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Bonus Focus - Is Accommodation Your Profitability Sinkhole?

 


By George Lucas, Ph.D

On a recent trip to do a negotiation workshop for a client, I found myself flipping through an issue the airline flight magazine. I ran into a picture and story about sinkholes. Besides the lovely color picture of these geological formations, a description of how they are formed was provided. It states that the sinkhole starts as water works its way through cracks in the limestone bedrock above the water table. Over time, the "ceiling” of rock above the water gets eaten away until, in the extreme case, the ground just falls into the pool of water below. You head for bed at night looking out at your yard and it is beautiful green grass, and you wake up the next morning and there is a giant hole in its place. You are lucky if that collapse didn’t take your car, or even your garage with it.

As I read this article, I could not help but think about the discovery calls I had with the sales managers of my client the next day. "Our salespeople cave in too much when customers or prospects ask for a lower price. They fail to understand how strong a hand we have in our marketplace when it comes to our competitive advantage.” Just yesterday I was on the phone doing a client needs discovery call with a division head of sales and heard, "Even when we have a faster and better product, our salespeople often reduce the price before they even share it with the customer or prospect. They then try to sell sales management on their position that this was the only way to win the business.”

These comments, while troubling, are far from isolated. We hear them from sales organizations we work with almost every day. Why is this "we aren’t worth that much” mindset the case? One reason is that throughout their lives, salespeople have heard:

· The customer is always right.

· Give the customer what they are asking for.

It is time to say it loud and clear: Both of these statements are fundamentally flawed in today’s world of business development. The harsh truth is that the customer is not always right. If you don’t believe this, just look at most of the requests for proposals they send out which do not match up with their actual needs. What if what the customer is asking for is a price decrease? Are they right? Should the sales side simply give into them to keep the business? If you understand that margin protection is the key to avoiding your business and personal income falling into a financial sinkhole, you also understand that such a "cave in” move is following the reactive and highly cooperative negotiation strategy of accommodation.

One experience in the financial services business comes to mind. The sales and client service team did not have a good grasp of what their costs of delivery were on a client by client basis. Following an extensive time tracking project, which helped identify a sizable number of larger revenue clients where the firm was actually losing money by having won the business, two important outcomes were experienced. First, for those accounts where there was no or inadequate profitability a concerted and largely successful effort was made to reduce services and/or increase revenue. The second, and unanticipated, damaging impact was that on those clients where profitability was very high there was a tendency to offer a price reduction, or at the very least start looking guilty.

An important point for sales leaders and salespeople to keep in mind is that your customer should not care how much money you make. They should only be concerned with how much money they make. If you do a good job of making them successful then they should be more than happy to contribute to your organization’s success. We are fortunate that a large percentage of the organizations we work with are the innovative thought and product development leaders in their space. Their customers must understand that if this supplier is not successful, then where are the advancements we must have to be successful in our own marketplace going to come from? Innovations come from profitability, not out of profit sinkholes.

To clarify an important negotiation point; accommodation is a unilateral give on the part of one side or the other of the negotiation table. It is massively different from the more advanced and productive negotiation tactic of concession making using negotiation chips. Using this tactic, each side gives something up, and each side also receives something of value in return. Proficient negotiators find that what they give up is much less impactful to their profitability than what they receive in return from the other side.

Even in all but the most extreme cases of these circumstances, I would recommend at the very least attempting a bilateral concession proposal before diving headlong into accommodation sinkhole.

So, the next time you are thinking about just giving the customer that price reduction or more favorable terms they are asking for, think about the sinkhole in terms of your margins, income and watching all that money just disappear out of your sight. Seal those cracks in your and your sales team’s skill base by advancing your negotiation and concession making skills.

George Lucasis co-author of the Wall Street Journal, USA Today and New York Times bestseller, "The One Minute Negotiator,”http://www.theoneminutenegotiator.com/. To contact George, email Scott Hutson, at scott@uslearning.com.

 

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