Issue link: https://www.e-digitaleditions.com/i/873536
24 FEDA News & Views On the other hand, with today's ferocious pressures to reduce costs, buyers never forget that price is an important component of cost. Usually, they will want to have the best of both worlds. They want you to solve their problems, add value, reduce their costs and, in addition, give them a better price, which further reduces their costs. Don't be surprised, don't be shocked, and don't be hurt. That's just the way the game is often played. As you start the process, you need to move forward in such a way that while you take steps not to invite a price negotiation, if there is one, you're prepared. Think like the buyer. To negotiate effectively, take up residence in the buyer's mind. Think about what might actually be going on versus what they're telling you. What they say may be the least important information. What they say to each other and what they're thinking is the key. Let's go back to Albertson and ponder three different scenarios. Scenario 1 Plant: "This proposal from Baker is great. We're going to save all kinds of costs and solve all kinds of problems. I know they appear a little pricey, but the cost savings are worth it." Purchasing: "Have you looked at any competitors?" Plant: " We've looked at two who say they can do it and have offered a much lower price, but their services really aren't there and we don't believe they can produce the cost savings." Purchasing: "Would you mind if I use the two competitive cost quotes to try to bring Baker's price down?" Plant: "No problem, as long as you promise that we will get a contract with Baker without losing any of the services and added value they have promised us." Purchasing: "You have my guarantee." Scenario 2 Plant: "Baker's proposal is great. We're going to save all kinds of costs and solve all kinds of problems. I know they appear a little pricey, but the cost savings are worth it." Purchasing: "Have you looked at any competitors?" Plant: "We've looked at two others. They're almost as good as Baker and they're cheaper." Purchasing: "How much more do you think Baker is worth than the best of the two competitors?" Plant: "We think they're worth about 10 percent more." Purchasing: "We'll try to get Baker down to no more than 10 percent above your best competitor. Of course, we'll try to get them even lower. If we can't, we'll go with your No. 2 choice." Plant: "Sounds good to me." Scenario 3 Plant: This proposal from Baker is great. We're going to save all kinds of costs and solve all kinds of problems. I know they appear a little pricey, but the cost savings are worth it." Purchasing: "Have you looked at any competitors?" Plant: "We've looked at two other competitors that can do the same thing Baker can. They all appear to have the same quality and would produce the same cost savings." Purchasing: "Then you don't care which one we go with as long as we get the best price." Plant: "Yes, they're basically the same, so go with the best price." The buyer will almost always want you to believe that Scenario 3 is happening. But is it really? The profi tability of your sale may depend on your ability to determine which scenario really is in operation. Be brutally honest about the worth of your added value. If it comes down to a price negotiation, your added value is worth only what the buyer is actually willing to pay for it. Say, for example, that the only difference between you and your prime competitor is that you have a better reputation in the marketplace. Is that of value? Of course. Is it important? Absolutely. Is it worth anything? That depends on the buyer. If one buyer says, I'm willing to pay 2 percent more to go with Company A because of their better reputation, then it's worth 2 percent to that buyer. On the other hand, if another buyer says, I'm not willing to part with any hard, cold cash because of Company A's reputation, then it is not worth anything to that buyer." Whenever you have one or more potential competitors vying for the sale, you need to do a value-added analysis in order to fi gure out the most the buyer will pay you vs. your competitor. Let's make up a simple example with just one competitor, Company A. Let's assume there are four different components of value: service, reputation, delivery, and problem-solving ability. Based on your knowledge of the customer and the competition, you believe the customer thinks that you have a better reputation, provide better service and have better problem-solving capabilities, but that your competitor is a little better on delivery. Furthermore, although your customer likes your reputation, they won't pay more for it. They like your service and feel that's worth up to 2 percent more. They believe that your problem-solving capability has helped them overcome signifi cant diffi culties and that that's worth 4 percent more. On the other hand, you've had some delivery problems. While not fatal problems, the customer would be willing to pay your competitor up to 2 percent more for their better delivery. continued on page 26