When You’re Negotiating, Money Isn’t As Important as You Think
Posted on June 26, 2004
By Roger Dawson
Let me tell you about my pet subject: When you’re
selling your product or service, money is way down the list of things that are
important to the other side.
First, we’ll talk about something that you may find
hard to believe but it’s something of which I’ve become convinced-that people
want to spend more, not less, and that the price concerns salespeople more than
the people to whom they sell. Then I’ll teach you all the things that are more
important to people than money. Finally, I’ll teach you some techniques to find out how much they’ll pay.
People Want To Pay More, Not Less
After almost two decades of training salespeople, I have become convinced
that price concerns salespeople more than it does the people to whom they sell.
I’ll go even further than that-I think that customers who may be asking you to
cut your price are secretly wishing that they could pay more for your product.
Hear me out before you dismiss this as being imbecilic.
I was the merchandise manager at the Montgomery Ward store in Bakersfield,
California back in 1971. Although Bakersfield was not a large town, the store
ranked 13th in volume in a chain of more than 600 stores. Why did it do so well?
In my opinion, it was because head office left us alone and allowed us to sell
to the needs of the local population. For example, we did a huge business in
home air conditioners because of the outrageously hot summers. In Bakersfield,
it’s common for it to be 100 degrees at midnight. In those days an average
blue-collar home in that city cost around $30,000. The air conditioners that we
would install in these homes might cost $10,000 to 12,000. It was very hard for
me to get new salespeople started selling in that department because they had a
real resistance to selling something that cost more money than they had ever
made in a year. They simply didn’t believe that anybody would spend $12,000 to
put an air conditioner in a $30,000 home. The customers were willing to pay it,
as was illustrated by our huge sales volume, but the salespeople weren’t willing
to support these decisions because they thought it was outrageously expensive.
However, if I could get salespeople started to where they began to make big
money and they installed air conditioner son their own homes, suddenly they
didn’t think it was so outrageous any more, and they would dismiss the price
objection as if it didn’t exist.
Beginning stockbrokers have the same problem. It’s very hard for them to ask
a client to invest $100,000 when they don’t know where lunch money is coming
from. Once they become affluent, their sales snowball.
So I believe that price concerns salespeople more than it concerns any
customer. This is demonstrated by the experience of one of my clients who is a
designer and supplier of point-of-purchase sales aids and displays. He tells me
that if three products are on a shelf in a store-let’s say three toasters-and
the features of each are described on the carton, the customers will most
frequently select the highest price item-unless a salesperson comes along to
assist them with the selection. When that happens, the salesperson, who is
probably working for minimum wage, is unable to justify spending money on the
best and manages to talk the customer down to the low-end or middle-of-the-line
toaster.
The important element here is the description on the carton. You must give
customers a reason for spending more money, but if you can do that, they want to
spend more money, not less. I think that spending money is what Americans do
best. We love to spend money. We spend six trillion dollars a year in this
country, and if we could walk into a store and find a salesclerk who knew
anything about the merchandise, we’d spend seven trillion dollars a year. And
that’s when we’re spending our own hard-earned after-tax dollars. What if you’re
asking someone who works at a corporation to spend the company’s money? There’s
only one thing better than spending your own money, and that’s spending someone
else’s money. If that weren’t enough, remember that corporate expenditures are
tax deductible, so Uncle Sam is going to pick up 40 percent of the bill.
So, I believe that we’ve had it all wrong for all these years. When we’re
trying to sell something to somebody, she doesn’t want to spend less money; she
wants to spend more. However, you do have to do two things:
1. You must give her a reason for spending more.
2. You must convince her that she could not have gotten a better deal than
the one you’re offering her.
That second point is where Power Negotiating comes in because everything I
teach is designed to convince the other people that they won the negotiation and
that they couldn’t have done better. Let’s face it, does what you pay for
something really matter? If you’re going to buy a new automobile, does it matter
if you spend $20,000 or $21,000? Not really, because you’ll soon forget what you
paid for it, and the slight increase in payments is not going to affect your
lifestyle. What really matters is the feeling that you got the best possible
deal. You don’t want to go to work the next morning and have everybody crowded
around to admire your new car when somebody says, "How much did you get it
for?"
