Issue link: http://www.e-digitaleditions.com/i/873536
22 FEDA News & Views Imagine this scenario: You're a sales representative for Baker distributing. One of your long-time customers, Albertson Metals, operates a mill that produces high nickel alloy ingots. Each year, this mill purchases approximately $500,000 worth of MRO products—bar conditioning wheels, fl ap wheels, grinding belts, cutoff wheels, steel shot and grit, and other products for the mill's laboratories. Unfortunately, you're usually able to obtain only about 30 percent of this business. During the last six months, you've been working intensively with the mill's management to convince them of the value of developing an integrated supply arrangement with you. They have reacted positively to your ideas and you've developed a proposal that you believe fi ts their needs perfectly. Among other things, you will manage Albertson's inventory, stock all items with suffi cient buffer stock to ensure just-in-time availability, supply Albertson with OSHA-certifi ed safety seminars on appropriate topics to be mutually agreed upon, provide 24-hour emergency delivery and invoice biweekly for items drawn from consignment. Lastly, you've submitted your proposal at a price that you believe fairly compensates you for your high level of service and for the special features included. A week later you call the plant and are told, "We got your proposal and it's excellent. However, we have to refer anything of this magnitude to Corporate Purchasing." You call the Purchasing Department and speak to the buyer responsible for this contract. He says, "You've submitted an excellent proposal and, obviously, you've done your homework. Unfortunately, we have something of an embarrassment of riches here. Two of your competitors also submitted excellent proposals. You should be aware that your pricing is extremely high compared to your competitors. As a result, at this time, your proposal really is not competitive." You explain to the buyer how you've worked with the plant for the last six months to develop this proposal. You discuss at length your excellent service record and how you've gone the extra mile to meet the plant's needs. The buyer acknowledges this but says, "Your competitors also have excellent service records but are willing to meet our needs at a much lower cost." Did you see this coming? You worked hard to meet your customer's needs. You solved problems with your customer. You anticipated a win/win for everybody. Your goal was to avoid a price negotiation by differentiating yourself and focusing on your services and your added value to the customer. Now, at the last minute, price rears its ugly head. In fact, the purchasing agent says that price is the determining factor. What do you do now? What should you've done throughout the sales process to prepare for the possibility of a serious price negotiation? In our sales negotiation training programs, we stress four key steps that will greatly improve your chances of making that sale while successfully negotiating to maintain your margins: Be prepared for a price negotiation but don't lead with your wallet. Think like the buyer. Be brutally honest with yourself as to what your added value is really worth. Be aware that the negotiation starts when you say hello. Let's look at each step. Be prepared for a price negotiation but don't lead with your wallet. As buying organizations have become more sophisticated, many realize that the key factor is not price but total cost. Therefore, it is sometimes possible to avoid price negotiations if the customer sees enough value. We know of one manufacturer that was approached by an automobile company to take over production of certain parts because their current supplier was not meeting expectations. The manufacturer called in its machine tool distributor, with whom they had had a very good relationship. They said to the machine tool distributor, "We promised the automobile manufacturer that we could do it. Now it's up to you to make it happen. We're not here to negotiate the price— just make it work." The distributor sold $10 million worth of machine tools at list price, including a full turnkey operation and the placement of a fulltime technician at the manufacturer's location. There's a lesson to be learned: If you think there is a possibility that you can make the sale based on your added value and services, try to leave price out of the discussion. Don't start with price concessions or discounts but focus on the added value. By Michael Schatzki mike@negotiationdynamics.com continued on page 24 Do you know how much the customer is willing to pay for your value adds? What about your competitor's?