Negotiating: How to Resist Price Pressure
Create 81 possible packages in a flash
One of the most common problems people selling complain about is pressure to reduce their prices. There are several ways to prevent price pressure. In this blog we will discuss how to resist price pressure when negotiating.
How do you prepare?
So, how do you prepare? A client once told us he knew he had a problem when he was in the lift on the way to a million-dollar negotiation and he turned to a colleague and asked “What do you think we should ask for?” We hope you prepare for every negotiation.
One way to prepare for a price negotiation is decide a maximum and a minimum. So, what’s the most we can ask for and what’s the least we will accept. This defines a range and in theory gives you an endless number of possibilities. For example, let’s say our minimum was $80 and maximum was $100. In theory, there are many possible prices between these two extremes. But, in practice in the middle of the negotiation there are too many for our brains to think about. So in this example we are likely to think about increments of 10 or 5:
80, 90, 100: 3 options
80, 85, 90, 95, 100: 6 options
So in practice you have 3 or 6 options. With just one variable (price) it’s hard to resist. So when the other negotiator says, “You will have to do better than that....” you have two choices: say NO or decide how much to move. Repeatedly saying no is hard and some negotiators find this uncomfortable, especially when you want to maintain a relationship with the other negotiator. When negotiating like this, saying NO repeatedly can damage your relationship.
One way to improve your options is to introduce more variables. Let’s start with two variables. So, if we were selling a house we would consider price and days settlement. Once we have two variables, if we get pressure on price we can resist by moving the other variable. So you want to sell for $900,000 and you are willing to wait for 90 days settlement. When the negotiator asks to buy for $700,000 which you think is unreasonable, then you can say that’s ridiculous, the only way I could even consider that price would be with a 7 day settlement. The other side says I can’t do that and we can move the discussion to how many days they can do and then the price needs to be higher than their request for $700,000. So, now you are able to resist price pressure by applying pressure with the other variable.
When planning we recommend planning for three levels for each variable. (In another blog we will explain how to choose those levels.) In this blog we will show how these three levels give you flexibility because they give you packages. If we look at our two variables with three levels we have: price 1, price 2, price 3 and days 1, days 2 and days 3.
Level 3 is the best outcome for your company, and level 1 is the worst.
So planning with two variables with three levels for each gives us 9 packages. In our experience most business negotiations involve four major issues. So, if we plan for four variables and have three levels we can create: 3 x 3 x 3 x 3 = 81 packages.
Here is an example of what a completed planning sheet would look like
This is a small video to explain this planning tool.
If you prefer to read the explanation:
So now in a flash you have 81 possible packages. This gives you two things: confidence and flexibility. Let’s say your starting offer is all four variables at level 2 (in practice where to start is a complex question depending on the other negotiator and your relationship and business objectives). So you can say confidently:
For a fee of 4%, we offer a service level of 48 hours, with payment in 30 days and a 25 week long project.
Let’s imagine that the other negotiator responds with I need your lowest price. You can quickly and confidently respond by asking for your level 3’s for all of the other variable:
If you can accept a service level of 7 days, pay in 7 days and give us a project for 32 weeks then we can give you our lowest fee of 3%.
If you have prepared well, then the other negotiator is likely to say something like: I like that price better, but our standard payment terms are 55 days and we want a service level of 48 hours and we can give you a project for 25 weeks.
After this you could quickly respond by saying, under these circumstances if you want 55 days payment and a service level of 48 hours, with a project for 25 weeks, then we would need a fee of 8%.
From here the negotiation continues with you offering another one of the 81 possible packages until you can agree. Using this method, you are seen to be flexible and trying to find a package that works, while resisting pressure on price. Don’t say no, just offer an alternative.
A fast way to prepare—plan for 4 issues and three levels for each—and you will have 81 possible packages in a flash. That’s how to resist price pressure.