July 23, 2015
Negotiations Rarely Go Smoothly. One Problem That Sometimes Occurs is When the Buyer Suddenly Announces a Maximum Buying Price Way Below Your Planned Selling Price.
Imagine the scene. You are negotiating a sale and everything has been going well. Suddenly the buyer drops a bombshell. You are still talking about the product or service and the delivery and they suddenly say that their maximum budget is far below what you were about to suggest as an asking price. In fact it is even lower than your cost of production.
It might be they were buying widgets, a consignment of meat, boxes of biscuits or new software. The product doesn’t matter. Even the price doesn’t matter; it might be pens at £5.00 a box or widgets at £1m each. The thing is they have just put a price expectation on the table and it is much too low for you.
What do you do?
What they have done is “anchored” the price at their figure. Even if you then come in with your figure and finally meet in the middle they have taken control of the starting point. And it will often be below the figure you hoped to finish at.
So here are some answers.
Firstly you should be the first to mention a figure.
A lot of people hate doing this as they are afraid of driving the customer away. So a good tactic is to use your competitors starting point. Our competitors are selling this at £X . This gives you the chance to see their reaction. If they think it high, you can ask why they think the price is unacceptable. It also means you can then come in at your price and address the issues already raised. E.g We are 5% lower than our competitor and the issue you mentioned isn’t a problem for us as we do xyz.
The other thing to judge when they come in first is whether this is a real price or a ploy to start you on the back foot. Often they are playing with prices to beat you down before you even start.
Finally knowing what their alternatives are is a good tactic for you before you even meet them. for example if you have the product now and they need it urgently, but your competitor can’t supply; then they have no alternative. But if your competitor has shed loads of the product, it is as good as yours and is cheaper then you need to think again. Now you have to think about the extras or better service you can throw in. Even simple things like having a good or better instruction manual can be a clincher. Offering 24/7 support service can also clinch it.
This is something I offer myself. I have a standard service but my deluxe service includes 24/7 support. It brings me in a premium, but is rarely used. So it costs me very little but gives my buyers massive peace of mind.
The whole issue of anchoring is one that can be overcome if you plan in advance. Ideally you should anchor the price very early in the discussions. Even before you enter the formal negotiation stage. Because in reality negotiations start as soon as you advertise or get a call.
Finally, remember one thing. NEVER settle at all costs. If you cannot agree a price where you can make a profit, don’t do business with them. Before you start any negotiation have a walkaway figure that you will stick to.