You say, "I worked out a terrific deal. I got them down to
$21,000."
"You paid what?" he replies. "My friend bought one of those,
and he paid only $20,000. You should have gone to Main Street Auto Mall."
That’s what hurts-the feeling that you didn’t get the best deal.
The objection that every salesperson hears most is the price objection.
"We’d love to do business with you, but your price is too high." Let
me tell you something about that. It has nothing to do with your price. You
could cut your prices 20 percent across the board and you’d still hear that
objection. I trained the salespeople at the largest lawn mower factory in the
world. You probably own one of their products because they manufacture most of
the low-end private label lawn mowers that discount and chain stores sell.
Nobody can undercut their production cost on lawn mowers. They have it down to
such a science that if you bought one of their mowers at Home Depot and you
tipped the kid who carries it to your car a dollar; the kid made more on the
lawn mower than the factory did. That’s how slim their profit margins are.
However, when I asked them to tell me the number one complaint they hear from
the buyers at stores, guess what they told me? You got it. "Your prices are
too high."
You hear that complaint all the time because the people you’re selling to
study negotiating skills too. They meet in groups at their conventions and sit
around in the bars saying things like, "Do you want to have fun with
salespeople? Just let them go through their entire presentation. Let them take
all the time they want. Then when they finally tell you how much it costs, lean
back in your chair, put your feet up on the desk and say, ‘I’d love to do
business with you, but your prices are too high.’ Then try not to laugh as they
stammer and stutter and don’t know what to say next."
Instead of letting this kind of thing work you up into a sweat, adopt the
attitude that negotiating is a game. You learn the rules of the game, you
practice, practice, practice until you get good at it, and then you go out there
and play the game with all the gusto you can muster. Negotiating is a game that
is fun to play when you know what you’re doing and have the confidence to play
it with vigor.
The next time you’re trying to get somebody to spend money remember that they
really want to spend more money with you, not less. All you have to do is give
them a reason and convince them that there’s no way they could get a better
deal.
Things That Are More Important Than Money
A reporter at a press conference once asked Astronaut Neil Armstrong to
relate his thoughts as Apollo 11 approached the moon. He said, "All I could
think of was that I was up there in a spaceship built by the lowest
bidder." A cute line, but he was falling prey to a popular misconception
that the government must do business with anybody who bids the lowest price. Of
course, that’s not true, but it’s amazing how many people believe it. I hear it
all the time at my Secrets of Power Negotiating seminars: "What can we do
when we have to deal with the government? They have to accept the lowest
bid."
I once found myself sitting next to a Pentagon procurement officer on a
flight to the East Coast, and I raised this point with him. "All the time I
hear that the government has to buy from the lowest bidder. Is that really
true?"
"Heavens no," he told me. "We’d really be in trouble if that
were true. Cost is far from the top of the list of what’s important to us. We’re
far more concerned with a company’s experience, the experience of the workers
and the management team assigned to the product, and their ability to get the
job done on time. The rules say that we should buy from the lowest bidder who we
feel is capable of meeting our specifications. If we know that a particular
supplier is the best one for us, we simply write the specifications to favor
that supplier."
Of course, that is the key to selling to government agencies, whether it is
the city, county, state, or federal government. If you want to do business with
any level of government, you should become known as the most knowledgeable
person in your industry, so that when the agency starts to prepare bid
specifications, they welcome your advice on what they should specify.
Fortunately, the trend is away from this type of direct bidding and toward the
government agency hiring a private sector project manager to supervise the work.
By inserting this middle person, they avoid the obligation to let bids and
instead let the middle person negotiate the best deal.
