How to Negotiate in Sales and in Life
What is Winning?
I took a nervous swallow and approached the small desk in the half open cubicle. Behind the desk sat an attractive woman who looked to be in her mid-fifties. She was a blonde with soft features and casual dress. She led me into a carpeted room with a picture window overlooking Long Island Sound. "Please take a seat," she said, gesturing to the plush leather chair situated in front of a large mahogany desk.
This was a year of firsts for me. It was my first year as a salesperson and my first-time meeting with a CFO (Chief Financial Officer). The CFO entered the room, sat behind the desk, and introduced himself with a soft and reassuring voice. On his desk was the final agreement. I had worked nearly a year with his purchasing department to hammer out that deal. I had given them everything they asked. As a result, there was zero wiggle room for further adjustment, and I considered this meeting nothing more than a formality. The CFO sat back, casually asked if I was comfortable, and had his secretary bring me a cup of coffee. “So, we have this requisition from the lab," he said. "Yes," I replied, sinking comfortably in the soft leather, confidently sipping the coffee.
Silence can be powerful
Then came the awkward silence. To me, however, there was no silence. Instead, it was like a siren song. My mind rang: Say something. Say something. For God's sake, say something! So, I said something. Well, I did not just say something, I sang like a canary. I told him how the lab wanted our instrument but did not have the money in their budget. I proudly told him how I provided a solution by offering them a clearance model - the only difference of which was a black and white screen instead of color. His response was authoritative and direct, and no longer in that soft and soothing tone. He told me, as if a general were giving orders to a private, that I was going to give them a new instrument with a color screen at the same price and with the same terms as the current agreement. He proceeded to sign the agreement and handed it to me with a purchase order stating the new terms. Then one final order, "We're done here." I was now between a rock and a hard place. I had a signed agreement, which I forecasted at 100% after two months of goose eggs. However, the agreement was far from profitable, and I took a lot of heat from management. In hindsight, I had no right to give in to all their demands in the first place, because I was giving away something that was not mine to give - my company's profitability.
I learned a lot that day. I learned that silence can be powerful, never volunteer information, and every encounter (especially in sales) is a negotiation. According to sales coach, Jonathan Farrington, "The fundamental difference between selling and negotiation is that selling is a process to identify the fit between the seller and the buyer; and negotiation is the process of agreement for the terms of the deal." In my experience, every part of the sales process is a negotiation. The next time I sat in front of a CFO things were different. I declined the coffee, I was wise to the lure of the reassuring tone, and I was prepared with counter arguments and a pound of fat in my back pocket.
So, what is winning? Put simply, winning is obtaining a win-win solution. This is a solution that is mutually beneficial to both you and your client. My first meeting with the CFO resulted in a win-lose. He won, I lost. This is not the mark of a good negotiator. The CFO in my story was not a good negotiator because years later, after becoming a seasoned rep, I got my pound of flesh back.
A bad deal is worse than no deal at all
Approaching a negotiation with a win-win attitude only works when your prospect also seeks a mutually beneficial agreement. Negotiating for win-win with a prospect of a win-lose mindset is a disaster. Compromising in this situation almost always leads to a bad deal, and, as Chris Voss says, a bad deal is worse than no deal at all. This is true in both business and life. When it comes to final negotiations, after you are chosen as the vendor of choice (as I was in my story), then you have a level of exclusivity and the leverage to walk away from the table. To borrow once again from Chris Voss - at the final stage of the game, no deal for you means no deal for the prospect.
There is an old negotiation tactic used when buying automobiles. It consists of pushing the salesperson to lower the price and, if he/she refuses, thanking them for their time and walking toward the exit. More times than not, the salesperson will stop you just before you walk out of the door. They may stop you sooner, depending on how much of their time they invested (see Herb Cohen's book, You Can Negotiate Anything). This tactic can be inversely applied to a prospect with the same outcome. This is not just theory. I know it works, because I have used this tactic many times in my career; and yes, sometimes they stopped me before I walked out the door. I could have informed that CFO that doing such a deal was impossible, thanked him for his time, and walked out. In so doing, it is likely that the laboratory (who was in desperate need of my services and already frustrated that their institution took a year to process the paperwork) would have complained, and that CFO would have received an angry call from the COO (Chief Operating Officer). Of course, the CFO would be smart enough to foresee this sequence of events and would likely have reached out to me to schedule another meeting.
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How Instead of No
Chris Voss, noted FBI hostage negotiator and author of Never Split the Difference, suggests using the word “how” instead of “no.” To put this in a sales perspective, there are three ways to handle a prospect who insists on a better price.
1. Just say 'no.' This confrontational response would likely motivate the prospect to push back or gravitate to a competitor.
2. Clarify the statement by asking what they consider a better price. Then you can commit them to sign on the dotted line if you can deliver. On the surface, this may seem like an opportunity for a quick close. In fact, I have used this tactic to close business many times in my career. However, doing so may give the impression that you did not give your best price up front. As a result, the prospect may come up with further demands to see if you are still holding anything back. At the very best, you would leave a lot on the table. Even so, this technique is still useful for getting a prospect to sign when at the absolute final stage of negotiation.
