It’s that time of the quarter and the year! You may hear your colleagues preparing for the customer calls that will close out their final push to hit performance goals. Sales is working hard to bring in the revenue, and business leaders feel the need to ride in like the Lone Ranger to help close deals. After all, it’s clear from the top: Do whatever it takes to get the business, right?
Let’s hold our horses and consider what this behavior does to the business’ ability to drive profitable revenue, not just at the end of the quarter or year, but for 2017 and beyond.
Desperation pricing happens because of procurement’s game, and yes, it is a game. It’s comprised of deliberate tactics aimed to drive discounts out of suppliers. Procurement knows that this is their season to get the best deals they can for their companies. After all, they have targets, too, and their bonus is likely riding on their ability to get prices down on the products they will need in 2017. They know that the longer they delay a decision at the end of a quarter or year, the more likely their supplier will be to reduce their price to make their numbers!
Procurement will also intimidate sales by using the competition’s “lower price” as a threat. Procurement knows that business leaders have extra discounts to give and that they love to play the hero and swoop in to “save the deal” at the eleventh hour. We call this behavior White Horse Syndrome, predictably resulting in many great companies hemorrhaging profits.
On the surface, it appears easier just to drop the price. However, think of how this behavior predisposes customers to use the same tactics in the next round of negotiations. They view suppliers who succumb to pressure as lacking in confidence in the value of their products and services or, worse, believe that their suspicion that they were being overcharged was right all along.
Without the right communication and price negotiation skills in place, your customer-facing teams are vulnerable to these procurement games. Value is the foundation of business, and the best message you and your company can give your customers focuses on how you help them by reducing costs or risk or by driving revenue. Many companies are weak in this foundation and struggle to defend price with value, eroding margin and profits.
So, have your executive team dismount their trusty white steeds and get their calculators out. Let’s calculate the value delivered to the customer and stop discounting it. It’s time to prepare a negotiation strategy that proves your company’s value in monetized terms and then stand your ground.