Negotiation Anosognosia

Wikipedia says, “Anosognosia is a condition in which a person who suffers disability seems unaware of or denies the existence of his or her disability. This may include unawareness of quite dramatic impairments, such as blindness or paralysis.”

The description could be applied to a negotiator who fails to recognize what everyone else can see – their product or service has value to the buyer.  In a recent account planning and negotiation review, a sales team came to us and basically said, “Our proposal for the customer provides $500,000,000 (yes, $500 million) worth of our product for $100,000.  They haven’t signed yet.  What should we do?”

This team was Anosognosiastic (if such a word exists).  They failed to see what many others could, including the K&R reviewers.  At a 99.8% discount the only thing left to do was wait.  What they were unaware of or denied was that this situation was brought about by a complete failure to attribute any value to their product for the customer.  If it had any value to the buyer, the deal would have been closed long ago – probably for more than the $100,000 price.

Don’t fail to see the simplest of your persuasive arguments, which is that what you provide has value.  If you fail to see this, you may be suffering from Negotiation Anosognosia.  (td)

Principled Concessions™ – The short version

In our workshops, we teach the concept of a “Principled Concession™”.  Many people hear this and confuse it with the related but different concept of trading concessions in a negotiation.  They think of common examples like these:

  • “If you buy 2, I can discount the second one by 50%.”
  • “If we reduce the scope by providing service 12×7 instead of 24×7, we can lower the price by 20%.”
  • “We can finance your total $100M payment for this project, at a cost to you of $1M.”

These “offers” follow the least-acceptable form of changing your position.  It is a more acceptable form than this one:

  • “I’ve sharpened my pencil, and I can offer you an additional 12% off the price.”

It is easy to see that the first three are preferable to the last one.  The 12% price reduction in the last example implicitly contains a message that your profit margin is high enough to offer a discount.  The buyer is now challenged to take that information, and try to find out how much margin, through extended negotiating.  Instead of the goal which the offer is usually intended to achieve (faster closing), it actually creates buyer uncertainty, loss of confidence, and delay.

Let’s reframe the first three in the form of Principled Concessions™:

  • “If you buy 2, I can discount the second one by 50% – and you’ll be able to use both at the same time when needed to perform (whatever desired outcome you bought them for).”
  • “If we reduce the scope by providing service 12×7 instead of 24×7, we can lower the price by 20%.  However, your mission-critical revenue-collection application will take longer to restore during the unsupported hours, and your revenue could be impacted by $25,000 for each hour of delay.”
  • “We can finance your total $100M payment for this project, at a cost to you of $1M.  This will allow the project benefit stream (in $) to pay for the continuing costs, and you will avoid significant out-of-pocket costs, thereby freeing up that money for other investments.”

In each of these cases, we are describing the exchange in terms of outcomes to each side.  For the seller, this is money.  The buyer gets simultaneous use (for whatever purpose), risks losing revenue, or will free up funding for other projects.  In each case, the outcome description provides a business basis for the concession, and allows the buyer to make the decision on the basis of business value.  In the real world, the outcome descriptions would be even more robust, but these examples convey the intent.

So here is the formal definition of a Principled Concession™: A concession given with a specific connection to business value.  The alternative form is this: A concession expressed as an exchange of outcomes.   (td)

Forensic Forecasting – More business in 2009

We have added an article on Forensic Forecasting to the K&R Web Site.  The article begins:

“Forensic” is an adjective meaning “appropriate for use in legal or public discussions”.  In today’s popular culture it often refers to the use of technical analysis for criminal cases.  We’re not taking your sales forecast to court, but we can tell you how to improve its accuracy – and your results.  When year-end measurements are coming, improving your results can have an even bigger impact.

You can read and download the complete article here: Forensic Forecasting

Best Wishes for every success in closing more business in 2009.

