Over the decades as the K&R team have assisted leading companies achieve business and sales negotiation success, the subject of ”unprincipled concessions” has been a constant. Simply put, unprincipled concessions are those that are not tied to a credible business rationale. Research shows that this simple business negotiation mistake can (and has) cost companies between nine and eighteen percent of their dealmaking revenues.
The below graphic illustrates why unprincipled negotiations are such an important issue. Let’s discuss the problem and what you and your team can do to make this a non-factor in your negotiations.
The most common example of an unprincipled negotiation concession is this: To test you and your resolve, the client asks for a large up-front discount. Wanting to secure the deal, you make this concession without reference to the value of your solution, and without asking for anything in return.
At this point, the potential client is thinking two things:
- I could have asked for and received an even bigger discount
- You don’t know the true value of your offering
- You were just trying to “cheat” them by asking for an outrageous amount to begin with
None of these thoughts are good, and any of them could collapse the agreement you thought you had. Such an unprincipled concession can have a snowball effect that drags out the negotiation. Since you gave in so easily at the first request, the other party could naturally request more concessions, thus, further eroding your revenues and profits. Or they simply walk away because they no longer trust you.
Why Do You Think a Discount is Justified?
When faced with a demand for discounts, the simple “why” question above can be critical for maintaining your leverage and credibility. Engage the other side to explain why they think they deserve a discount, taking the focus from price alone and putting it on rationales related to value. In our experience, one of three things occur when you employ this artful bit of pushback, leading to different outcomes:
- The other side immediately concedes the point because they were just “fishing” for easy concessions.
- They reengage by challenging your value proposition (including introducing potential competition). This response allows you to refine and repeat your key value argument while discovering areas where you can make principled concessions.
- They have genuine constraints that make your solution unaffordable. While this is not ideal, it allows you to reduce scope and content and, therefore, price, and potentially save the deal.
Our K&R Principled Concession Rule is: Same Outcome + Same Content + Same Terms = SAME PRICE.
As opposed to the unprincipled concession, you make a principled concession when you include a credible business rationale for any change in your offer. And as indicated in the third scenario above, if the other side likes your solution, but can’t afford the investment amount for your full solution, you could offer to explore their priorities and find a way to alter the scope and timing of services to help them stay within their budget.
Remember that a concession easily given appears of little value. Make the other side earn or justify the concession and you achieve three important objectives:
- Maintain the value of your offering
- Strengthen your credibility and leverage
- Stop the process from turning into an endless game of requests and concessions
One last point. Sometimes, sales teams are afraid to turn down an unreasonable request for fear of creating bad feelings with the client. Actually, turning such requests into principled concessions will gain you respect and perhaps even increase your perceived value and chances for a long-term profitable relationship. Customer satisfaction is not mutually exclusive of business respect.
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This post has been updated from a previous post. View the original post here.