Raising Good Customers
I'm a bad bedtime negotiator. My two- and four-year-old girls know their bedtime, know the routine and know the two-books-each rule. When my husband finishes the books, he gives them a smooch, turns off the light and chipper little voices call out, "Good night daddy" as he closes the door. When I shut the final book and reach for the light, the ballistic fits ensue.
I deserve the screeches of protest. They know I've given in with "just one more book" in the past so they've been trained to test me-every single night-just in case they catch me in a weak spot. Even if I say no for months, they'll still ask me every night.
My point? If your customers complain about price, you deserve it.
Well, maybe that's a little harshly worded, but I think you get my point. Just like my angel-faced-yet-skillfully-manipulating children, your customers probably pressured you for a price break in the past and you gave in. Why wouldn't they ask again and again? Or if homeowner Christina knows her neighbor John got a price cut from your dealership, why wouldn't she demand the same discount as well?
The key to raising good customers is to stop negotiating a price and start negotiating the value of the offer, says business consultant Elliott Yama. The price is the price-what remains flexible is the offer, he explains in an article he wrote for Business Horizons a few years back. "Once the discount door is opened, the negotiation game focuses on identifying the price the buyer is 'willing to pay,'" rather than the value you're offering as a seller, Yama says.
You have to train your customers to know that if they want a lower price, they get a downwardly-adjusted offer. "The practice of ad hoc discounting destroys price integrity and customers' trust in the seller," Yama says. "Discounting in itself is not bad, but discounting without an offsetting reduction in value empowers customers to demand even more discounts and hurts profitability."
And here's the head game part. If you chop your price once, your customer will never fully believe they are getting the best deal. She'll always wonder if you might have gone lower if she had held out or if the guy next door got a better deal out of you. See? Distrust. Not a great ingredient for negotiations.
Try to keep conversations with customers and vendors focused on value instead of price, says Joe Sandino of Weatherite, a California window and door dealer. "By far, the majority of consumers want value-real value-such as products that last and really perform, installations that are well done, a rewarding experience, a warranty that assures value, etc.," he says. "If your pricing is correct-high enough to pay all costs and a reasonable reward for the risk involved and low enough to be a valuable proposition to the consumer-it should stand. Offer alternatives in products and/or services. Ultimately, the real loser in an underpriced proposition is the business owners."
I asked WDweekly readers about pricing policies in the April 30 version of The Talk. A popular topic, more than 47 percent of respondents indicated that they avoid bending on price during negotiations. Still, that leaves more than half of respondents who either blend price adjustment with offer adjustment or focus on price and try to meet their customers in the middle.
One reader points out that "as a buyer, you always need to understand that your vendor needs to cover his costs and be allowed a profit and then you judge the price versus the value and make your decision."
Another equipment seller recalls a pricing story: "I had one instance where a customer stated, 'I will give you the order if you will reduce price by X number of dollars.' He was a window manufacturer and I pointed to one of his windows and asked, 'Is that a quality window?' He said, 'The best.' I then asked, 'Will you take 20 percent off the price?' End of conversation."
Selling value means communicating to your customers not what your price is, but why your price is what it is. Yama warns against offering customers "ballpark quotes" on products or services because it starts negotiations off on the wrong foot-the price foot. If you do send a quote, send a wide quote, he says.
He also suggests that sellers must remain strong if buyers request freebies on top of the original offer once the deal is settled. When extras come into the picture, the rep must fall back on the structured menu approach: more stuff = higher price.
My girls are always going to beg for more books at bedtime and your customers are always going to nudge you for price breaks. But just like kids love consistency, your buyers will find comfort in knowing where you stand. Price-based negotiations leave everyone with a funky taste in their mouths and usually throw a big, wet blanket on the seller's profits. So why not give the value-based approach a whirl? You may find that, in time, bedtime-err, sales-negotiations are getting easier.