A “Happy” view of value

“Admiral produces boringly good numbers” is a headline from the fall Times Online (UK).  At K&R, we often write about the linkage between value and negotiation success (or sales success).  Well-done value arguments are compelling.  They result in shorter selling cycles and in more revenue and profit.  Poorly done ones lead to longer sell cycles and discounted prices.  Perhaps the most common value argument error we see is that people stop short of linking their value argument to a business result that the buyer cares about.  Something like “My product will make you more efficient.”  It isn’t enough.  We know that to be effective, “efficiency” has to be followed to its logical business-outcome endpoint.  In a simple way, Admiral gives us a clue for creating better value chains.

To write about negotiation and the news, you need to read a lot of news.  In our searches lately, we have read a lot of recession articles.  There is a sameness about them: the messaging is gloomy, and the “wisdom” is uncertain and repetitive.  A search for “record profit” found the interesting article about Admiral Group in the Times Online (UK).  In fact, Admiral produced record profits.  How did this happen?

On the About Us page on the Admiral Group website there is a discussion of their company culture.  Their statement is a simple example of how to follow a value chain.  Here it is:

  • “Put simply, Admiral’s philosophy is; People who like what they do, do it better.  Happy staff will create happy customers, happy customers will increase profit and increased profit will make happy stakeholders.  Happy stakeholders will want to grow the business and the circle starts again.”

Suppose that you want to sell something to Admiral.  Do you say, “My product will make you more efficient”?  No, you do not.  What you say is this, “My product is improves efficiency because it addresses the usability complaints that your staff has about existing solutions.  It will make your staff happier. Happy staff…” and so on.  You now have a continuous linkage from your product to their profit.  This is the beginning of a real value argument.

There are components to the argument that are missing.  How much happier?  How much profit?  What is your position versus competitive alternatives?  The professionals at K&R know how to structure value arguments.  We can show you how to uncover the motivations and objectives of your clients and better understand what linkages to make.  For Admiral Group, “happy staff to happy customers to profit to happy stakeholders”.

If you want to make the positive news (“boringly good numbers”), not the negative news (“recession batters another company”), think about the value you deliver – in the client’s context.  (td)

Saving your way to prosperity

Times are tough.  The stock market is at 1997 levels.  Unemployment is high.  Sales are down.  You need to manage your business results for 2009.  What do you do, and why?

If we were playing the television game show “Family Feud” (or Family Fortune, if you’re in London), the number one answer is…  Stop spending!

How about it?  Can you save your way to prosperity?  While careful spending is always a good practice independent of the economic conditions, will it make you or your company successful?  Probably not.

Let’s look at the economics of earnings.  The big number isn’t the cost line.  Well, the big number shouldn’t be the cost line – too many people are losing money at the moment.  The real leverage to improve your business results is in the revenue / profit line. One method to improve revenue and profit is to do more with what you have – make the most of the opportunities that still exist.  Through the use of effective negotiation skills, you can take those same opportunities, and get better results from them.  So, in the balance sheet of a difficult year, do you spend to improve the “big” lines (revenue and profit), or do you slow spending to affect the “little” one (cost)?  We think you should do both – but don’t decide based on an arbitrary fixed rule like “no outside spending!”  Use the same good business judgment that has made you successful in the past.

One of the popular K&R services is a series of consulting engagements to alter the outcomes of negotiations that are in progress right now.  We delivered a set of these for a client near the end of 2008.  In that K&R Opportunity Workshop we worked on 22 identified sales opportunities.  Prior to the session, only 2 of the opportunities were expected to close.  All, of course, were in the “forecast” to close, but experience shows that a forecast is more often a wish than an accurate prediction.  As a result of the workshop, eleven of the opportunities were closed by year-end, and our client beat their revenue and profit targets.  We helped them make the best of what they had already.

In a typical two-day K&R Negotiation Workshop session, where we focus on immediately applicable skills, 10-15% of the attendees use something they learned in the session in a real negotiation – before day 2 is over!  We consistently receive feedback that the attendees will use the tools and techniques within 30 days, and we have documented cases of increased revenue and profit that average 10%.

