Sales people must dread account reviews with professional buyers and understandably so. If it is not the bluster to downsize sales volume because of quality or delivery issues then it is a demand for a competitive price match. Perhaps, procurement managers share this angst since they are accountable for reducing cost without putting supply at risk or compromising value. Negotiation ploys aside, either party has stake in recognizing the value of the product or service offering so why not make it the focal point for discussion. Account reviews can be win-win scenarios particularly if sellers can demonstrate how their overall value offering – comprised of product, service, price and terms etc. — delivers measurable economic benefit that is adaptable to the customer’s evolving needs. B2B companies may be surprised at their ability to get their customer’s attention with simple preparatory steps.
1. Estimate your share of the customer’s wallet. Companies offer low prices and generous terms to prospective customers expecting a windfall in revenues that may not materialize. It is worthwhile estimating the potential size of the customer’s total purchase as well as your share of that expense over time.
2. Price customers based on Sales volume and Margin. Customers may keep demanding lower prices even if they fail to meet contractual commitments. With some analytical rigor, companies should set internal guidelines or corridors that determine terms, discounts, concessions, promotions and other incentives) based on the sales-margin position.
3. Know your customers’ buying centers. Although professional buyers typically occupy the front-seat during negotiations, the buying decision involves multiple influencers and decision-makers with varied priorities, motivations and concerns. Seasoned sales people use their customer visits to touch base with decision influencers to understand their needs.
4. Know your prices better than customers do. Sellers may unintentionally introduce sizable price variation by offering, for instance, seasonal promotions, special regional pricing, month-end deals or bundled pricing etc. It is problematic when buyers demand the exceptionally low prices received by one facility for all company locations, sometimes even retroactively, to which most sales people find themselves ill-equipped to respond. Rather than concede, companies should proactively prepare their front-line teams to explain the reasons for price variation and why low prices can or cannot be replicated. Also, companies can initiate steps to minimize unexplained price variation with internal process controls.
5. Prepare for the account review (and renegotiation). While the aforementioned steps may prepare sales people for discussion, account reviews are excellent opportunities for getting a closer view of the customer’s evolving needs.
- Be aware of customer’s financial worries and changes in their end-markets: Shrinking markets have put price pressure up and down value chains. But some companies have successfully avoided excessive price erosion while protecting their market share by getting involved in their customers’ efforts to improve productivity. For instance, a mid-sized manufacturer known for their Lean Manufacturing expertise offered support to a select group of customers with demonstrable results.
- Develop exhibit with sales in account, prices offered as well as share in account: With adequate preparation sales people can achieve an equitable bargaining position rather than be at the receiving end. For instance, when a key account manager from a large manufacturer was invited by the newly appointed head of supply chain for a top customer, she carefully researched the customer sales history, financials and competitive environment to prepare for the discussion:
- Productivity gains and incentives enjoyed by the customer: The three-year trends based on benefit from productivity improvements along with incentives and customer’s total purchase showed that while productivity improvements had been improving significantly, the estimated share of total spend with the company had remained flat. This information shifted the discussion from lowering prices to how the customer could benefit even more by increasing their sales volume.
- Proposed Steps for Sharing Value and Strengthening Partnership: Setting measurable goals for productivity improvements in exchange for increased sales volume provided a meaningful framework for subsequent discussions including a price increase to which the customer agreed.
Sales people who can ace account reviews are not just surefooted with professional buyers but also enable their companies to forge profitable customer partnerships that preclude competitors.