One of the most effective tactics available to buyers is the price challenge. It is very simple to use, and can be very effective. Perhaps you have heard one of these before:
- “I like your proposal, but this is all I’ve got.”
- “What? You want to charge how much? That’s much more than we had anticipated.”
- “I’m not sure we are willing to make such a significant commitment at this stage – is it possible to reduce cost?”
We recently wrote an article for AccountingWEB on the subject of handling client discount requests – based on content from our fee negotiation for accountants programme. Here we go into a little more detail about responding to the price challenge, and in particular how to tell if the client’s discount request is a ploy or implies a genuine budget restriction.
‘I like your proposal, but this is all I’ve got’
The ‘price challenge’ is a brilliant buyer’s skill, and this version of the challenge is one of the finest available. To explain why it is such a good buyer’s tactic, consider the two parts of the sentence:
‘I like your proposal’, the first part, is effectively saying, ‘I like you, I like your company, I like your product, I like your service, I like your pricing.’
‘But this is all I’ve got’ – there is an implied budget restriction.
So how do we react? Let’s take the all-important phrase, ‘I like your proposal’. We all want to be liked. Here we think we’re nine-tenths of the way there. Our reaction is, ‘I’ve got a live one here, now what do I have to do to close the business?’ But unfortunately, for too many of us this usually becomes, ‘What do I have to give away to win the business?’
Unskilled vs skilled sellers
Buyers know that an unskilled seller will be so keen to shake hands and close the business that he or she will probably respond to this tactic by offering a generous discount immediately. A good seller, on the other hand, will respond by discussing alternatives. In this case the buyer learns more about what they are buying – so it is a good tactic for buyers either way.
For sellers, the way to handle the price challenge is to have alternatives available. The buyer must be made to realise that if they want to change the price, you will change the package. For the quoted price there is the quoted package; for another price, there is another package.
To pull this off successfully, the secret is to have the alternatives thought through in advance, so that you know exactly which package to offer in the case of a price challenge.
Above all, the strength of this countermeasure lies in its capacity to determine whether the phrase ‘this is all I’ve got’ is a real budget restriction or simply a negotiating ploy.
Gain insight by reversing roles
To illustrate how this works, reverse the roles in the negotiation and imagine you are part of a buying team with the job of purchasing much needed new office equipment.
You draw up a detailed specification and contact six suppliers. After receiving proposals from each and carefully evaluating which best meets your requirements, you decide to award the business to Ace Systems. In their proposal they have quoted a price of £31,500. Your managing director agrees the funding and gives you the green light to proceed, but says, ‘Do everything you can to get the price down.’
You call Alison, the business development manager from Ace Systems, back in and say to her, ‘We like your proposal, it’s just what we want, but we’ve only got £27,000 available. How can you help?’
She responds by offering an alternative package that does not meet all your criteria. How interested are you going to be in this alternative? Not very, I think you’ll agree.
Now imagine a different scenario. This time your managing director has given you an actual budget of £27,000, and that’s as high as you can go. You use the same approach: ‘We’ve only got £27,000. How can you help?’ Alison again responds with an alternative package. How interested are you this time? Very interested.
Your negotiation advantage
Can you see how to use this to your advantage? As a seller you effectively have a way of finding out whether the buyer’s tactic is real or a ploy.
When the customer says, ‘We like your proposal but we only have £27,000 available’, you respond by offering an alternative package and gauging their interest. If they don’t have much interest, it’s almost certainly a ploy. Your response has uncovered that they do have slack in their budget.
However, if they are interested, it’s more likely to be a genuine budget restriction. Once you know whether the price challenge is a ploy or implies a genuine budget restriction, it is much easier to adjust your response.
Negotiation is a game – a serious game, but a game nonetheless. Learn the rules and go for it. And make sure you take notes during your discussions: it is important to accurately remember as much of the key detail as possible, especially when exploring alternative options.
Learn more about LDL negotiation training, including our two-day Professional Negotiation Skills programme.