Dramatic changes have hit recruiting and staffing companies due in large part to an onslaught of purchasing agents and often irrational competitors who increase pressure to lower fees and dictate our services. The ability to successfully win through negotiations has become increasingly vital if we are to protect revenue and our ability to serve our clients with excellence.
In studying past negotiations with purchasing, we find they tend to focus primarily on price. But their lowest-price solution and our solution have stark differences. Consultants will also downgrade some of our strengths, so we respond by taking away some of the key differentiators to test their position. Before the negotiation even begins, think about the “takeaways” that we could use to reduce our offering and our cost, as opposed to simply reducing our cost and keeping the same suite of services.
The following insights and techniques are offered as ways to strengthen your skills as a negotiator and empower you to find practical solutions where both parties win and walk away satisfied.
Knowledge Is Power
Most consultants work from a competitive mode. Knowing this, our initial goal is information-gathering. Get them talking with probing questions like:
- “Before we get started…”
- “What do you like?”
- “What do they think about our solution?”
- “Is there anything in our solution that we can take away?”
The goal, while in competitive mode, is to get the consultant/buyer to change to a cooperative mode where both parties win. We can always make a deal better for both parties if we’re willing to take some time to look at it and have dialogue.
Value of a Site Visit
Use a site visit to sell and learn to position for the next negotiation. During the site visit we should try to find answers to questions like: How have they bought other benefits? Do they typically buy the lowest-cost solution? Do they typically buy the highest service? How important are long-term relationships to them? How long have they worked with the consultant? How difficult is it to make a change at their organization (for both human resources and for participants)? When they have made changes in the past, how have they done it? What are they most interested in accomplishing? How can I make them look good in our solution?
As soon as the negotiations start, we should work to lower expectations. We should also make them work for every concession. Expect them to “dump garbage on our lawn” — or downplay our competitive advantage. Understand that this is their strategy to try to negotiate us down and lower our own expectations. You may hear things like, “You are the highest cost solution” — an attempt to down play our value.
Often other proposals will be used as competitive leverage against us. The first thing we need to do in this scenario is to figure out how and if those competitors can truly deliver what the buyer wants. Get a firm grasp on exactly what the buyer needs and then consider what we can adjust to make our quote closer to the competition and still satisfy those needs. Finally we should compare our track records. Emphasize the reputation risk to the consultant or the buyer based on the differences in our solutions.
It is also crucial that we understand the complexity of the plan. We need to request plan documents so that we can communicate the intricacies, recommend changes, and identify the process. We should also look at the complexity of the plan type, the complexity of the company, and the complexity of the industry. These are all items that can help us protect our pricing.
Understand the Opposing Consultant’s Perspective
As we negotiate with consultants, we need to think about what they’re trying to accomplish and how they want to look to their clients. Consider these hidden satisfiers:
- They want to feel good about themselves.
- They want recognition from their superiors as someone with good judgment and/or a strong negotiator.
- They want knowledge.
- They want power.
- They want to be retained on an ongoing basis and create job security.
- They want to avoid the insecurity that comes from surprises and changes.
- They want to finish the negotiation and move on to other things — especially if they’re quoting a fee versus a commission. (In this regard we need to have dialogue with the consultant reinforcing that our high-quality services will increase their profitability by eliminating their involvement in time-intensive service “fix it” projects).
There are three main elements to an effective concession strategy: Move the other party closer to the deal, defend our interests without leaving money on the table, and raise the satisfaction level of the other party.
When hit with a lower-price solution, leave room for movement. Don’t cave to the lowest price right away. You may need to physically leave to gather more information and weigh options. Test a higher price before dropping. Ironically, the more work we make them do to get us closer to their price point, the better they’ll feel. The first counteroffer creates an expectation, so as we prepare we should get our pricing tolerance from a corporate pricing analyst to save time going back and forth. If we grant the lowest price right away, they’ll actually feel slighted for not going lower.
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Know the market and give rationale on why we can’t go as low as they want us to. We should also be deliberate and stingy as opposed to making sweeping changes all at once.
Use the so-called “funny money” approach — that is highlighting long-term savings over the actual total dollar cost. When offering a concession, communicate the savings as a specific dollar amount over the life of the hire. By doing this we minimize any negative impact when making our offer.
