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Excerpt from the Sales Methodologies and Strategies chapter of The Product Marketing Handbook for Software

The Negotiations Zone

Assuming that the customer has reached a preliminary decision to buy your product, formal negotiations over the terms of the purchase will now begin. Most, though not all, negotiations usually revolve around price and service (no great surprise). Keep in mind that it is usually a mistake to enter into negotiations with anyone other than a decision maker. If you do, you will find you have simply lowered your product's price unilaterally. Going forward, you will have to negotiate all discounts from the new, lower price once you begin serious discussions with someone who can actually cut a check.

In today's selling environment, negotiating has progressed from an art to a science. Corporate purchasers are often sent to special seminars where they are taught negotiations skills and techniques. We are aware of some negotiators being sent to body language skills seminars, where attendees are taught to look at a person's posture, gestures, breathing patterns and eye movements in order to determine their truthfulness and credibility. We think this is a good investment for your sales force as well, though to properly utilize this training requires an attendee to commit to practicing the skills they learn after their initial training. In our experience, the best salespeople are masters at reading body language and either have a natural talent for doing so or have learned how via training.

Negotiation Tactics

Eye movements and respiration patterns aside, a skilled negotiator will have a bag of standard tricks they will use as they haggle for the best terms and price for their company. We list out some of the most popular, with suggestions for how you can counter such tactics but remember-the best counter of all is to have quantified the value of your software to the customer and gotten agreement from them that purchasing your products and services will provide them tangible benefits that they need now.

Some of the most popular negotiation ploys are:

• The End-of-Quarter Squeeze. By far and away the most common tactic. The customer waits until the end of your fiscal quarter before responding to an attempt to close a sale. The rationale behind this strategy is that because most salespeople's quotas are calculated during this timeframe and many companies want to boost their end of quarter results, the sales representative and company will both be inclined to bargain on price. In many cases, this rationale is entirely correct.

Counter: If you have spent time providing tangible proof that your software will help your client achieve a goal or solve a problem, you should be able to document that waiting to close the sale is hurting the customer, a fact that will prompt them to move the sales process along.

• The Blackout. The customer disappears and refuses to answer the phones or respond to E-mail or faxes after a preliminary buying agreement has been reached. The hope is that the sales representative will become nervous, pick up the phone, and offer to begin unilateral discounting.

Counter: Don't call and negotiate. And yes, we realize that's easy to say. Stay in touch with the customer during their self-imposed exile by sending them information and updates on the industry and the issues you discussed during the sales process. Highlight the ROI arguments you developed during this process.

• No First Offers. Many negotiators are taught never to make a first offer and never accept the first offer made.

Counter: None. Be prepared to quantify the value of your product and point out how failing to act soon leads to lost revenue and opportunities. If your company has developed a reputation for pricing fairly and firmly, this tactic loses effectiveness in the negotiator's mind.

• The Walk-Out. Some negotiators are taught to not end bargaining until a seller walks out of negotiations. (Some impromptu market research on an account should help you find out if a company practices this tactic-word tends to get around.) Your walking out indicates to the negotiator you have truly reached your bottom line.

Counter: The most effective counter to the walk out is to meet expectations and walk out. If you are the vendor of choice, the customer will usually call you after a period of several days while everyone "cools off." We have seen nervy salespeople walk out early in negotiations when they realize this is part of the negotiator's modus operandi.

• Let's be Fair. The customer attempts to analyze your business model and assign you a profit margin based on their conceptions of how much your company should make.

Counter: Politely ignore such analyses and focus on the value of your software to the company.

• What is Your Bottom Line? This question is most often asked when a sale person has made comments like "where do we have to be" during the sales cycle.

Counter: Again, the focus must be brought back to the value of the software to the company. Never say things like "where do we have to be" during early purchase negotiations.

• Negotiating from a Discount. This is a popular tactic in software. In this scenario, the customer looks at discount price, then offers to "split the difference" at the discounted level in return for a deal. For example, if your product sells as $1000 and at unit 100 costs $600, the buyer will offer to split the difference to $550 (from $600) while stating they are only seeking an 8% discount, instead of the actual 45% they are receiving. All subsequent negotiations will then proceed from this new "list" price.

