“When I first started negotiating, I thought of negotiating like a boxing match. My objective was to defeat the other person. Actually, my objective was to soundly defeat the other person.”
This is how Paul S Goldner and Peter McKeon describe sales negotiations in their book ‘Red-hot Sales Negotiation.’ Sales negotiation is often perceived as a competition to see who gets the upper hand – the customer or the salesperson.
Unfortunately, the approach doesn’t promote long-term success. In fact, such sales negotiation strategies and tactics (mostly) fail to promote even short-term success as many studies in the field attest.
A much better alternative is to focus on creating long-term relationships so that the relationship may continue benefiting all parties involved.
The Basics of Sales Negotiations
What is it?
Roger Fisher, William Ury, and Bruce Patton in ‘Getting to Yes: Negotiating Agreement Without Giving In‘ define negotiation as “a back-and-forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed.”
Essentially, we are moving away from the goal of winning negotiations to focusing on creating a context for a winning outcome for everyone. This context encompasses a wide range of topics and situations.
How Sales Negotiations Work Typically?
Whether the sales negotiation is a one-time event or a multi-touchpoint event, most negotiations look like this. Salespersons and customers communicate with each other across the sales cycle and converse about-
- What the customer needs – Think pain points, requirements
- What the salesperson can offer – Think product or service and the benefits of addressing pain points, and
- Are both willing to make concessions to reach an agreement
When all three points are agreed on by all involved parties, the negotiation is termed successful. The more factors that play a part in reaching a deal, the longer will be the complexity and the length of the process.
Still, it is always the salesperson’s responsibility to synthesize a deal and never the customers’ to do so.
The salesperson via conversation(s) must gauge-
- How badly they need the product or service.
- Identify concession factors that are a priority and those that are non-negotiable.
- Identify whether the person(s) they are talking to have purchasing power. And if not, identify the decision-makers and engage them in a conversation.
Addressing all of these will help create a foundation for the outcome of your negotiation. And this very point brings us to the science behind sales negotiations.
The Science Behind Sales Negotiations – A Sales Perspective
Sales negotiations do not happen in a vacuum – this we know. Traditional sales have always addressed the transactional, talking about the best sales strategies and techniques. What was often missed was the role emotions play in sales negotiations.
Research in the past two decades has pointed out a few keys and less tangible factors than the transactional ones but play a major role in every negotiation process.
We are talking about the psychological influence emotions have on negotiations and how they affect stakeholder behavior.
The Science of Emotions – The Story of Anger & Anxiety
Salespersons and prospects, both have to deal with emotions. But since the onus of creating a winning context is on the salesperson, understanding and preparing for emotions is a new challenge. While all these emotions do play a role in negotiations, the biggest-maddest emotions of the lot are anger and anxiety.
Anxiety comes into play before the process begins or in the early stages. Anger, on the other hand, comes in a little later in the process.
Anxiety and its Role
Let’s go back to the basic human psychology of ‘fight and flight.’ Unlike anger which can stimulate us to fight, anxiety encourages the flight response. This state of distress makes the salesperson want to exit the scene rather than follow through.
Situations that salespeople can find themselves in when anxiety kicks in-
- Flee the discussion hastily
- Offer weak first offers in order to please the prospect
- Offer weak offers early in the process
- They fail to project confidence which makes prospects question the company’s credibility
- Find it difficult to gauge concession factors
Anxiety is a natural human reaction to stress. Salespersons must then plan and practice to recognize anxiety (which tends to creep up rather silently) and become more comfortable in such situations.
Anger and its Role
Anger is the ‘fight’ part of the process and is a bit different from anxiety. While anxiety is directed inwards, anger is often directed towards another, who in this case is the prospect.
Anger is also a productive emotion where it can make a salesperson seem ‘bolder.’ However, in most situations, anger creates conflict and not collaboration.
Situations that salespeople can find themselves in when anger kicks in-
- Creates conflict as a zero-sum game where one participant has to lose
- Escalates conflict by creating impasses and brings bias into the picture
- Decreases collaboration and increases the probability of rejection
- Angry salespersons are less likely to correctly identify and gauge concession factors
Managing Anger and Anxiety
By now you can see how anger and anxiety are two sides of a coin. This helps us better manage both emotions and the solutions to both can be common.
The best strategies to manage anger and anxiety are-
- Be observant – Tune in to your customers’ use of words, tone of voice, and non-verbal cues (like silence). If you ever find yourself in such a situation, take a breath and ask pointed questions to get the customer to answer openly. This will help the salesperson understand the customers’ perspective easily.
- Think ‘opposite’ to exert influence – This might sound counter-productive but a quick shift in tone is easily recognizable by the customer. For example, if the customer seems angry or pushy, quickly change your angle to an alternative one of empathy or fear.
