The last 20 years have been good for U.S. businesses. Favorable corporate tax rates, access to international resources, falling interest rates and technology have all provided unprecedented advantages. The result: Profit margins have ascended to new heights.
This environment, however, is changing.
Supportive conditions cannot continue in perpetuity. “Some of the forces that supported margins over the last 20 years are unlikely to provide a continued boost,” concludes new research from Bridgewater Associates, the largest hedge fund in the world.
Business leaders are taking note of this impending change and exploring other ways to save as these supports begin to weaken. Many are reevaluating their margins and examining how they can drive down costs. As a result, sales leaders must be prepared to face pricing pressure with better negotiation skills.
Here are three key practices necessary for all successful negotiations. Sales professionals can apply each of these three skills to any negotiation, regardless of the product or service.
1. Make the First Move
Sales professionals should make the first offer, because it allows them to anchor the value of the product or service. For many, this approach is counterintuitive; people often think that making the first move reveals too much information or signals desperation. The research, however, tells a different story.
“The myth of the effective hard bargainer should be destroyed,” proclaims research from Marquette University Law School. As Northwestern University professor Leigh Thompson explains, “There is virtually no research that supports the claim that letting the other party open first is advantageous. In fact, it can backfire — and lead to a worse outcome than you imagined.”
Being the first to make an offer is advantageous because of the anchoring bias, the tendency to overemphasize the first information we receive. Therefore, the initial offer heavily influences the customer’s response and limits the distance he or she will stray from the initial price. This approach has several names. Some call it “pre-suasion,” because it involves preemptively defining the outer edges of what is an acceptable price.
The research is clear: Making the first offer is advantageous, but equally important is the way the offer is made. It should not be presented as an invitation to bargain. Instead, sales professionals should use resolute language — avoiding phrases like, “We’re aiming to be around a price of…” They should make the offer in clear language that puts all of the terms on the table; breaking up the information into a piecemeal approach frustrates the customer and undermines trust.
2. Convert Demands to Needs
Meeting the customer’s demands often means relinquishing a valuable aspect of the sale. Therefore, it is critical for sales professionals to learn how to convert a customer’s demands to needs.
“I need a lower price” is a demand. Meeting such a demand means giving in. However, by converting the demand to a need, sales professionals can explore different ways to satisfy the demand without sacrificing revenue. Converting a demand to a need happens with a three-part approach.
First, sales professionals must neutrally acknowledge the customer’s demand. This response demonstrates that they have heard the request without agreeing or disagreeing with it. However, it’s not enough for them to state that they heard the demand; sales professionals must prove that they understand it.
“In a negotiation, that’s called labeling,” explains Chris Voss, the former lead international kidnapping negotiator for the U.S. Federal Bureau of Investigation (FBI). In his book “Never Split the Difference,” he explains, “Labeling is a way of validating someone’s emotion by acknowledging it. Give someone’s emotion a name and you show you identify with how that person feels.”
The second step is for sales professionals to uncover the need residing beneath the demand. This step is where listening becomes a powerful tool. The more a customer talks, the more information he or she shares with the sales professional. This information reveals what is driving the demand. Knowing these drivers is important, because they provide clues on what other aspects of the deal the sales professional could change to accommodate the customer without changing the price.
Finally, sales professionals must shape perceptions of value by helping customers see what they will gain by reaching an agreement and what they will lose by walking away. Creating this influence is important, because it makes the customer more receptive to a trade later.
Value extends beyond the product or service. It also relates to the ongoing relationship. Therefore, sales professionals should also shape customers’ perceptions of value around the future of the partnership.
3. Give to Get
“Giving to get” means avoiding concessions. A concession occurs when someone offers something without the expectation of receiving anything in return. Committing to the “give to get” strategy means developing a trading strategy.
A trading strategy only works when sales professionals know what to trade, when to trade and how to trade. Let’s look at all three.
Knowing what to trade means knowing the value of every aspect of the deal. If sales professionals don’t have a firm understanding of how they value each factor in the sale, they will never know if they are receiving something in return of equal or greater value. Therefore, it is critical to gauge the value of everything before trading begins.
Knowing when to trade means spacing out the trades and delivering them in order of decreasing value. This practice ensures that each trade impacts the customer and that the customer knows that pressing for more trades will result in diminishing returns. By offering a non-monetary trade at the end, sales professionals can signal that they have little room to move.
Finally, knowing how to trade means clearly defining what the sales professional is offering and what he or she expects in return. The communication must be unambiguous. When presenting a trade, sales professionals should first identify what they’re offering and then identify what they want in return. This approach grabs customers’ attention and prevents them from becoming too focused on what they will be giving.
Most importantly, signaling what the customer will receive first creates a feeling of fairness. This sense of equitable interests brings efficiency to selling. Research published in Psychology & Marketing revealed that by “priming a consideration for fairness, a seller can increase a customer’s satisfaction without sacrificing profit.”
As the previously fertile business environment changes, customers and businesses are becoming aggressive in their drive to save. Sales professionals need to position themselves for this new reality with negotiation skills. Each of these three critical skills helps sales professionals enter the negotiation with preparation, structure and mindfulness.