My neighbor had a plumbing problem last week that partially flooded his house. When the carpet installer quoted a price of k to replace the carpet, Rocky simply asked him, “can you do it cheaper?” The installer knocked off k without even blinking.
One question, one grand.
On the face of it, this story seems like a victory for the buyer. Simply by asking, he saved himself a ton of money. But, what if the “fair” value of the carpet replacement was k? In that case you could say that the carpet installer was the winner, because by asking for k, he was able to earn an extra grand, with the small possibility of actually doubling that.
For the record, I have no idea what the fair value was, but that’s not the point. The point is that the ask has a tremendous influence on the final number agreed on. Research shows that “final agreements in any negotiation are more strongly influenced by initial offers than by the subsequent concessionary behavior of an opponent.”[1]
To put the point as plainly as I can, those who ask for more, get more.
While most of this article is written from the point of view of the buyer, the exact idea works for even better for the seller, because they usually make the opening offer. Make it a good one. In my previous article, I wrote about salespeople who fly into the sales battle flying a white flag, prepared to retreat off the asking price at the slightest sign of the buyer’s resistance. In fact, many of them probably preemptively lower their asking price to make their offer more attractive. That’s a big mistake, because smart buyers will always ask for more. Why not? It doesn’t hurt, and it can pay off big.
Of course, bargaining is usually expected to a certain extent in B2B sales, but it’s far less common in retail. We look at a price tag and either pay it or not, or we wait for a sale. We don’t bargain in a retail store, because it’s just not done that way. But why is the list price so sacrosanct? Someone—a real flesh and blood person sitting in an office somewhere at corporate—decided that was the opening offer, and had an official price tag printed up to make it the “list” price. That doesn’t make the price any more fair than if you were negotiating with someone at a craft fair on a Saturday morning, or a souvenir seller in your cruise ship port. It doesn’t hurt to ask, “is that the best you can do?”
There are limits, of course, generally for questions of good taste and common sense. I went to dinner once with a colleague in Canada who tried to bargain with the waiter in a restaurant, “If we all order the prime rib, will you take 20% off the price?” I wanted to crawl under the table out of embarrassment, but to Don, that was just part of the fun he found in life. The waiter got permission to accept the offer, but to this day I still wonder what “extra ingredients” might have been added to our meal.
That’s why one of my personal caveats about negotiating is that I don’t like to ask for price reductions from people performing a service, because I think it will affect their motivation to do quality work, even if only subconsciously.
A big part of life for all of us is buying and selling. One of the easiest and quickest ways to get more out of life is simply to ask for more. Just ask.
Not the best weapon to carry into battle
One of the major reasons my clients hire me is to win the price war. They want weapons to help their salespeople win the daily battles for their customers’ minds, because they’re tired of losing deals to competitors who undercut them on price, or of winning deals that eat away at their profits.
Their target battlefield, the territory they want to dominate, is the customer’s mind, and their strategy is to create differentiated and quantifiable value. It’s not easy, but because of the inflated impact that even small price cuts can have on profitability, it’s a crucial battle.
But, for any sales professional to stand a chance in that battle, there is an even more important battle that has to be fought first. It’s the battle for the minds of their own salespeople.
Just about every sales class I teach contains a small group of doubters, the ones who have preemptively given up. They tell me that the only criterion their customers care about is price. They lament the deals they have lost—not because of anything they did wrong—but because their competitors came in with a lower price. They hurt their own companies with “friendly fire”, directing most of their sales efforts internally: trying to convince their managers to shave a few points off the margin to put the big deal over the top.
The problem with that type of thinking is that it’s self-fulfilling. If they don’t think they can compete, they’ll be proven right—even though they’re wrong. If they don’t think their solution is worth more than what the competitor offers, they’ll be proven right—even though they’re wrong. If they think there is no difference between what they and their competitors offer, they’ll be proven right—even though they’re wrong. And if they ride into every sales battle with the white flag already flying, they will lose.
There are two reasons I know they’re wrong. First, they haven’t tried everything: there are about fifty questions they haven’t yet asked, techniques they haven’t tried, and buttons they haven’t pushed yet[1]. Second, on occasion I’ve had the opportunity to talk to the salespeople from their competitors—and they’re saying the same thing they are!
My favorite question to those doubters is: “Would you take the deal the competitor is offering?” Most answer no, and those I can work with.
A few answer yes, and they are the ones who should find another job—just not in sales.
[1] I’m not making up that number for dramatic effect. I’m writing a book on winning the price war and having trouble limiting the number of techniques and ideas to keep it at a manageable length.
Ka-ching!