Honorary Mention- Handling Loss and Happiness
Salespersons normally find it difficult to handle the loss of a prospect, an increasingly difficult task when the prospect drops out after a lengthy negotiation.
Understand that at this stage, negotiations have wound down because both parties could not agree on a few things which makes it more of a win than a loss.
We encourage the salesperson to talk to their teammates to identify what they could have done better.
Similarly, on closing a deal, salespersons do tend to become over-confident and complacent. They may come off as arrogant which may prompt their customers to want to renegotiate the deal.
Kylas Pro Tip– Focus on the opportunities but, also, understand the risks. We encourage the salesperson to be considerate and measured at the same time. In other words, control all emotions and be prepared for any eventuality.
Developing a Sales Negotiation Strategy
Just like developing a sales strategy is good for the business, developing negotiation strategies and tactics helps salespeople synthesize better deals. Your negotiation strategy should be in sync with your business goals, industry, competition, and your operational capacities.
While there are tens of negotiation strategies to speak of, here are the top five Successful Negotiation Strategies that salespersons swear by.
Remember – your customer is evaluating you as much as you are evaluating them, which makes creating a framework towards a winning context important.
While your sales strategies might focus on…
- Benefits or Value,
- Market Expertise or Standing, and
…your negotiation strategy must try to keep your customers’ needs in mind at all times. This is why your negotiation strategy must be a consequence rather than a continuation.
However, the need for a negotiation strategy only comes up when customer expectations don’t fit with your priorities and offerings. Here, your customer expects you to make concessions so that they may come out of the negotiation in a stronger position than you.
Since salespersons can only work within each factor’s range, here are some situations they may find themselves in-
Notice that situations c and e are easy to work around to reach a deal. The problem comes with a, b and d.
This is why you must Plan your BATNAs.
Best Alternative to a Negotiated Agreement
For example, your deal could fall through.
What should you do?
BATNAs are alternate deals to pursue when your initial deal falls through. In such a case, you can prepare your negotiation strategy by focusing on reacting to specific situations such as a, b and d.
Kylas Pro Tips for the creation of BATNAs-
- Create a ‘walk-away’ plan if the customer’s expectations are not reasonable. In many cases though, the customer might just be testing you so don’t give up hope.
- Make concessions– Offering large concessions will encourage the customer to negotiate more on higher priority factors. So, you must know where you can make concessions and how much.
- Limit your concessions- Offering multiple concessions will not just encourage the customer to negotiate more but doesn’t make business sense. Know where to limit your concessions and how.
- Defer concessions that are important to you such as price and delivery timelines. However, if you do choose to make high-priority concessions, do get your customer to offer something in return to ensure that the deal feels balanced.
Negotiation Planning for the Sales Representative
A funny thing about sales professionals is you will find that most are averse to planning. From time to time, we hear about this thing called ‘the gift of gab from them as a reason against planning. However, the gift to gab has very little to do with selling successfully.
Negotiation planning can actually prepare negotiators to become more professional in their approach to sales by reducing the chances of mistakes and upping your perception in the minds of your customers.
But how does one do so?
Here is a 3-step process to help you.
A 3-Step Process for Negotiation Planning
Step 1- Before Every Call, Create a List of Issues and Items for Negotiation
You can refer to factors that define sales negotiation in the ‘Basics of Sales Negotiation’ section.
Invariably though, negotiations come down to price. Remember that this one factor must be a zero-sum game for there will be one loser – the salesperson, and one winner – the client. The focus then is to negotiate better on other factors so that you balance out the loss.
Kylas Pro Tip– Once you finalize the price, accept that there are few avenues to go back and negotiate with the client over any other factor. While surprise factors can arise at times, it is best to negotiate other factors before the price.
Step 2- Prioritize those Issues and Items
Prioritize your issues in order of importance to you and your customer. If you have any doubts, do ask your customer to share their priorities so you can offer them a better deal. The worst that can happen is that they shut you down.
Also, assume that a price concession is what they will want at every stage. Do remember that once you allow them to nibble, they will keep going back to it. To stop this, you can ask for small concessions yourself.
Step 3- Set a Range for Each Factor
Every factor must feature a range where the minimum and maximum units are set. This helps the salesperson keep his/her business priorities within acceptable limits.
The reasons for doing so are-
- On one hand, anything less than the minimum will be a deal-breaker as the deal won’t be a feasible one business-wise.
- On the other hand, anything more than the maximum will be infeasible in terms of operations and delivery.
The science of negotiation is a bit different from the angry and louder style that authors Goldner and McKeon speak of. We are sure that these insights will help a salesperson to improve their understanding of the subject.
Kylas Pro-Tips– The Most Powerful Words in Sales Communication: Us, We, Our, & I’m sorry.