Counter: Only negotiate from a single unit, list price. Calculate all discounts from this price.

• If it's Free for You it's Free to Me Too. This is the latest negotiating gambit and it is derived from the Open Source movement. If your product incorporates Open Source technology, the buyer wants to know why your pricing doesn't reflect your use of "free" technology.

Counter: Tell them it already does. Then resume your focus on the proven value of your software to the customer.

• The Flinch. The Flinch is a physical or a verbal exclamation of horror at the ridiculous offer/price made by a salesperson. We have been to a negotiations seminar where attendees rehearsed their gasps, grabs, exclamations, and clutches at the heart. The most effective use of The Flinch we've ever seen was performed by a negotiations expert for a mid-size bank in New England. This woman had perfected the ability to allow her eyes to well up while a single tear ran down her cheek. A devastating tactic and proof that chivalry is not dead; this person invariably extracted the best prices from the mostly male sales forces that worked in this region of the country.

Counter: Ignore the flinch and focus on value. A positive statement such as "the ROI on this purchase is so compelling that price can't be an issue" helps disarm the flinch. Do not mimic the flincher; this looks like you are mocking a person and can lead to very hard feelings.

• Good Cop/Bad Cop. A car-seller tactic and not usually seen in software negotiations (though there are always exceptions). One negotiator is nice and one is not so nice.

Counter: Tell the negotiators you are aware of this tactic and in a friendly but firm way indicate you are not going to play this game.

• My Manager Won't Let Me. Another common car-seller tactic. The buyer tells you that the president, CFO, executive committee, etc. won't grant the authority to make a purchase. In theory, this should never happen if you have identified and are negotiating with a decision maker or makers.

Counter: Try to get agreement at the start of the negotiations that the person(s) you are talking with has (have) purchasing authority. If they won't or can't, you need to continue the qualification process until you do.

• The Nag. The nag consists of constantly repeating during the sales cycle that the offer your company is making is not good enough while not offering specifics. The intent is to wear down the seller into making concessions just to shut the buyer up.

Counter: Immediately ask the customer if they are ready to sign a purchase order today and begin final negotiations on price. After a few instances of this, the negotiator will stop nagging.

• Let's Table This. This is a useful tactic for both sides of the negotiations to use when they reach an impasse over an issue. It involves putting that issue aside for later negotiations. After reaching agreement on other issues, both sides will tend to have reached a position of mutual trust and be ready to complete the negotiations.

None.

• Cone of Silence. You talk and they say…nothing. The purpose of this tactic is to allow you the opportunity to begin negotiating with yourself in the hopes you will talk yourself down to a better deal for a better deal.

Counter. Ask questions about the company's revenue goals, problems, and work on a spreadsheet that demonstrates the ROI opportunity your software represents.

• Tablets of Stone. The buyer presents you with a printed document with their pricing and conditions scheduled out. Since we are conditioned to treat printed material as "authoritative," this tactic tends to shift power to the buyer.

Counter: Tablets of Stone is an opportunity. Anytime a customer puts a commitment to buy on paper this is a major shift in the tone of negotiations. Accept the document and begin marking it up. Try to do this in a collaborative fashion with the buyer.

• Off the Wall. The buyer makes an unreasonable demand and wants to spend hours discussing it. The goal is to soften you up for further negotiations.

Counter: State in clear but polite terms that the matter is out of the question, then ignore it. Also consider whether you really want this company as your customer.

• The Deadline. This approach seeks to pressure the seller into granting concessions so as to meet an arbitrary deadline, i.e., IT must have the prototype installed on its servers by X date or the deal is off.

Counter: Do not accept the deadline or immediately ask if the customer is ready to sign a purchase order. As part of the sales cycle a schedule for testing and implementation should have been included in the sales proposal.

• Done Deal. The Done Deal presents a seller with a contract ready to sign (and with prices scheduled into it lower than you wish to go). Sign on the dotted line and the deal is done. (This tactic is an interesting bit of negotiating judo since sellers also like to use it, only they provide fully prepared proposals.)

Counter: As with Tablets of Stone, this is an opportunity. Accept the document and begin changing the pricing schedule.

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