3. Use the prospect's name, empathize, and ask how. For instance: "I’m sorry Tim, but I told you that this is my best price, so how am I supposed to do that?" This takes the problem the prospect just threw at you and throws it back. Such action opens the door for the prospect to reply, "Maybe there's something else you can do for me." In effect, asking 'how' takes the demand and opens it up to further negotiation.
Do Not Give Your Best Price, Give Your Best Value
Should you give your best price up front(?) It depends on the prospect, the situation, and the prospect's attitude. If you know what the prospect is currently paying, or that your service will provide value to save/make them money, then the best price is relative. For example, some time ago I was fortunate to have worked with Tim Dumas (a.k.a. Tim the Lab Guy). We were at a trade show for laboratory diagnostics where Tim was representing a distributor of mine. A prospect walked up to an instrument and asked Tim, "How much is it?" Tim replied by saying, "You don't want to know that." The prospect responded, "Yes I do." Tim countered, "What you really want to know is how much it can make you. If I told you the instrument was one hundred thousand dollars, but it would guarantee a net revenue of two million dollars each year, wouldn't you consider the initial investment a bargain?" I thought this was brilliant. Tim redirected the discussion from the instrument's cost to what was in it for the prospect and made price irrelevant. What Tim did was target the prospect's aversion to loss. When the prospect walked up, he was fearful that he could lose a hundred thousand dollars if he purchased the instrument. When Tim was done speaking, the prospect was fearful that he would lose two million dollars a year if he did not purchase the instrument. I speak more on loss aversion later in this article.
If dealing with an owner, and I know for sure that price is the primary buying influence, then I will offer up the best price I am authorized to give. When they try to talk me down, I respond by using "how" instead of "no" in conjunction with the concept of fairness:
"I'm sorry Tim, but how am I supposed to do that? Unlike other salespeople who come in high so you can talk them down, you asked me for my best price, and I gave it to you. It seems unfair to penalize me for being honest with you."
When dealing with a large company or corporation, then always be prepared to bring something to the table. Especially when entering final negotiations with a purchasing agent or CFO. Remember, these people justify their jobs by getting a better deal. Of course, you do not always have to lower your price. You can keep several alternatives in your back pocket, like no-charge shipping, no-charge start-up supplies, or extra service. Early in my career, I worked for a company that sold a consumable product to our customers for $2,500.00. After I learned that the company's cost of this consumable was $25, it nearly became habit to offer it, one time only, as a $2,500.00 discount instead of lowing my price.
All negotiations are reactive. There is no set formula when it comes to negotiating. In his book, Thinking Fast and Slow, Nobel Laureate Daniel Kahneman postulates that we have two basic ways of thinking. System-1 is emotional (based on instincts) and System-2 is logical. Most studies show that our logical thoughts (System-2) are keyed off our emotional thoughts (System-1).
Consultative selling conditions us to sell value. This often spills into our negotiating technique. However, sometimes value is not the issue. As mentioned above, negotiations are often driven by emotions. If the prospect has an emotional concern, then selling value will not win the day. Because of the emotional dynamics, you should enter a negotiation being prepared and informed but also to listen; and being prepared to tailor your approach based on the prospect's emotions.
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Getting to Yes
As salespeople, we often believe that successful negotiating skills center around getting the prospect to say yes. In fact, there is an old sales technique, based on closed ended questions, to get the prospect into yes mode. It goes something like this:
Salesperson: You do want to save time. Right?
Salesperson: You do want to save money. Right?
Salesperson: Then you do want to sign this contract. Right?
Prospect: Yes. Wait, what?
The getting to yes mentality was likely born from the Harvard Negotiation Project. The Harvard Negation Project was one of the earliest efforts to develop negotiating skills on an academic level. Later, Roger Fisher and William Ury, the joint heads of the project, published the book Getting to Yes. My feelings are that Getting to Yes provides good fundamentals, but the advice is mostly academic. As Chris Voss (Author of Never Split the Difference) often says, sometimes getting to 'no' is better.
People respond more strongly to losses than to gains
According to Bernoulli's Utility Theory: People respond more strongly to losses than to gains. This is termed loss aversion. In fact, many studies show that loss aversion is twice as powerful on decision making than any other consideration. Psychologically speaking, people like to win, but nobody wants to lose. When it comes to sales, we seek to have the prospect express pain. Put simply, we want to show the prospect how sick they are and offer the cure. Getting to 'no' questions can do just that. For instance:
Getting to Yes Questions:
Salesperson: Are you looking forward to landing that big client?
Prospect's perspective: No pain. No loss. Happy with status quo. Future looks rosy.
Getting to No Questions:
Salesperson: Have you given up on getting that big client?
Prospects perspective: Thoughts of fear and uncertainty. Prospect now thinking, "How can you help me?"
You Can Negotiate Anything, Herb Cohen
While dated, this is still the quintessential bible of negotiation
Never Split the Difference, Chris Voss
Thinking Fast and Slow, Daniel Kahneman
Getting to Yes, Roger Fisher and William Ury
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