Channel News

5 Steps for Negotiating a Better Margin

Wednesday, April 10, 2019

Author: Ryan Parker

It doesn’t matter what our role is within the channel, we are constantly in situations where we have to negotiate… whether it’s with partners, customers, suppliers, staff, management, or colleagues.

While we might often strive for a Win/Win outcome, our tendency is to slip into old habits and immediately look for ways to haggle or concede, rather than stepping back and looking for mutually beneficial options.  This article focuses on the negotiation that happens between vendors and distributors with partners, and tackles the challenge of how to protect the margin and profitability for the businesses we represent.

For most account managers, the first time they think of themselves as being in a negotiation situation, is when the partner asks for a better price. However, the pressure to respond quickly becomes a factor, and typically most people adopt one of the following options:

  • Standing firm on price and potentially losing the business
  • Agreeing to discount our price to get the order, but weakening our margin

Often, we forget our third option, being to negotiate, with the goal of achieving a Win/Win outcome with our partners. In other words, considering ways to trade concessions in an attempt to win the business while maintaining our price, and deliver an outcome that makes the partner feel like they also achieved a desirable result.

The first two options are easy to do, but don’t help us or our partners. The third option helps both parties, but requires planning, communication and the commitment to ensure that, should one party make a concession, the other party gets something of value in return.

1. Plan your responses

It’s important to recognise that the negotiation process begins well before you are asked for a discount. Before your take that next call from a partner who wants a discount, take a moment to plan your response, as it's often hard to think creatively under the pressure of a tense negotiation. Consider the following:

  • Identify the value you can provide to the partner which could prevent you from having to discount your price
  • What questions can you use to understand the other party’s motives for needing you to discount.
  • How will you ask about why are they wanting to buy from you, given that they have other options?
  • What will you say to reduce pressure and position yourself as their partner rather than their opponent?
  • How do you communicate the value of your proposition?
  • If you have to provide concessions, what will you give away, and in what order will you surrender them?

If you have given some thought to these questions, you are more likely to diffuse the pressure, and think more clearly for achieving a win/win outcome.

2. Identify your Value

When we are negotiating on relatively small items every day, we need to create a pre-prepared list of offerings which we can make instead of reducing our price.  These offerings should cost us very little to offer but are recognised by the partner as creating extra value.

The following list are examples that may help you to effectively negotiate those everyday requests from partners - it’s likely you are already using some of them or have them available to use, but don’t always leverage them.

  • Free shipping
  • Extended payment terms
  • Payment by credit card – they may want to get extra credit card points
  • Free training for sales or technical teams
  • Free technical assistance with product or solution deployment
  • Marketing support or assistance in accessing MDF
  • Case Study development
  • Future discounts based on volume: the company will pay full price today and receive a discount on a future order

In some cases, our partners will accept our offers because they see it as more valuable than the cost to us. For example, a distributor offering to store a product in their warehouse for a staged roll-out may be seen as a real value-add to a partner who has limited storage space.

 

3. Understand the other side

When a customer or partner asks you for a discount, your first thought should be to learn more about the opportunity. Most salespeople fall into the trap of responding to the question, and looking at how they can reduce their price, without first learning about why the question is being asked.

Before you make any effort to reduce your price, it’s critical that you understand the bigger picture. Some of the areas you might want to explore are:

  • What’s the background to the sale that your product is being used in?
  • Why is an additional discount so important for them?
  • Who is the customer (or at least what industry are they in, and how big are they)?
  • What’s the services opportunity?
  • How is success defined in this project?
  • Who are they competing with, and what can you do to help them win the business?


Asking questions before making any kind of offer is critical, as it helps us understand what is of value to the other side. For example, without knowing what’s important to the other side, we might offer them something like a reduced cost on a product, whereas, had we asked more questions, we might have been able to offer them a completely different solution for their needs.

4. Trade Concessions, don’t surrender them

If you come to the conclusion that you must reduce your price in order to get the order, make sure you never reduce your price without getting something in return.

Getting something in exchange for a pricing concession is key to managing customer expectations that future discounts are not just handed out, and that any partner who asks for a discount, will not automatically get one.

Try some of these ideas for finishing the question...

"I'm not sure I can get this discount for you. If I can, though, are you willing to ....?

  • place your order today?
  • place a larger order? What other products do you need?
  • provide full payment upfront?
  • provide us with an exclusive purchasing arrangement?
  • have us in for a “lunch and learn session” with your team?
  • work with us on a case study?

What you ask for does not have to be of equal monetary value - it can be free for the customer to provide, as long as it has value for you. The goal is to reinforce that this is a business relationship, defined by mutual benefit - ie. that you will gladly help them out further as long as they are willing to help you.  


5. Clarify your value

As we approach the end of the negotiation, we don’t want to find ourselves in the situation where you come to an agreement on price, only to find out that your partner is still looking for other concessions.

Be sure to get a firm agreement from the partner that this discount is all they will need to send through the order. It’s also important to understand what it is they like about your offer and where you are still lacking.

To assist in ensuring that the partner is not looking for additional concessions, try the following,

  • "I'm not sure if I can get you this price, but if I can, is it fair to say that we can go ahead?"
  • What is it you like about dealing with our company, and what are the aspects where you think others are better?
  • "So can we agree that if I can get this discount for you, you are willing to go ahead today?”

By asking these questions, you can ensure you get all the issues on the table, get a better understanding of your position, giving you the chance to negotiate a fair outcome once and for all.

Summary

Creating equality in your client relationships ensures that you have a long-lasting trust-based win/win relationship with partners, which reduces the amount of “shopping around” that partners do each time they need to order, creating long term mutual success for you and your partners.

However, if you want to protect your margin, and make sure you maintain the relationship, it requires preparation in advance, strong questioning skills, and ensuring that whenever we provide something to the partner, we get a commitment in return. 

If you're interested in learning more about how to develop your negotiations skills, have a look at our Dynamic Business Negotiation workshop, or drop me a note at rparker@channeldynamics.com.au




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