I came across an article yesterday in Bloomberg Business Week that was very disturbing in its implications. The title is Proof That It Pays to Be America’s Most-Hated Companies. Its key message is that measures of the American Customer Satisfaction Index have virtually no correlation to stock market returns (at least for 2013, the only year shown). In fact, a regression line actually shows a very slight negative correlation.
“The companies you hate are making plenty of money. In fact, the scorned tend to perform better than the companies you like.”
The implication, of course, is that treating customers poorly is not bad business, and might even be smart business because of the money they save on luxuries such as good service, responsiveness, and actually being nice to people.
I would like to think the implications of the data are wrong. With only one year’s worth of data, it’s possible; maybe 2013 was an anomaly. Maybe it only applies to B2C companies. Maybe the old saying about any publicity is good publicity is true, and the companies everyone complains about are the most well-known, so everyone buys their shares. Maybe they provide superior value to customers in other ways, so they can get away with not being nice. I don’t know; I’m sure readers of this can suggest other explanations.
I have to admit that this article jolted me a little bit, because one of my most cherished principles and key themes of this blog, is the crucial importance of customer focus and treating them right.
But another side of me was actually pleased to get the information. It’s healthy to have your most cherished ideas challenged occasionally, and to get a reminder that the world is not as simple as we try to make it. It keeps us from locking in to rigid certainties that stop growth and learning. It preserves a touch of skepticism and humility. It reinforces the fact that in persuasion, there are no absolutes.
If nothing ever surprises you or challenges your thinking, you either know everything there is to know, or you’ve simply stopped looking.
What do you do when you encounter contradictory information?
- Ignore it?
- Attack it?
- Think about it?
On a slightly related note, I’ve been writing about entrepreneurs and intrapreneurs recently. They succeed precisely because they challenge conventional wisdom.
It’s going to take a special mindset to raise this one
The previous article about the intrapreneurial mindset focused on the thought processes that sales intrapreneurs use to generate insights for identifying new value, for their customers and for the companies they work for. But, as I also hinted in that article, insights are usually only a very small part of the successful intrapreneurial equation; they are just the stakes that allow you to play at the table.
When you consider your own experience, that makes sense. Often our response to seeing an innovation is not “why didn’t I think of that?”, but “they stole my idea!”
Good ideas are a dime a dozen. If your mind is like mine, you have a mental junk drawer filled with good ideas that never saw the light of day, because you thought of them once and never did anything with them.
A more empirical estimate of the relative value of the new idea is given in Daniel Isenberg’s excellent book about entrepreneurs, Worthless, Impossible and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value
Seeing the value is the easy part—creating and capturing the value is by far the hardest.
Although Isenberg’s book is about entrepreneurs, many of the same dynamics apply to intrapreneurs.[1] The paradox of valuable ideas is that they are almost inevitably seen as bad ideas at the beginning. Why is that?
- The current situation is the product of good thinking and careful decisions by many smart people, so if the idea had any merit at all, it would have been proposed already.
- When a subordinate proposes a new idea, he or she may be implying that they’re smarter than the boss.
- If the status quo is working, new ideas are seen as a threat. Why fix what isn’t broken?
- Anything that distracts from the salesperson’s main job of “selling what’s in the bag” is a bad thing.
Good ideas are like ugly babies—only their parents love them. So if their parents want their babies to grow up into successful and productive adults, they are going to need more to their mindset than just creativity.
Risk tolerant
Let’s be clear about one thing up front: intrapreneurs do not face risks as high as those faced by entrepreneurs, because they have the corporate safety net below them. But they still face considerable risk for the reasons discussed above. They risk their productivity, their customer relationships, and their jobs. The kind of opposition they face generally discourages most employees, but intrapreneurs may be more willing to take risks because of their self-confidence and sense of accountability.
Self-confident
They have tremendous self-confidence, sometimes to the point of insubordination, which allows them to have the temerity to think they may actually know better than anyone else, and gives them the guts to speak up in defense of their point of view. They are not great respecters of the chain of command, which can make them unpopular and difficult to manage.
Accountable
Not-my-job is not in their vocabulary. The successful ones I’ve seen take a larger view of their roles than their job descriptions call for. They do whatever it takes, accepting responsibility for results, for their customers and for their company. They think like owners of the business, and owners of the relationship.
Loyal
The key ingredient that separates intrapreneurs from entrepreneurs is that they are extremely loyal to their employers, sometimes irrationally so. I don’t have outside evidence on this, but my own observations are that they are usually lifers who joined their companies right out of school and rose through the ranks. That loyalty is their saving grace and the reason for putting up with them, because without it they might easily leave to pursue their idea independently, or side too much with their customers when interests clash.
[1] According to Isenberg’s definition, which I mostly agree with, entrepreneurs take far higher risks and greater obstacles than intrepreneurs, and are therefore entitled to capture a much larger proportion of the value from their ideas.
