Friday, April 20, 2012

What is the Client Buying?

“So Verdi, at our last lunch you told me you were struggling with a request from your client for a price cut,” said Tyler Gitou.

“That’s correct, Mr. Gitou,” said Verdi. “We designed a new procurement system for a large manufacturing client. We focused on quality because that was what the client said he wanted. When we were ready to sign, however, the procurement lead suddenly told us we were ten percent too high and had to cut the price.”

“So now the question is how to respond, correct?”

“Yes,” Verdi said. “I am concerned that if we don’t reduce the price the client may offer the deal to our competition. So what do I do?”

“I asked you some questions about why you bought your car,” Tyler said.

“Yes, and it confused the heck out of me. What was that all about?”

“Let’s go back to that question,” Tyler said. “You said you bought a Dodge Charger and I asked ‘Why did you buy that car?’”

“Because I needed a new car. I have to drive something to get to work.”

“But you didn’t need a Dodge Charger,” Tyler said. “You could have bought a Smart car. Smaller, cheaper and less expensive to maintain.”

“That’s true. But my girlfriend would not be impressed with a Smart car.”

“Aha!” said Tyler. “So your decision was not just about transportation. You also had an interest in the type of car because of the image it bestows on you.”

Verdi looked slightly uncomfortable. “You make it sound silly.”

“I don’t mean to, Verdi. My point is this. Every word of that question highlights a different interest you had in completing that transaction. I asked why you bought the car. Someone else could have bought it for you, right?”

“I guess,” Verdi said. “But I don’t want to have to ask someone to buy a car for me.”

“Fair enough. I also asked why you bought it instead of renting a car or leasing one.”

“Buying was the cheapest route.”

“Good,” Tyler said. “Then I asked why that car and you said you liked the Charger because of its image. Then I asked why you bought that car, as opposed to riding a bike or taking the bus.”

“My job requires a lot of travel. The bus can’t get me where I have to go,” Verdi said.

“I understand. But do you see how many different interests the purchase of this car had to meet for you to close the deal? When our clients engage for a potential transaction they also have interests. Maybe a client wants a flexible system; a more reliable system; a more robust system or a cheaper system. Some of those interests may be mutually exclusive. For example, a client shouldn’t expect to get the most reliable, state-of-the-art procurement system from you and also get the lowest price.”

“That’s fair.”

“Just like when you bought your car,” Tyler said. “Could you get a Cadillac at the price you paid for the Charger?”

“No, but the issue is he is now saying he wants a Cadillac system for the Dodge Charger price.”

“Are you sure? Or is he just testing you. Let me ask you this: how have you done business in the past? When you present a price for a project, what does this client do?” Tyler asked.

“They ask for a discount,” Verdi said.

“And what do you do?”

“We see if there is room to move and we cut what we can.”

Tyler nodded. “So you have trained this client that this is how you do business! ‘I give you a price, you push my buttons, and money comes out of the slot.’”

“You make us sound like we’re being… stupid,” Verdi said.

“I don’t want you to feel that way, Verdi. But if you do that’s a good thing because it is a stupid negotiation strategy! How will you ever build trust with this client if every time you say ‘This is my best price’ you’re not telling the truth and you prove that by reducing the price!”

“I see what you mean. So how would you respond to the request for a price cut?” Verdi asked.

“Go back to the interests. You said the client was focused on a quality system. That dictates a higher price. Give him the option to buy a lower quality system at a lower price, or a high quality system at the price you quoted. His reaction will tell you how important quality is.”

“I know it’s important. That’s all they’ve talked about,” Verdi said.

“Good. Just like I asked you the question, ‘Why did you buy that car?’ you should be asking your client, ‘Why do you want this system?’ Focus on what the client is buying. If he's buying quality, focus on how quality can get hurt. Does the client want ‘this system’ as opposed to a different system that might still be sufficient for its business needs? If he is asking you for the price cut just to make sure he has not left money on the table, he will quickly understand that this is your best price and you can’t reduce the price without changing something else in the offering. If he is asking because of new budget constraints, you can offer to discuss options that might retain the key elements of quality but you can reduce costs in other areas that are not as important to him and provide a lower price. That, Verdi, is what a Deal Whisperer does to take the first step in building trust in your client that you really are providing the best price when you say it’s your best price.”