Conceding on Price and Establishing the Basis of Future Negotiations

Your prospective client asks you for a discount. You tell them you will go and ask your manager what you can do. Your prospective client now knows that they’re getting some sort of concession because you didn’t defend your price or even attempt to justify the delta (the difference between your price and your competitors’, or your price and what they invest now, or your price and what they have in mind).

You must always keep in mind that it is your prospective client’s obligation and their duty to their company is to ask you for a lower price. They must ensure they’re not spending more than is absolutely necessary to achieve the outcome with which you are trying to help them. The people who make purchases for your company do the very same thing.

What you may not recognize, however, is that when you offered to go back to your sales manager to get them a better deal, you more than likely established the basis of all negotiations going forward. When you come back with a concession, you have established the terms of all future negotiations.

I want to be clear here that I am not saying that you should never offer a concession. I’m not even saying that you should never discount your pricing. There is too much context left out of a generalization that deprives you of choices that may be necessary to execute your strategy. What I am saying is that without negotiating, pushing back, and justifying the investment you’re asking them to make, you are indicating that your pricing is flexible. When you give them a 9 percent discount, now they know you have margin built-in that you can give back. You’ve proven it by giving it back.

It can be exceedingly difficult to regain this ground. Because you didn’t negotiate and give a concession, future negotiations become more difficult. When you explain that you cannot concede on price, it will not be your client who is behaving irrationally. They will be looking at the prior negotiation recognizing that you had no trouble reducing your price to win their business. In their mind, this negotiation is no different than that negotiation; the fact of the matter is that you did what you had to do to win the business then, and you will do what you must do to win it now.

Concessions are different than negotiations. In a negotiation, one party asks for something, and the other party determines what it is they can provide and what they will need to do to be able to do so. You create more value and a bigger pie, and then you decide how to split it up.

If, instead of conceding you negotiate, you will also establish terms of future conversations around price, terms, and negotiations. If every time your prospective client asks for something, you work to give it to them by expanding the conversation and getting something in return, you will have established that there is always a deal possible, and they you can help your prospective client find it.

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Filed under: Sales

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