Contract negotiation · Sales

How would you negotiate a deal where your price is higher than current solution?

Yaya Mbaoua

February 26th, 2015

I am replacing a healthcare service with a far superior one in terms of quality, cost savings and patient experience. The sales presentation with a killer demo went extremely well. The prospect recognizes the significant improvement it would represent. Our proposal is priced at 75% above what they currently pay for the lower quality service. We found out after we submitted the proposal.

The prospect is very cost conscious and I really want to close this deal. I don't want to just drop the price and go back and say "hey here's our bottom number, take it or I'll walk" . I might lose the deal or I might leave money on the table. And beside, I already made a move and now the ball is in their court and they should make a move and show that they want to "buy".

Alternatively, I can just ask them what they can afford, in which case they might stick to what the pay today (for budgetary reasons) - and I might just take it even if it's not very profitable, but at least I would get to close the deal because they're a strategic prospect.

Any advise on how you would handle this situation would be appreciated.

Paul Field Agile Leadership Coach - Helping you focus on business value, collaboration and innovative solutions

February 26th, 2015

The first thing is to play up the value for them - for example, if they pay 75% more, are they going to make cost savings that are greater than that 75%? (i.e. it pays for itself).

Make sure you know what matters to them, personally and strategically, so you can (hopefully) show how the product is worth that 75%. Also if you understand their pain points with the current system then play those up too (e.g. what's that "lower quality" costing them in money and other kinds of pain; what would your higher quality give them instead?)

If price is still an issue, then don't just lower it - instead trade for value. Maybe less features, or a smaller implementation; maybe a longer-term commitment or a pricing structure that is lower initially and ramps up over time. Maybe there's something they can do for you in terms of recommendations, case studies etc... Be prepared to move on price - but only if they're giving something in return.

Rob G

February 26th, 2015

where to start... sounds like you need a crash course in strategic selling:  1) What type of company is this?  (private or public, hospital, private practice, insurance co...? If private then shuffling budgets is typically easier than a public entity.  If public then the work on getting a some agreement signed now and getting a spot on their budget for future annual expenditures where you can .  2) do you have a 'champion' inside the org? - someone who can help you gather intelligence about the decision process? Cost may be AN issue, but not THE issue.  In healthcare it could be a compliance or customer service issue that overshadows cost - be sure you understand ALL the issues. If you don't have a champion inside then focus on building one.  They can help you understand how their budgets work and possibly help you identify ways to get this approved or spread across multiple budgets.  3) Do you really understand all of the objections? When negotiating a sales agreement it is important to clearly understand ALL of the objections.  You say they are "very cost conscious", but do you know that is a fact in this case that price is truly a barrier to signing?  Have they said to you "we can't afford this"?  Sales people often default to adjusting price to compensate for perceived objections because it is easy.  Don't move on price until you know you must and even then be sure you understand if it is a budget issue or a cash flow issue or something else.  Spread costs over multiple years if needed, but cut price only if absolutely necessary and trade that for features/benefits if possible otherwise you just teach them to beat you up on price every time.  4) Be sure you are communicating early and often with ALL of the buying influences:  if this is a organization where more than one person influences buying decisions be sure you understand the personal wins for each decision maker.  For example, the head of compliance might be sweating bullets because IT is backlogged and s/he is facing potential liabilities with their current solution - spending money with you could be much cheaper than a law suit or failing a compliance audit (or any number of other things).  The department head who is running the evaluation may be "very cost conscious" because it is his/her budget that will get hit the hardest, but the head of customer service may be clamoring for a service like yours and can 'find' the $$ somewhere because their customer service metrics look bad and your solution can make them look good. People looking good and making bonuses are frequently reasons for closing a deal.  5)  How will they treat this expenditure from an accounting perspective?  Will they capitalize this or expense it?  Sometimes it's just a matter of fitting the $$ into the right bucket.  Often larger orgs have a fixed capital budget with no flexibility, but the CFO can figure a way to expense this over multiple years or across multiple departments.  6) does your solution make them money or reduce their costs?  Projects that make money almost always get more budget than those that reduce costs. Solutions that reduce risk (liability) also get priority.  Many other questions, but this should get you started.  

Judit Fabian Seasoned Finance Professional

February 26th, 2015

HI Yaya, Showing a rate of return (if you can) is a good way to go about it. Also, you can offer a discount for the first 3 or 6 months and then if they want to continue then the price goes to what you proposed. That way you get them used to the "good stuff" and they can see the value in it.

Andrew Steele Executive. Entrepreneur. Builder of Things.

February 26th, 2015

All of the advice so far is spot on.  Your key challenge is not to abandon your value position, e.g. yes I cost more, but there's a reason for that...

You explicitly mention your prospect is cost conscious, so without knowing anything else, it strikes me that the ROI argument is the lynchpin here.  If you can build the quantitative case that, to Paul's point above, your solution pays for itself, and then some, then you should be done.  If the prospect still doesn't move, then consider offering a trial/pilot period so the prospect can have 1st hand exposure to how great you are, either with a discounted rate or a special 'limited time promotional pricing' approach.  That gets them across the 'penny-gap', which is a huge psychological barrier.  

Finally, failing any of the above, you could consider segmenting your products from a feature perspective (assuming that's technically feasible) so that you can create lower-priced entry points for prospects where cost is the #1 issue, and still maintain the value position of your flagship.   This also will give you a portfolio you can use to 'land and expand' in accounts - e.g. get customers in the door, then upsell.

Happy to have a quick chat with you to dive in a bit more if you'd like.

Good luck!

-Andrew

Yaya Mbaoua

February 26th, 2015

Very insightful advise, Paul. I really appreciate it and it totally makes sense to me.
Thanks again!

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

February 26th, 2015

I usually use this in face to face situations as part of moving the sale past interested and nearer to close, am sure you can find a way to frame it so it makes sense. 

Basically, ask them to answer the question "I would make the buy today but.......". It's amazing how honest accounts (people) will be if you turn down the pitch and turn up the understanding.

Chris 

Yaya Mbaoua

February 27th, 2015

Great advice all around. Thanks Paul, Judit, Chris, Rob & Andrew!!

Rob G

February 27th, 2015

yaya, to clarify one point above, when it comes to helping them cost justify this expense, don't focus only on cost reduction.  Help them understand how your solution can help them increase sales/revenue and also risk reduction in addition to cost savings. Increasing sales always plays better than reducing costs. 

Ayang Obur Managing Director at WeAreWizard

March 1st, 2015

Hi Yaya,
It sounds to me here that we are barking up the wrong tree ...
The important question Yaya is 

"Have I correctly qualified this customer?"

All above is correct but I would add a couple of techniques here...

1. Commitment and consistency: Get them to echo the values that are important to them and tie them it with your product. Charities do it all the time buty giving us free t-shirts posters, and things that make us say
" I am associated with what this brand stands for"

2.Social Proof: Get people who are from the clients demographic or maybe the demographic who he/she aspires to be to give you testimonials in person, live

3. Scarcity: Offer a time bound discount on the premium but only available if they take action within a fixed time. That will encourage them to act

I think you have a quality of leads problem. The below books helped me immensely and i hope they will serve you too.

1. Influence: Robert Cialdini -2010

2. The Sales Bible: Jeffrey Gitomer -2008

3. Crucial Conversations: Kerry Patterson -2011

Let me know your thoughts


Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

March 2nd, 2015

If they're truly cost conscious, and not just price conscience, they should opt for the solution with the best ROI. As others have said, you need to know what the customer is thinking. Perhaps it's more a matter of cash flow than cost, in which case you can offer any number of alternatives to a fixed, up front payment.