Several tools and behaviors, once mastered, can makes us quite formidable negotiators. Using these tricks of the trade appropriately and at the right time can definitely turn the tables to our favor:
- The flinch. Use a voice inflection or visual gesture to make them feel what they are asking for is extreme, something we most likely can’t deliver. We can even say, “Wow, that’s a very aggressive position” or “a very low price!”
- The stall. Deliberate on every concession. This makes the concession more valuable to the buyer and also lowers expectations. It leaves them with the impression they’re getting a great deal. Of course, as with most things in life, everything in moderation. Know the deadlines and don’t stall so long you lose your opportunity. We must know their firm decision timeline (knowledge is power) and try to plan our concessions at the last available moment. This increases their satisfaction in the end, and helps us retain more profitability. As soon as we’re asked for a concession, we should flinch and then say, “This is going to be really difficult. How much time can you give me? When is the last moment you could know to still serve your client?”
- Tying a string to the price concession. That is to say never make a concession without asking for something in return.
- Taking extra care when negotiating on the telephone. Negotiating on a cell phone or when away from our notes puts us at a huge disadvantage. Be cautious. We should set up an appointment and communicate that all we can do right now are set parameters for the objectives. Say something like, “I can’t make a decision right now. I need the file in front of me. Can you give me a little background on what they want to accomplish so I can prepare?” Let them know that you only have a set amount of time. After the phone call, take notes and provide a written documentation.
Techniques At The End of Negotiations
Many pro sports games are won during the closing minutes of play. Concession negotiating is often the same way and our command of the following techniques during the end of a negotiation can be the difference between winning and losing:
- Benchmarking: Find industry metrics (from a third party) that demonstrate how great the deal is that they’ve just negotiated on behalf of their company.
- Ask for client testimonials. Remember — don’t give without getting something in return. If we deliver everything as promised, will they be a promoter for us? If not, why should we give up anything? Concessions we forfeit in the present negotiation may prove well worth it if future testimonials and/or referrals lead to future business.
- Review our transition schedule. Doing this shows that we’re busy and successful. We have other deals that we’re working on. We may be able to push them back a couple of months so that we can manage our work better.
Additional Strategic Negotiation Tactics
- The Bogey: A bogey is simply a target and one of the most effective strategies in a negotiator’s arsenal. It sounds like this: “The current revenue provides 20 basis points. That’s all I have. We’re not going to take any more money out of the employee’s accounts and we’re not changing share classes.” When hit with a bogey, we respond by expanding on our knowledge of the product or service we’re offering and add as much value as we can. We should also be skeptical of bogeys and test to see if there are other resources that could create a bigger budget. An example would be using forfeitures. Or we could look at funds that we could improve to increase the revenue sharing. When a bogey is used, rather than just dropping our price, we should look at the services we can take away to stay within their constraints. And remember, bogeys can be used by both sides of the negotiating table.
- The “Krunch” Tactic: Similar to what it sounds like, the Krunch tactic usually goes something like this: “You’ve got to do better than that or you won’t get the deal.” This is a buyer that tends to focus only on price. To combat this tactic, we defend our position and our experience on working with plans like theirs. Defend the complexity of their plan, how our solution works, our average client tenure, our new business success. This is also a good time to highlight irrational competitors who don’t have the track record. Ask them how much better our offer needs to be as opposed to assuming we’ve got to go really low.
The Win-Win Approach
This is our ultimate goal and the art of making a better deal for both parties. The competitive mode concentrates on the distributed activity of who gets what share of the deal. The cooperative mode moves the focus to the additional value that both parties can share. The key question is, “How can things be changed to address both sides’ interests better?” As stated earlier, most negotiations start in the competitive mode. The problem is that many never get out of this mode and the negotiation begins and ends in conflict.
Rather than getting locked into the competitive mode trap, introduce a new approach and say, “Let’s look how to make this a better deal for both of us.” Shifting into the cooperative mode reduces tension, reopens negotiations that have reached an impasse, and gives both parties more to talk about. The text-book definition of reasonable is: “A standard for what is fair and appropriate under usual and ordinary circumstances; that which is according to reason; the way a rational and just person would have acted.” If both parties are being reasonable, it’s unlikely mutual satisfaction cannot be achieved.