Negotiating with a Customer You Can’t Afford to Lose

“I like your product, but your price is way out of line. We’re used to paying half that much!”

“Acme’s going to throw in the service contract for nothing. If you can’t match that, you’re not even in the running.”

“Frankly, I think we’ve worked out a pretty good deal here, but now you’ve got to meet my boss. If you thought I was tough…”

“Tell you what: If you can drop the price by 20%, I’ll give you the business. Once you’re in our division, you know, you’ll have a lock on the whole company. The volume will be huge!”

“I can’t even talk to you about payment schedule. Company policy is ironclad on that point.”

“Look here, at that price, you’re just wasting my time! I thought this was a serious bid! Who do you think you’re talking to, some green kid?”

This wasn’t supposed to happen. You’ve invested a lot of time earning a customer’s trust and goodwill. You’ve done needs-satisfaction selling, relationship selling, consultative selling, customer-oriented selling; you’ve been persuasive and good-humored. But as you approach the close, your good friend the customer suddenly turns into Attila the Hun, demanding a better deal, eager to plunder your company’s margin and ride away with the profits. You’re left with a lousy choice: do the business unprofitably or don’t do the business at all.

This kind of dilemma is nothing new, of course. Deals fall through every day. But businesses that depend on long-term customer relationships have a particular need to avoid win-lose situations, since backing out of a bad deal can cost a lot of future deals as well. Some buyers resort to hardball tactics even when the salesperson has done a consummate job of selling. The premise is that it costs nothing to ask for a concession. Sellers can always say no. They will still do the deal. But many sellers—especially inexperienced ones—say yes to even the most outrageous customer demands. Shrewd buyers can lure even seasoned salespeople into deals based on emotion rather than on solid business sense. So how do you protect your own interests, save the sale, and preserve the relationship when the customer is trying to eat your lunch?

Joining battle is not the solution unless you’re the only source of whatever the customer needs. (And in that case you’d better be sure you never lose your monopoly.) Leaving the field is an even worse tactic, however tempting it is to walk away from a really unreasonable customer.

Surprisingly, accommodation and compromise are not the answers either. Often a 10% price discount will make a trivial difference in the commission, so the salesperson quickly concedes it. But besides reducing your company’s margin significantly, this kind of easy accommodation encourages the customer to expect something for nothing in future negotiations.

Compromise—splitting the difference, meeting the customer halfway—may save time, but because it fails to meet the needs of either party fully it is not the proverbial win-win solution. A competitor who finds a creative way to satisfy both parties can steal the business.

The best response to aggressive but important customers is a kind of assertive pacifism. Refuse to fight, but refuse to let the customer take advantage of you. Don’t cave in, just don’t counterattack. Duck, dodge, parry, but hold your ground. Never close a door; keep opening new ones. Try to draw the customer into a creative partnership where the two of you work together for inventive solutions that never occurred to any of your competitors.

There are eight key strategies for moving a customer out of a hardball mentality and into a more productive frame of mind.

1. Prepare by knowing your walkaway and by building the number of variables you can work with during the negotiation. Everyone agrees about the walkaway. Whether you’re negotiating an arms deal with the Russians, a labor agreement with the UAW, or a contract you can’t afford to lose, you need to have a walkaway: a combination of price, terms, and deliverables that represents the least you will accept. Without one, you have no negotiating road map.

Increasing the number of variables is even more important. The more variables you have to work with, the more options you have to offer; the greater your options, the better your chances of closing the deal. With an important customer, your first priority is to avoid take-it-or-leave-it situations and keep the negotiation going long enough to find a workable deal. Too many salespeople think their only variable is price, but such narrow thinking can be the kiss of death. After all, price is one area where the customer’s and the supplier’s interests are bound to be at odds. Focusing on price can only increase animosity, reduce margin, or both.

Instead, focus on variables where the customer’s interests and your own have more in common. For example, a salesperson for a consumer-goods manufacturer might talk to the retailer about more effective ways to use advertising dollars—the retailer’s as well as the manufacturer’s—to promote the product. By including marketing programs in the discussion, the salesperson helps to build value into the price, which will come up later in the negotiation.

The salesperson’s job is to find the specific package of products and services that most effectively increases value for the customer without sacrificing the seller’s profit. For example, an automotive parts supplier built up its research and development capacity, giving customers the choice of doing their own R&D in-house or farming it out to the parts supplier. Having this option enabled the supplier to redirect negotiations away from price and toward creation of value in the product-development process. Its revenues and margins improved significantly.

Even with undifferentiated products, you can increase variables by focusing on services. A commodity chemicals salesperson, for example, routinely considered payment options, quantity discounts, bundling with other purchases, even the relative costs and benefits of using the supplier’s tank cars or the customer’s. Regardless of industry, the more variables you have, the greater your chances of success.

2. When under attack, listen. Collect as much information as possible from the customer. Once customers have locked into a position, it is difficult to move them with arguments, however brilliant. Under these circumstances, persuasion is more a function of listening.