So even with the federal government, price is far from the most important
thing. When you’re dealing with a company that doesn’t have legal requirements
to put out a request for bids, it’s far from the top of the list. Just for the
fun of it, review the following list of things that are probably more important
than price to buyers.
o The conviction that they are getting the best deal you’re willing to offer.
o The quality of the product or service. This is an interesting one because I
frequently hear from salespeople that they sell an item that has become a
commodity, and it doesn’t matter which source the buyer uses and that the buyer
wants only the lowest price. Baloney. If that were true 90 percent of companies
supplying such products or services would be out of business. If that were true,
the only company that could exist in the market place would be the one offering
the lowest price, and that’s a nonsensical proposition.
o The terms that you offer. Many large companies make more on the financing
of their product than they do the sale of the product. I recently leased a
top-of-the-line luxury automobile and became convinced that making the car was
only a small part of what this company did. The real money was in financing the
lease or the purchase.
o The delivery schedule that you offer. Can you get it to them when they need
it and be counted upon to keep on doing that? Do you offer a just-in-time
delivery system? Are you willing to let them warehouse the product and bill them
as they use it?
o The experience you have in delivering the product or service. Are you
familiar with their type of company and the way they do business? Are you
comfortable with that kind of relationship?
o The guarantees that you offer and, in general, how well you stand behind
what you do. I once paid several hundred dollars to buy a product from a Sharper
Image store. After a few months, a part on it broke, and I called their 800
number to see if they would take care of the problem. After listening to me only
long enough to understand what the problem was, the operator said, "If
you’ll give me your address I’ll FedEx a replacement part to you."
I said, "Don’t you need to know when and where I bought it? I’m not sure
that I can find my receipt."
"I don’t need to know any of that," he told me. "I just want
to be sure that you’re happy with what you bought." When a company stands
behind what they do to that extent, am I really going to worry about whether
they have the lowest price or not? Of course not.
o Return privileges. Will you take it back if it doesn’t sell? Will you
inventory their stock and do that automatically for them?
o Building a working partnership with you and your company. The old
adversarial relationship between vendor and customers is disappearing as astute
companies realize the value of developing a mutually beneficial partnership with
their suppliers.
o Credit. A line of credit with your company may be more important than
price, especially to a start-up company or in an industry where cash flow is
cyclical, and you could take up the slack during the lean months.
o Your staff. When the contract calls for something to be made (aerospace,
construction) or a service to be performed (legal, audit or accounting work,
computer services) other factors may be more important than price:
The quality of the workers that you will assign to the job.
The level of management that you will assign to oversee the work.
o The ability and willingness to tailor your product and packaging to their
needs.
o The respect that you will give them. Many times a company will move from a
large vendor to a smaller one because they want to be a substantial part of the
vendor’s business to have more leverage.
o Peace of mind. AT&T keeps my telephone business although they are more
expensive than Sprint and MCI and have never pretended that they aren’t. I stay
with them because the service has been trouble free and simple to use for many
years, and I have more important things concerning me than switching long
distance companies to save a few pennies a call.
o Reliability. Can they trust that the quality of your product and service
will stay high?
Finding Out How Much a Seller Will Take
Now let’s look at some techniques to find out the seller’s lowest price. When
you are buying, the negotiating range of the seller ranges from the wish price
(what they’re hoping you’ll pay) all the way down to the walk-away price (at
anything less that this they will not sell at all). The same is true in reverse
with the buyer. How do we uncover the seller’s walk-away price? Let’s say that
your neighbor is asking $15,000 for his pick-up truck. Here are some techniques
you can use to uncover his lowest price.
o Ask. That may seem incredibly naive, but if he’s not a good negotiator, he
may just tell you what’s on his mind. Of course, a Power Negotiator won’t fall
for that, but many people will. If he’s a Power Negotiator, he will
automatically turn the tables on you by saying, "I think $15,000 is a very
fair price, but if you want to make me an offer somewhere close to that, I’ll
talk it over with my wife (Higher Authority-see Chapter 7). What is the best
price you would offer me?"
