To Keep Leverage and Win Deals, Know the "Physics": The K&R Leverage Slope™
The concept of leverage originally comes from physics, referring to levers in a pulley system; the more you have, the more easily you can move objects of heavier mass. In negotiation, it’s the ability to move people closer to your way of thinking – your value arguments are your levers. The more credible value arguments you have, the more easily you can move people closer to your point of view.
Watch as Mladen Kresic discusses negotiation leverage and uniqueness in this short video.
What exactly is leverage? At K&R Negotiations, we’ve developed the concept of the Leverage Slope, defining the relationship between the buyer – who wants an optimal solution at the lowest possible price – and the seller, whose goal is the best price for their product.
Sellers’ leverage is driven by uniqueness, and heavily influenced by incumbency. At the bottom of our slope is where they’re essentially selling a commodity, a relatively undifferentiated product available from any number of vendors. With a commodity product, the main purchasing criteria is price, which competition naturally drives down.
Further up the slope are competitive products, which have some uniqueness or value that separates them from most of their alternatives. A seller can negotiate a higher price by successfully articulating some kind of unique value as a competitive advantage. But there’s a price point where the buyer will look for less optimal solutions regardless.
The peak of the slope is the seller’s best position, a “transactional monopoly” where the buyer’s clear best choice is to go with that offering. Sellers in this position have a lot of leverage.
Use that wisely by explaining your value fully, so that the buyer feels good about their decision and their relationship. This will pay off in later transactions, when you as the seller may not have that degree of negotiating strength.