Here’s an example from my own company. During a protracted negotiation for a large training and development contract, the customer kept trying to drive down the per diem price of our professional seminar leaders. He pleaded poverty, cheaper competition, and company policy. The contract was a big one, but we were already operating at near capacity, so we had little incentive to shave the per diem even slightly. However, we were also selling books to each seminar participant, and that business was at least as important to us as the services. The customer was not asking for concessions on books. He was only thinking of the per diem, and he was beginning to dig in his heels.

At this point our salesperson stopped talking, except to ask questions, and began listening. She learned a great deal—and uncovered an issue more important to the customer than price.

The customer was director of T&D for a large corporation and a man with career ambitions. To get the promotion he wanted, he needed visibility with his superiors. He was afraid that our professionals would develop their own relationships with his company’s top management, leaving him out of the loop. Our salesperson decided to give him the control he wanted. Normally we would have hired free-lancers to fill the gap between our own available staff and the customer’s needs. But in this case she told him he could hire the free-lancers himself, subject to our training and direction. The people we already employed would be billed at their full per diem. He would save money on the free-lancers he paid directly, without our margin. We would still make our profit on the books and the professional services we did provide. He would maintain control.

Moreover, we were confident that the customer was underestimating the difficulty of hiring, training, and managing free-lancers. We took the risk that somewhere down the road the customer would value this service and be willing to pay for it. Our judgment turned out to be accurate. Within a year we had obtained the entire professional services contract without sacrificing margin.

It was a solution no competitor could match because no competitor had listened carefully enough to the customer’s underlying agenda. Even more important, the buyer’s wary gamesmanship turned to trust, and that trust shaped all our subsequent negotiations.

When under attack, most people’s natural response is to defend themselves or to counterattack. For a salesperson in a negotiation, either of these will fuel an upward spiral of heated disagreement. The best response, however counterintuitive, is to keep the customer talking, and for three good reasons. First, new information can increase the room for movement and the number of variables. Second, listening without defending helps to defuse any anger. Third, if you’re listening, you’re not making concessions.

3. Keep track of the issues requiring discussion. Negotiations can get confusing. Customers often get frustrated by an apparent lack of progress; they occasionally go back on agreements already made; they sometimes raise new issues at the last moment. One good way to avoid these problems is to summarize what’s already been accomplished and sketch out what still needs to be discussed. Brief but frequent recaps actually help maintain momentum, and they reassure customers that you’re listening to their arguments.

The best negotiators can neutralize even the most outspoken opposition by converting objections into issues that need to be addressed. The trick is to keep your cool, pay attention to the customer’s words and tone, and wait patiently for a calm moment to summarize your progress.

4. Assert your company’s needs. Effective salespeople always focus on their customers’ interests—not their own. They learn to take on a customer perspective so completely that they project an uncanny understanding of the buyer’s needs and wants. Too much empathy can work against salespeople, however, because sales bargaining requires a dual focus—on the customer and on the best interests of one’s own company. The best negotiating stance is not a single-minded emphasis on customer satisfaction but a concentration on problem solving that seeks to satisfy both parties. Salespeople who fail to assert the needs of their own company are too likely to make unnecessary concessions.

The style of assertion is also extremely important. It must be nonprovocative. “You use our service center 50% more than our average customer. We’ve got to be paid for that…” will probably spark a defensive reaction from a combative customer. Instead, the salesperson should build common ground by emphasizing shared interests, avoiding inflammatory language, and encouraging discussion of disputed issues. This is a better approach: “It’s clear that the service center is a critical piece of the overall package. Right now you’re using it 50% more than our average customer, and that’s driving up our costs and your price. Let’s find a different way of working together to keep service costs down and still keep service quality high. To begin with, let’s figure out what’s behind these high service demands.”

5. Commit to a solution only after it’s certain to work for both parties. If a competitive customer senses that the salesperson is digging into a position, the chances of successfully closing the deal are dramatically reduced. A better approach is to suggest hypothetical solutions. Compare these two approaches in selling a commercial loan.

“I’ll tell you what. If you give us all of the currency exchange business for your European branches, we’ll cap this loan at prime plus one.”

“You mentioned the currency exchange activity that comes out of your European branches. Suppose you placed that entirely with us. We may be able to give you a break in the pricing of the new loan.”

The first is likely to draw a counterproposal from a competitive customer. It keeps the two of you on opposite sides of the negotiating table. The second invites the customer to help shape the proposal. Customers who participate in the search for solutions are much more likely to wind up with a deal they like.

Some salespeople make the mistake of agreeing definitively to an issue without making sure the overall deal still makes sense. This plays into the hands of an aggressive customer trying to get the whole loaf one slice at a time. It’s difficult to take back a concession. Instead, wrap up issues tentatively. “We agree to do X, provided we can come up with a suitable agreement on Y and Z.”