Of course, the way that you ask for his lowest price makes a big difference.
Try these approaches:
"I’m really interested only in a pick up truck for occasional use, not
one as fine as yours. I’m looking at one that the owner’s asking only $5,000
for. However, I thought I’d be fair to you and ask you what the least you’d take
would be."
Or the Reluctant Buyer approach (see Chapter 5): After spending a lot of time
looking it over and asking questions you say, "I really appreciate all the
time you’ve taken with me on this, but unfortunately its not what I was looking
for. But I wish you the best of luck with it." Then, when you’re halfway
into your car to leave you say, "Look, I really want to be fair to you
because you spent so much time with me, so just to be fair to you, what is the
very lowest price you would let it go for?"
o Drop out of contention but tell him you have a friend who might be
interested. You might say, "Thanks for showing it to me but it’s really not
what I’m looking for. However, I do have a friend who’s looking for something
like this, but he doesn’t have much money. What’s the very least you’d
take?"
o Nibble for a finder’s fee. "If my friend did buy it from you, would
you give me a $500 finder’s fee?"
o Offer something in return to see if it will cause them to lower the price.
"Would you take less if I let you borrow it once in a while?"
o Have other people make super-low offers to lower the expectation of the
seller. This is unethical of course, but I’ll tell you about it so that you will
recognize it when it’s used against you. If the seller has high hopes of getting
$15,000 for his truck, your offer of $10,000 may sound like an insult. However
if he’s had only two offers so far, one for $7,000 and the other for $8,000,
when you come along and offer him $10,000, he may jump at it.
o Make a low offer subject to the approval of a higher authority. "My
buddy and I are going in on this so I’ll have to run this by him, but would you
take $10,000?"
Now let’s look at some techniques that a seller could use to find out how
much a buyer is willing to pay. Let’s say that you sell switches to computer
manufacturers. Here are some techniques you could use:
o Raise their top offer by hypothesizing what your higher authority might be
willing to do. Perhaps they buy similar switches now for $1.50 and you’re asking
$2.00. You might say, "We both agree we have a better quality product. If I
could get my boss down to $1.75, would that work for you?" Protected by
Higher Authority, it doesn’t mean that you have to sell them to him for $1.75.
However, if he acknowledges that $1.75 might be workable, you have raised his
negotiating range to $1.75 so that you’re only 25? apart instead of 50?.
o Determine their quality standards by offering a stripped down version.
"We may be able to get down below $1.50 if you don’t care about copper
contacts. Would that work for you?" In this way you probably get them to
acknowledge that price isn’t their only concern. They do care about quality.
o Establish the most they can afford by offering a higher quality version.
"We can add an exciting new feature to the switch, but it would put the
cost in the $2.50 range." If the buyer shows some interest in the feature,
you know that they could pay more. If he or she says, "I don’t care if it’s
diamond plated. We can’t go over $1.75," you know that fitting the product
to a price bracket is a critical issue.
o Remove yourself as a possible vendor. This disarms the buyer and may cause
him to reveal some information that he wouldn’t if they thought you were still
in the game. You say, "Joe, we love doing business with you, but this item
is just not for us. Let’s get together on something else later." Having
disarmed Joe in this way, a little later, you can say, "I’m sorry we
couldn’t work with on the switches, but just between you and me what do you
realistically think you can buy them for?" He may well say, "I realize
that $1.50 is a lowball figure, but I think I’ll get somebody to come down to
around $1.80."
As you can see from all we’ve talked about here, there’s a lot to be said
about the subject of price. Power Negotiators know not to exacerbate the price
problem by assuming that price is uppermost in the other person’s mind. Also it
is ludicrous to say that what you sell is a commodity, and you have to sell for
less than your competitor’s price for you to get the sale.
This article is excerpted in part from Roger Dawson’s new book-Secrets of
Power Negotiating, published by Career Press and on sale in bookstores
everywhere for $24.99.
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