Contact us – we can help you improve your results.  (td)

Value, Benefit, and Cost in Negotiations

In a K&R Negotiation Skills Training Workshop toward the end of last year, one of our clients brought in this formula…

Value = Benefit – Cost

Not perfect, but persuasive in many ways.  Let’s discuss a couple of critical pieces of it.

The first negotiating mistake we see related to this is that “value” is one of the most misused words in technology sales.  A maddeningly high percentage of the time, it is used by Sellers as a substitute for “price”.  An example: “This deal provides you with $250,000 worth of software value for only $167,000.”  This sort of presentation reminds me of the magazine subscription solicitations I get in the mail. “Photographing Travelling Automobiles, a $360 value, for only $14.95 for one year.”  I do not believe there is anyone left in the world who believes the $360 value statement.  It’s really a statement of newsstand price.  It is not in any way credible.  If you are a Seller, don’t ever make this mistake again.  Find out  the real business value that your offering provides to your Buyer, and describe it properly.  Remember that the more specific the description is to the Buyer, the more persuasive it will be.

The second negotiating mistake related to this formula is forgetting to quantify the benefit.  If we plug in $0 for the benefit, what do we get?

Value =  0 – Cost

It’s always a number below $0.  As a Seller, the only way to improve your position is to cut price, and hope that the Buyer has some value figure in their head that can offset the cost remaining.  This is a bad negotiation strategy, and leads to agreements that get closed when the Buyer gets around to it (because their intuition says the time is right).

If you’re happy with that as a seller, you have our permission to ignore the benefit part of the equation.  If you are not happy with this, contact us – we can improve your results.  (td)

A Buyer’s look at 2009 Opportunities

There are no original-but-excessive descriptions left for the present condition of the world markets and growth projections.  Insert one that resonates with you here…

We agree with it completely.

K&R had an interesting discussion about what the 2009 recession means with a significant buyer of technology hardware, software and services.  The company provides services to their own clients, and in the course of providing those services they deal with over 1000 vendors and spend over $100 million with those vendors each and every year. We wondered what the implications of the year would be to their vendor management.

Many sellers will see extreme versions of historic buyer behavior in the coming year.  Many Buyers will choose based on price, and look for the absolute lowest pricing.  They will play one vendor against another for the short-term benefit they can get that results from Sellers’ fears.  Many will look to set multi-year agreements which “lock-in” favorable terms which can only be obtained in a highly competitive and “nervous” market.

But, not everyone will take this approach.  The Buyer we spoke with has a different vision.  These are his words.

“Our approach to vendors is different than many things — often predatory — that I see going on in the market. Our emphasis includes squaring away financials that don’t make sense based on how the relationship has evolved, but that’s only one component. Equally important is reexamining the vendors we’re doing business with, reducing the number of ‘multiples’, aligning critical ones strategically, and having them adopt [the principles which guide us with our own customers]. I want our critical vendors to become an active component of the overall value proposition.”

In our eyes, this is a highly effective strategy.  The fundamental argument we make to Sellers is that they must link their offerings to the business value of the client to improve the results of their negotiations.  Here, an important Buyer says the same thing.  Why?  Because in the end, Buyers only buy to get a job or task accomplished, not just because the price is low.  The present market provides Buyers with opportunity.  We predict that this Buyer’s organization will use that opportunity for long-term benefit, and exit it stronger than ever. Their focus on business results over negotiating tactics is superb.  (td)

K&R Success Stories Published

K&R Negotiation Associates has published a few representative success stories on the K&R Web Site.  Here are excerpts and links to more information:

