When does 1 percent equal 11 percent? You think “Never!” but this isn’t fuzzy math. It’s the impact you can have by changing your discounting.
A 1 percent change in discounting has an 11 percent impact on your operating margins, according to McKinsey and Co. This is a seemingly small improvement with huge potential. So, what are you doing to get that 1 percent back for your company?
Last-second save attempts
Almost every salesperson has been through some sort of negotiation skills training. Companies want to tear down the proverbial wall that a proposal hits when it moves into the purchasing or procurement phase. The belief is that your margin is won or lost at the wall during the waning moments of a deal cycle.
If you are a sports fan, you will recognize these words:
· Hail Mary
· Buzzer Beater
What do they have in common? They are all last-second plays often made in desperation to try and pull off a win. In football, it comes down to that big bomb into the end zone hoping for a miracle catch. In basketball, it’s the half-court heave in hope that the ball will go in the basket. In baseball, it’s the big swing for the fences to win the game with one blast of the bat.
These moves all make for spectacular highlights, but no team counts on these last-ditch attempts as part of their everyday strategy for delivering a winning season. Instead, they prepare a plan designed to win the game outright and avoid these desperate do-or-die attempts.
Plug value leaks early
You need to look at protecting your pricing and margins the same way you would view a leaking pipe. It’s more than an end-game strategy. It requires a disciplined, well-planned approach throughout the entire customer acquisition process.
Here’s the premise: your pricing doesn’t simply fall apart at the end of a buying cycle. Rather, throughout your conversations with prospects, the perceived value of your solution is leaking. It happens when your prospect compares and contrasts your offering with their company’s needs, and it happens when they look for differences between you and your competitors. By the time it comes to the negotiations, your so-called champion often believes you and two other competitors could do the job, and they tell procurement to “do their job.”
Plugging these “value leaks” before you ever get to the procurement process requires a team effort between both marketing and sales. Here are four key principles for creating and capturing maximum value in a disciplined, purposeful set of conversations.
Identify unconsidered needs.
You have to be able to go beyond solving for your prospect’s known wants, needs and pain points. The bigger value lies in finding the unconsidered needs and demonstrating how your approach uniquely solves those issues. You need
to proactively identify a range of undervalued, unexpected or otherwise unmet problems or missed opportunities your prospect may be facing.
Then, put together your best story for closing those gaps and deficiencies by aligning them with the strengths of your offering. It’s at the intersection of
an unconsidered need and your unique capabilities where you can create additional value that protects pricing later.
Ask provocative questions.
Traditional assessment and qualification questions put you at parity with everyone else. These interactions don’t differentiate you, and won’t do anything to create greater value. Getting someone to think more deeply about different possibilities, and getting them to “try on” your solution with more provocative questions, creates important engagement that increases the perception of value.
There are three types of provocative questions, each designed to help move the conversation forward — away from price and toward topics that highlight your value:
• Confront – Engage your prospect with yes/no questions that create productive tension and gets them to take a position on a challenging subject related to your value. (For example: “So, would you agree that…?” “Have you ever had to…?” Is your company ready to…?” Is this the kind of project that people will…?”)
• React – Encourage your prospect to respond to provocative data that shifts the discussion to a topic related to your value. These might reference their company’s information or industry information. (“I noticed your CEO said this in the earnings call…how would this project contribute to this goal?” “There was an article in BusinessWeekthat said…how is your company dealing with that challenge?”)
• Expand – Challenge your prospect to prioritize or compare things in ways that might highlight your value. Get them to verbalize things already in their head regarding your project. (“You’ve identified four criteria for moving this project forward; can you prioritize each one and assign them a relative value or weight?” “If you had the power to implement this project in your ideal form, what would that look like?”)
Build in business and personal value mapping.
Getting your decision maker invested in the process means helping them see beyond just being a good steward for the company, but actually connecting the decision to their personal goals and reputation. When they see the outcome as having consequences for their career, it completely changes the dynamics of the decision-making process.
It becomes difficult later in the process for decision makers to just throw the deal over to procurement for the typical beat-down. They can’t risk that procurement might unwind some of the critical components of the solution in an effort to get a lower price when those elements are tied to deliverables and projected results where they have a personal stake.
Establish and gain pivotal agreements.
Creating and capturing maximum value is the result of a series of pivotal agreements along the buying process — not the result of one grand bargain at the end. There are six to eight moments of truth where you need to document important agreements and trades — both inside your company and with your prospects — that will determine the size and profitability of the sale.
Typical areas that form the basis for pivotal agreements include:
• Identifying key decision makers and confirming a strategy to connect with them throughout the process
• Accessing qualifying data and reporting to uncover the full opportunity
• Deferring price discussions until internal support and sponsorship is built up
• Sponsoring commitment to initial rollout success criteria, leading to organization-wide deployment
• Agreeing to monitor compliance with volume and payment terms
These four areas can drive a disciplined approach to the early stage executive and decision-maker conversations that will plug the value leaks and put you in a much better place when the deal gets turned over to procurement. Ideally, you will not be starting with a much higher target, and you’ll have a head start on protecting your margins.
Tim Riesterer is Chief Strategy and Marketing Officer at Corporate Visions, Inc. He writes a regular column for Sales and Marketing Management magazine.