All negotiators should build a value case for the positions they would like the other side to accept.
As a buyer, you would like the seller to understand the value of doing business with you because, for example, you are a flagship account and a reliable customer who pays on time.
As a seller, if you don’t build a value case for the product or service you’re selling, the buyer may not see that value. Even if they see the value, they may see it very differently than you do or they may not acknowledge it, since acknowledgement of value gives you leverage.
In addition, failing to articulate value may affect your credibility. The buyer may feel you are not listening to what matters to them – and, as a result, you lose credibility. Alternatively, in acknowledging the value impact to a customer, you gain credibility by showing them you understand what they consider important.
Articulation of value requires you to know something about the other side. The more you know, the better – especially in a negotiation. Knowledge is power. You have to know the gaps the customer has to fill – and then fill them. When you use value properly, you’re usually successful.
Here’s a negotiation example of how value works:
Our client was a team negotiating with a worldwide travel agency. The team had done a benchmark study for the customer account, which showed that their transaction processing solution was 35% faster than the competing solution being considered by the customer.
In the negotiations, the sales team thought that this “35% faster” benchmark was self-explanatory. Plus, the benchmark was done in cooperation with customer personnel. Our client wanted a price of $1.5 million to license this solution. It was the beginning of December, and the customer countered with $250,000.
The usual tendency in these situations, especially with the end-of-year pressure for the seller, would be to try to move much closer to the customer’s position. That means reducing price to get whatever revenue possible before year-end.
However, we advised our client that it would be foolish to reduce price so long as the value to the customer merits the higher price. Instead, we asked the sales team to quantify the value. They did.
To this travel agency, revenue is value. Based on their knowledge of additional revenue to be gained through the 35% performance improvement, a $2 million price was justified. This would provide a solid annual return on the customer investment (ROI).
So the team went back to their customer with a business case and a $2 million price. That’s right, we advised our client to show the customer a price of $2 million and apologize for the mistake of putting a $1.5 million price on the table earlier. The evidence of value was highly credible and the customer quickly understood that the original $1.5 million price was more than fair.
After the customer’s vehement protest, our team said they would honor the earlier $1.5 million offer, but that offer would be off the table after December 31. The deal got done for $1.5 million before December 31. And the customer felt great paying “only” $1.5 million. All because of a credible value case that the sales team articulated to the customer.
Summary: In this negotiation example, we illustrate how building a value case can result in higher deal value.