6. Save the hardest issues for last. When you have a lot of points to negotiate, don’t start with the toughest, even though it may seem logical to begin with the deal killers. After all, why spend time on side issues without knowing whether the thorniest questions can be resolved?

Combative buyers are hard enough to handle without provoking them further, yet many salespeople unintentionally annoy buyers to the point of complete exasperation. What’s worse, the two most common mistakes crop up most frequently at times of disagreement, the very moment when poking sticks at the customer ought to be the last item on your list of priorities.

The first mistake is belaboring. Some salespeople will repeat a single point until customers begin to feel badgered or heckled. Chances are they heard you the first time. You can also belabor a customer with logic or with constant explanations that seem to suggest that the customer is none to bright.

The second mistake is rebutting every point your customer makes, which is almost certain to lead to argument—point and counterpoint. Don’t say “night” every time your customer says “day,” even if you’re convinced the customer is wrong.

There are two reasons. First, resolving relatively easy issues creates momentum. Suppose you’re working with a customer who’s bound and determined to skin you alive when it comes to the main event. By starting with lesser contests and finding inventive solutions, you may get the customer to see the value of exploring new approaches. Second, discussing easier issues may uncover additional variables. These will be helpful when you finally get down to the heart of the negotiation.

7. Start high and concede slowly. Competitive customers want to see a return on their negotiation investment. When you know that a customer wants to barter, start off with something you can afford to lose. Obviously, game playing has its price. Not only do you train your customers to ask for concessions, you also teach them never to relax their guard on money matters. Still, when the customer really wants to wheel and deal, you have little choice.

The customer too can pay a price for playing games. A classic case involves a customer who always bragged about his poker winnings, presumably to intimidate salespeople before negotiations got started. “I always leave the table a winner,” he seemed to be saying. “Say your prayers.” What salespeople actually did was raise their prices 10% to 15% before sitting down to negotiate. They’d let him win a few dollars, praise his skill, then walk away with the order at a reasonable margin.

A number of studies have shown that high expectations produce the best negotiating results and low expectations the poorest. This is why salespeople must not let themselves be intimidated by the customer who always bargains every point. Once they lower their expectations, they have made the first concession in their own minds before the negotiation gets under way. The customer then gets to take these premature concessions along with the normal allotment to follow.

A man I used to know—the CEO of a company selling software to pharmacies—always insisted on absolute candor in all customer dealings. He’d begin negotiations by showing customers his price list and saying, “Here’s our standard price list. But since you’re a big chain, we’ll give you a discount.” He broke the ice with a concession no one had asked for and got his clock cleaned nearly every time.

The key is always to get something in return for concessions and to know their economic value. Remember that any concession is likely to have a different value for buyer and seller, so begin by giving things that the customer values highly but that have little incremental cost for your company:

Control of the process

Assurance of quality

Convenience

Preferred treatment in times of product scarcity

Information on new technology (for example, sharing R&D)

Credit

Timing of delivery

Customization

Service

There’s an old saying, “He who concedes first, loses.” This may be true in a hardball negotiation where the customer has no other potential source of supply. But in most competitive sales situations, the salesperson has to make the first concession in order to keep the deal alive. Concede in small increments, get something in return, and know the concession’s value to both sides. Taking time may seem crazy to salespeople who have learned that time is money. But in a negotiation, not taking time is money.

8. Don’t be trapped by emotional blackmail. Buyers sometimes use emotion—usually anger—to rattle salespeople into making concessions they wouldn’t otherwise make. Some use anger as a premeditated tactic; others are really angry. It doesn’t matter whether the emotion is genuine or counterfeit. What does matter is how salespeople react. How do you deal with a customer’s rage and manage your own emotions at the same time?

Here are three different techniques that salespeople find useful in handling a customer who uses anger—wittingly or unwittingly—as a manipulative tactic.

For example, imagine this response to a customer throwing a fit: “This attack is not constructive. [Strong eye contact, assertive tone.] We’ve spent three hours working the issues and trying to arrive at a fair and reasonable solution. Now I suggest that we go back to the question of payment terms and see if we can finalize those.”

Of course, there is substantial risk in using any of these techniques. If you withdraw, you may not get a second chance. If you listen silently or react ineffectively, you may alienate the customer further. These are techniques to resort to only when the discussion is in danger of going off the deep end, but at such moments they have saved many a negotiation that looked hopeless.

The essence of negotiating effectively with aggressive customers is to sidestep their attacks and convince them that a common effort at problem solving will be more profitable and productive. Your toughest customers will stop throwing punches if they never connect. Your most difficult buyer will brighten if you can make the process interesting and rewarding. The old toe-to-toe scuffle had its points, no doubt. Trading blow for blow was a fine test of stamina and guts. But it was no test at all of imagination. In dealing with tough customers, creativity is a better way of doing business.

Thomas C. Keiser is senior vice president of the Forum Corporation, a training and education consulting firm in Boston.

Negotiating with a Customer You Can’t Afford to Lose

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