  • K&R’s client turned a $150K annual loss into a $50K annual profit, while at the same time raising their own client’s satisfaction with the service. (more)
  • K&R’s client realized 6.7M€ of revenue in their current fiscal year, and 60.2M€ additional revenue within two years. (more)
  • K&R’s client benefited between $13.5K and $250K. The ultimate buyer saw a clear ROI from the total $837K investment in our Client’s products. Both our client and our client’s client were rewarded through the application of K&R negotiation principles. (more)
  • K&R’s client did not offer expensive guarantees and rebates as part of their services package. This will positively affect profitability as the agreement executes. The result was generated by carefully understanding client needs before offers were made. (more)
  • K&R’s client closed $2M higher than expected, using a few simple K&R principles. (more)
  • K&R’s client benefited by up to $65K, and began the process of breaking a pattern of discounting with their client, which will repeat in every transaction. Our client’s client was satisfied, because they understood the value of what they were buying. (more)
  • K&R’s client closed for $1.6 to 2.1M more than they expected to, using K&R’s value principles. (more)

Thoughts about selling in the current economy

Here are a few ideas and thoughts from some of the collective experience of our associates, in addition to some suggestions from articles we have read over the past few months about selling and negotiating in the current difficult economic environment.

In many of the articles, there are three common themes:

  • It is important to maintain a positive attitude – focus on where you can have impact – not on the overall economy. Remember the old expression: Attitude will determine your altitude.
  • Execute the basics – diligently. Vince Lombardy turned the Green Bay Packers into a successful American football club with his relentless focus on the basic skills of the game.
  • Work harder (depending on the article – it will take anywhere from 25% to DOUBLE the effort to accomplish the same results.) Working harder doesn’t necessarily mean spending more hours doing unfruitful things. It is working smarter and doing the right things to produce results. In other words, continue to develop your skills which will enable shorter selling cycles.

That being said – these are three very good themes – they do not necessarily drive you to any specific actions.  Here are a few ideas for you to try:

  • If you are using a web based tool for networking (like LinkedIn®) – expand your network. Think of everyone you have ever done business with or for (superiors, peers, subordinates, clients) and look them up. Reach out and connect with them – expand your network. You will be surprised at how many people you can “rediscover” with the potential side benefit of discovering some new business.
  • Call EVERYONE in your contact list – not to sell them something – but just to reconnect and “catch up”. Some of you are hesitant to call on your contacts because you have let the relationship lapse. This is the PERFECT time of year to reconnect. Call them just to wish them “Happy Holidays”, “Merry Christmas”, “Happy Kwanzaa”, “Happy Hanukkah”, “Joyous Solstice”, etc. Wish them the best for the coming year. Do this just to reestablish the contact. Human contact is very important in a world of high technology virtual reality. You may even get a referral or an introduction, but remember your objective is just to reestablish contact.
  • Contact ALL your prospects – with a change in your tune – you are not calling about business – but just to wish them a Happy Holiday. It is a tough time for everyone – you will be pleasantly surprised at how they react. “Someone actually called me to show a genuine interest instead of asking me for my business”. It definitely changes the playing field, and it helps to build trust and confidence in you as a person.
  • In your conversations with your clients and prospects, be more empathetic and positive. These are difficult economic times for everyone, and you can’t “cost cut” your way out of it. Consider alternative offerings in your product or services portfolio that will address the client’s needs. Additionally, look at ways to pare back your total solution. Think about what you might offer that will deliver the maximum return for your client. This will enhance your credibility and trust with the client and will open the doors to future business when the business climate improves.
  • Remember: clients cannot afford to make a mistake – too many eyes are looking. For you to be successful, you must prove that you can address their needs, and you will need to articulate your offering value in terms that resonate with them:
    • Minimize their risk
    • Reduce their costs (save them money)
    • Increase their revenue
    • Improve their profit / mission attainment
    • Improve their operational efficiency
    • Etc.

Budgets are being cut – or at least pared back, you must not lose momentum or your contact with your prospects.  When budgets open back up (and we believe they will), you want them to remember you and your organization.  You also want that memory to be positive!

We wish you a “Happy Holiday”, “Merry Christmas”, “Happy Kwanzaa”, “Happy Hanukkah”, “Joyous Solstice”, and all of the very best for a wonderful New Year. (jh)