
Another issue that companies may confront once they begin to offer discounts is that they inadvertently create liabilities for themselves by discounting across current and future sales opportunities. Hubsher explains:
- Companies that have multiple “buying points” (regions, offices, departments, etc.) can compare “deals” offered and then demand the most lucrative deal provided and expect it to be provided across all company purchases regardless of location
- Companies may purchase other companies and eventually uncover the difference in discounting offered to each and then expect the lower price to apply across the newly formed company
- Individuals may change organizations and upon learning that a prior company was offered a better deal than the current one, may demand the same parameters as had been established in the original company.
Part 2 of my conversation with Ron Hubsher will continue in the next article. Be sure to check back to read how Ron addresses issues like, “the squeeze,” understanding the purchase company’s decision-making process, and cultural and geographic differences).