The Art of Sales Negotiations
We now move to the art of sales negotiation which differs from science in many ways. Sales negotiation requires skills akin to a poker game where you must know the deck well (as in science with permutations & combinations), and know the tactics (as in art with best practices, tips & tricks) to create win-win situations.
This section focuses on the development of skills and tactics to improve negotiations based on best practices.
For starters, let’s begin with the most effective negotiation tactics that salespersons can implement and practice to improve their negotiation skills-
Sales Negotiations Tactics That Work
The Framing Effect
According to psychology, humans are designed to react to how options are framed, that is, the positive or negative connotations that each option presents.
Here’s an example according to Economists Amos Tversky and Daniel Kahneman (Source: Wikipedia)-
Clearly, framing options as a gain or a loss can influence decision-making to increase the odds in the salesperson’s favor.
Simply put, in any negotiation, the first step is to recognize the anchor and diffuse it.
Here’s how Harvard Law School professor Guhan Subramanian explains anchoring-
“A common mistake is to respond with a counteroffer before defusing the other side’s anchor. If someone opens with $100, and you want to counter with $50, before presenting your number, you need to make clear that $100 is simply unacceptable. If you don’t defuse the anchor first, you are suggesting that $100 is in the bargaining zone.”
When you don’t know what’s coming, anchors have a tendency to attract attention even when that anchor is unreasonable.
Prospect theory is described as a choice that involves risk. This theory by Daniel Kahneman and Amos Tversky argues that people by nature prefer to take bigger risks to avoid losses.
Insurance is a prime example of Prospect Theory.
Daniel Kahneman in Thinking Fast and Slow gives this advice to salespersons-
“The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high. The premise of this book is that it is easier to recognize other people’s mistakes than our own.”
This theory states that being open to sharing information clearly will be met with positivity from the other side and encourage positive outcomes. What this does is clears a path where all parties put their priorities across to the other side for a feasible settlement.
Here are a few rules that the Harvard Law School recommends-
- Let them know that you can’t go any further as the concession is too costly and a deal-breaker.
- Every concession has its benefits. You just emphasize this to your prospect clearly.
- Your original expectations are your anchors. So do not give them up too hastily.
These tactics can help one gain an advantage as the decision is postponed to a later date, giving the salesperson and the sales team to figure out tactics and options.
Delaying tactics can-
- put the initiator in a stronger position
- compel the other side to compromise
- act as an indirect refusal
Other Notable Mentions–
- Good Cop, Bad Cop
- Hyperbolic Discounting
- The Bogey and the Decoy
Tips for Successful Sales Negotiations
The most common mistakes that salespeople make are the simple ones that normally fly under the radar. Here are some tips to help you maximize value from your negotiations.
- Always Lead the Negotiation – You don’t want to ‘react’ to everything and play catch up. Leading the conversation can help to be proactive.
- Make Deal-breakers Real – Let your counterpart know that some things are deal-breakers for you and you are willing to walk. This creates a level playing field for you. The alternative is to cave in where the agreement hurts your organization.
- Rank Order the Terms – Once you rank your priorities, identify your counterpart’s ranking and match its importance with yours to spot flexibility areas.
- Mention Your BATNAs – While old-school sales believed that withholding information is an effective negotiation tactic, modern research debunks it. Give your counterpart an accurate picture of your expectations and see the result yourself.
- Focus on Trade & Never Cave – If you concede too quickly, your counterpart will know this is how you do things. They will expect concessions at every step. You need to create better agreements for your organization, every time!
- Beware! Don’t EVER Use the Word ‘Negotiate’ or Related Terminology. – Using negotiation terminology can aggravate your counterpart and may cause them to behave aggressively. Even words such as ‘accept’ and ‘reject’ can cause change. Instead, use cooperative terminology like ‘collaborate,’ and ‘work together.’
- Make the First Offer – Setting up an anchor point sets the context in the direction you want it to flow in. It also
- allows you to direct focus on the best qualities,
- keep it within range (of all factors), and
- bracket your precise range.
- Counter Their First Offer (but not always)- Don’t let the anchor settle. Counter their first offer with your own because this is what they expect from you. However, don’t counter for the sake of this as this will elicit a slew of negative emotions which is never your intention.
- Always Schedule a Future Interaction (even after the deal is done) – Research suggests that repeated interaction creates an ecosystem of mutual cooperation. Moreover, breaking the process into consumable pieces ensures that everyone stays attentive.
Many salespeople feel that sales negotiations can be difficult even in conducive market conditions. What they fail to realize is that sales negotiation needs proper knowledge, proper planning, and proper execution to be successful.
All of this, with comprehensive sales CRM software with the right set of CRM features, can help small businesses compete with behemoths and thrive.
Not sure which CRM to choose for your growing business? Read this blog.
We hope this article can help you plan and practice for better negotiations. If you have any comments or questions, please do share them with us in the section below.