Koreans have a reputation for being fearsome price negotiators. So imagine this situation. A salesman in the semiconductor industry is negotiating the annual price level for their product with the negotiator for a large, global electronics company.
The Korean negotiator invites the salesman to write his proposed price on the board. The salesman writes $20. The customer thanks the salesman, walks to the board, erases the 20 and writes $1. He then invites the salesman to make another proposal. This continues for most of the day until the salesman (more often than not) reaches his walk-away price or lower.
While this may be an extreme case, this type of price negotiation goes on in every industry and country, with purchasing and sales people relying on their nerves and skill to outwit their opponents and win a respectable price level.
That's why Global Partners, Inc. hosted a webinar on Selling and Negotiating an Optimal Value Price. In this webinar we share case studies and practical approaches to avoid falling into price negotiating 'commodity traps' like the one described above.
You may or may not have to match wits with the Koreans, but, with whoever you are negotiating, we want to make sure you have every advantage and achieve your Optimal Value Price.
Selling and Negotiating an Optimal Value Price is a topic we've found has special relevance to sales and marketing people, especially in the current economy.
The webinar focuses on the 4 critical areas in enabling sales and marketing people to successfully position their offers on the basis of value and to negotiate and win business at 'fair value' prices and margins.
Value Selling and Value Negotiating are two of the greatest challenges facing sales and marketing people today. Although there is no "magic formula", 4 critical factors, in our experience, make for success. They are:
- Understand and apply the dynamics between price discounts and profitability.
- Quantify and communicate the impact of your offer value to justify a fair price.
- Identify and create strong relationships with the specific buyers who recognize the importance a good value offering.
- Circumvent or engage price-only procurement buyers.
They work sequentially, so let's first focus on Critical Success Factor #1:
Understand and apply the dynamics between price discounts and profitability.
We have asked this question to hundreds of sales and marketing people over the years. Nearly all of them are surprised to discover powerful dynamics between Price and Profitability. But, even after understanding the relationship, we hear concerns like:
- "It may be true, but there's not much we can do about it...'"
- "We don't influence cost of goods sold. In fact we don't even know the gross margins on our products (marketing won't tell us)"
So, what can sales people do about it? Or, better-put how can sales people use information to improve prices and margins? Here are our 3 recommendations:
- Know your targeted Gross Margin. The standard margin is calculated in a way that eliminates the influence of cost of goods sold and is therefore influenced only by changes in price.
- Use factors such as maturity of your product, competitive intensity, quantifiable value and buyer profile to estimate if your products/services fall above the target margin, i.e. are Margin Drivers or on the left Margin Eroders. Each of these factors should be known to sales and marketing people and enable you to change the conversation you have around pricing on individual deals.
- Determine your current mix. Apply a portfolio approach at the product level, customer level, for your territory or group of accounts and, if you know products a, b and c are highly competitive, you need to resist discounting under all circumstances.
How will you utilize these 3 recommendations to help understand and apply the dynamics between price and profitability for your business?