Week 41 – Expose Sales Myths – Chapter 11
Should you heat dishes containing mushrooms? Of course not, because the mushrooms become poisonous. My grandmother knew this. My mother did too. It just happens to be wrong. This probably came from the fact that mushrooms are so perishable and some people had stomach problems eating them before refrigerators became common. The business world, too, is fraught with persistent myths.
Let me get those wisdoms, dust them off and have a closer look at them. Are they true or have they simply been perpetuated through the generations?
Myth 1: You must offer discounts, because that’s how the performance of buyers is measured. Otherwise, there will be no contract.
Negotiating prices with experienced buyers is one of the biggest challenges even for the most experienced salesman.
Let’s take the bird’s-eye view of this: On the one side, there is a supplier that appears to have made it on the short list, and on the other side there is a company, represented by the buyer, that doesn’t want to spend too much money for a good solution.
What would happen to a buyer who failed to select the most economically viable suppler just because he didn’t offer a discount? What would you do with an employee who chose the poorer or more expensive supplier only to get a better discount?
Exactly. And that’s why the practice of rewarding buyers who get the best discount, if it ever existed, has long been consigned to landfill. Nevertheless, some buyers have realized that this legend comes in handy when embarking on a price negotiation. To be honest, I would try it as well if I were a buyer.
Myth 2: If you want to win over a new customer, you make concessions in the price. You can only try to raise the price later.
At first glance this sounds reasonable, but actually it’s nonsense. How would further negotiations look like? Something like, “I gave you a good discount earlier, so now you should be grateful and pay more.” Obviously that’s not going to work, since the buyer still has to find the best price and will therefore demand the same discount in the following negotiation.
Even worse: It will be easier for him the second time around because you already showed him that the discount is possible. A buyer who demands high discounts in the initial stages has the goal in mind to figure out your room for negotiation. And that is something you should not allow so easily!
Myth 3: Some buyers are well-disposed. If they tell me where my competitor’s price lies, I will have the chance to undercut it.
“I would love to buy from you, but your competitor is ten percent cheaper. If you can match him, you’ve got the deal.” Have you heard this line before? Or this one here: “The competitor is twenty percent cheaper and offering the same service. But because I’ve known you for so long, I’ll give you the contract, if we can meet halfway.”
Have a look at that situation from the perspective of the buyer: You have several offers in front of you that are all equivalent in terms of quality, however, the prices differ. Is there any reason to pick up your phone, call the supplier with a high price and ask him to lower it? Certainly not. You would simply go for the lower price. And from the buyer’s point of view, there is also no reason to pay more for the same service, just because you’ve known the supplier for longer. On the contrary, that could cost the buyer his job.
A buyer who signs a contract before you’ve uttered the words “That is my last offer, either you accept or we’re done!” would not be doing a good job. Every professional buyer has to drive you as a supplier to the absolute limit. Anything less would not even require a purchasing department.
Myth 4: You must take part in reverse auctions on Internet shopping portals, or you won’t get business.
There are organizations that have decreed that nearly all purchasing decisions of low strategic value should be done through online reverse auctions. These are similar to traditional auctions, but in this case the suppliers attempt to undercut each other’s prices, until the bottom is reached.
This does not apply to purchasing decisions of less importance:
Let’s say you wish to secure your new home with a professional locking system. You wouldn’t hang a sign on the house saying: “Looking for new locking system. Lowest bidder gets the contract!” You’d probably be faced with an unbelievable cheap offer from a “supplier” who has something up in his sleeve, namely to have access to your home at any time he wishes and relieve you of your possessions at the first given opportunity.
Companies do things like this because risks are limited with less important products. But when services like the maintenance of the Internet firewall of a company are put through this kind of auction, it’s absurd. Still it happens. The buyer might think that the firewall maintenance may not be strategically important – for the development manager it certainly is.
Next week we will talk about price negotiations and ask ourselves what would happen if we stopped negotiating about prices.