It is clear that some sectors of the economy have seen volumes and prices fall dramatically. This can lead to tremendous pressure to reduce prices to maintain volume, revenues, and our jobs. Will lower prices cheapen the brand? Will we drive customers away feeling they overpaid in the past? If we reduce prices today, can we ever recover margin in the future?
How should we proceed?
What We Negotiate in the Downtimes Echoes in Recovery
While your business may be experiencing downtime and the consequences may dominate everyone’s thinking, ‘this too shall pass’. And when recovery returns, what impact do we want today’s pricing decisions to have on our business relationships and our strategic positioning?
What if price is not the only issue in the purchase decision decisions? Uncertainty, affordability, and risk are other factors that are frequently more important than price.
What are the Needs of the Other Side?
There are two important negotiation principles to consider:
- Never Assume, Find Out First (NAFOF), and
- Always seek to understand the stated and unstated needs of the other party.
Consider your customers and why they buy, or don’t buy. What non-price factors are at work? What subtle reframing of issues – such as ‘affordability’ or ‘cash flow’ instead of ‘price’ – can help you break out of a pricing dilemma?
Tips for Pricing for the Long Haul
Today’s pricing decision is a strategic negotiation with the future. As such, it is critical that we understand the other parties’ needs and broaden the range of issues beyond price.
Here are some tips for negotiating pricing for the long-haul:
- Focus on the outcome you want to achieve – which is rarely price. Appreciate that price may not be the right lever, and that strategic consequences to your pricing decisions must also be carefully considered.
- Invest your negotiation preparation time in truly understanding the needs of the other parties. Avoid blanket assumptions about ‘the market’. Consider each negotiation separately, and take time to understand the unstated needs of individual negotiators. For example, what issues might be uncovered by exploring views about job security?
- Recognize that there may be a strong process need for the other party to demonstrate a ‘win’ on price, especially in situations where a downturn has caused a rapid power shift and revenge is a motivator. Spend time and effort to build perceptions of common ground and long-term relationships.
- Remember your customer-facing teams are under pressure to deliver volume. Set clear ranges for your negotiators on price, and implement monitoring and reward mechanisms to back up your strategy. In particular, be alert to erosion of price levels through unauthorized discounts, rebates or other mechanisms.
- If you must concede on price, seek to embed context-dependent discounts which will auto-adjust in recovery. For example, link discounts to relevant market statistics such as commodity indices, rather than conceding on the base price. And never ‘give’ unilateral concessions; always ‘trade’ using the conditional offer ‘if/then’ technique.
It’s no longer business as usual. Look for how you can trial innovative approaches to pricing. The best strategies often emerge from drawing out ideas from negotiations on the ground, rather than pushing corporate PowerPoint presentations.