During 2020 and into this year, negotiation skills have become a key business survival trait. As we saw major job losses, an economic contraction in most economies, distressed supply chains, and a blurry future on the horizon, nobody was able to truly ensure and commit to a long-term business relationship. So ensuring value capture should be top-of-mind in any contracting discussion, even as signs of recovery beckon.
Pressure on demand dynamics is pushing pricing up and down, increasing volatility, price sensitivity, and higher risk for business churn. On the other hand, this is also turning into an opportunity for the procurement organizations which currently have some of the strongest bargaining power they’ve seen in the last decades. It is truly the survival of the fittest or a back-to-basics in the business world.
While measures to stabilize businesses are a key priority for all organizations, we believe now is the time to truly think both strategically and tactically about sales effectiveness and pricing discipline capabilities. Investing now in these areas will surely help companies survive the downtown in the short term, but will accelerate the recovery so organizations can come out in better shape.
“The skillful warrior attacks so that the enemy cannot defend; he defends so that the enemy cannot attack.”Sun Tzu, The Art of War
Not a Time to Price Defensively
Procurement organizations have long matured their sourcing skills with more aggressive purchasing techniques, frontal assertiveness, and better preparedness on expected outcomes and determination before sitting at the table. On the other end, selling teams have managed to follow suit and ride the storm by providing the expected concessions in an almost never-ending cycle of expansive growth fueled by globalization and digital transformation.
One thing is clear now: Things have changed like never before, and while transactional information might not be as relevant to predict customer behavior, this is not the time for letting go of commercial discipline by pricing defensively. It’s not the moment to give in and reduce price, but perhaps to double down on value.
When there are so many options available and everybody seems desperate to save their annual forecasts, win-win negotiations with only a handshake agreement are definitely things of the past. The reality for those on the front lines is that, even though the economic environment and framework have changed, the rules of the game still remain the same: two parties sitting on opposite sides of the table.
On one side is the seller, naively ready to talk about partnership and value and leaving the pricing discussion aside. While on the other side, the customer has been tight-fistedly preparing to pursue cost savings, using somewhat of a fact-based apples-to-oranges comparison and leveraging all the arguments in the book to bring the price down.
This has been, still are, and will always be the arguments for both buyers and sellers to come to an agreement after even the most strenuous negotiation. But it’s crucial that organizations invest heavily in increasing their pricing discipline so the better you equip your sales teams to defend your business, the higher chances you have of them focusing on the right things.
Another Key Component? Pricing Discipline
Price is always one of the first and main objections to arise in any negotiation and trading process, so we wanted to draw the guidelines that can best serve you both to negotiate a discount and to challenge it.
There have to be some damage controls to defend margin, but that can’t be the only short-term focus. It is time to invest in pricing discipline. Your sales team also needs to build commercial long-term fortitude and strength while continuing in maintaining enduring and maintaining healthy and profitable business relationships today and tomorrow.
In the next installment of this two-part series, we will examine that second key component: We’ll review recommendations for building pricing discipline and improving pricing maturity within an organization.