In any business transaction, it is fair to assume that some buyers are eventually going to negotiate price or other conditions with us. Price can be important. If you do not believe this, ask any customer who walks into your store if price is unimportant.
While price can truly be important, it can only be skillfully managed after you have created value and rapport. Value is created with a customized selling approach which includes properly greeting, meeting needs, handling objections, and then designing the correct perception of what your products will do for them—the benefit. Added-value is all the benefits that the salesperson must create to survive competitive situations. So, while value must include color, style, and quality foremost, it also encompasses function, relationships, atmosphere, service, and the integrity of your store.
Negotiating is often thought of as two sides arguing with each other with one side emerging as the winner. While it is true that negotiating energizes some salespeople, most of us would rather avoid it if we could. But look at it this way: if the other party is negotiating, there is a good chance they want to buy. If that is so, why would we look at negotiating as a negative thing?
Some stores categorically refuse to negotiate with customers. The concern, I assume, is that an out-of-control precedent will be set that may filter onto future customers. But when you think about it, if we maintain an adequate profit and the customer feels like they got a bargain, is that a terrible thing to share? Would we rather be thought of as a pricey company where one cannot parley a fair price?
It would be nice if customers just accepted our prices without hesitation. But, clearly, that is not always the case. If we take the blanket approach not to negotiate, we are inevitably going to send that bargaining customer or that marginal business to our competitors. Besides, negotiating is not something we can completely ignore when it arises. Regardless of a store’s philosophy, negotiating becomes a type of objection that must be managed tactfully, and when it arises, it often becomes a necessary step or obstacle to do business.
Everybody wants to feel like they got a good deal. If you are in business for long, you can expect that wheeling-dealing customer to come along. Instead of saying “no” to negotiating, suppose we set up our stores with price-merchandising built in so that our bargaining customer feels like they got a fair price and we in turn preserve a fair profit margin?
Here is how price merchandising can work for you. First, always quote installed prices. Suppose, instead, you were to quote installed carpet with pad and installation priced separately. In doing that, you give your customer three separate angles of negotiation. With an installed price, there is just one price and one negotiation. If the customer should demand a separate break down, you would have the option to deduct pad and labor at dealer cost thus preserving profit if either is removed from the equation. Further, by initially keeping this extra profit, it allows the added flexibility of releasing extra margin in later reaching a final settlement.
Next, it is important that we establish our absolute bottom line profit in advance. Decide what you will accept and what you will reject as a fair profit margin. This will be your lowest “hip-pocket” price. This confidential price never goes on a sales tag. Such rock-bottom prices should only occasionally be necessary.
Next create another price that you feel good about – but is not your absolute rock bottom price. This will become your sale price for advertised events. (Do not initially put this price point on your price tag.) Next, take that same acceptable, yet competitive ‘sale price’ and double it. This becomes your Manufactured Suggested Retail Price (MSRP). This allows you to have a ½ off price as a selling event or to know quickly and easily what your ‘sale price’ is during tough phases of negotiation.
Next, we need to create another price to be shown as “Our Low Price.” Take the sale price and divide it by .9 which will give you a price with exactly a 10% higher margin. Place that price directly below the MSRP. Now we have our MSRP price with Our Low Price for comparison right below it on our standard tag. Then on a separate yellow tag, write your sale price to be attached only on your advertised specials. Even if you are not currently advertising, by yellow tagging several items on sale, we are creating the look and feel of a special event.
We have now essentially created a good, better, and the occasional best price merchandising for our price tags. Plus, we have our absolute hip pocket price to be used rarely. Keep in mind, that without these pricing safe guards, a policy of negotiating may hurt you. If you are not prearranged to negotiate and if you have not established the point where further negotiating is not profitable, you are much better off to decide against negotiating all together.
Bear in mind, in negotiating, customers rarely understand what products should truly cost. They enter your store and see a barrage of pricing and styles and find it bewildering. For example, sometimes I do not understand the cost values of my mill pricing, and if I am not clear, then you know it must be difficult for the layperson on a retail level. Add in private labeling (branding) of samples and it becomes especially tough to challenge or shop the price of a product. However, what many customers do positively know is that when it comes time to complete sale, this is the time to bargain for the best price.
Keep in mind, the purpose of a price-merchandised showroom is not to create an atmosphere that begs for negotiation, but one that shows built in value and yet is conducive for the retailer for bargaining once negotiating becomes a certainty. For example, to satisfy the negotiating needs of a customer when an item has not been placed on sale, we can always calculate the sale price if we need to be more competitive.
Many customers believe they cannot secure a competitive price unless they negotiate. I once had a customer come into my store who had just shopped another store. At that store, she had selected something that she liked but the prices were non-negotiable. She needed 1350 sq. ft. of carpet. All she wanted was a small discount on her large purchase. She was infuriated by her experience at the other store. “They must think I am stupid,” she said. I took her to a price-merchandised carpet, offered her a built-in discount, and sold the job at a 55% gross margin. She was happy, and I was very happy.
Importantly, even though your showroom is price-merchandised, never bring the mentality that price is everything on the selling floor. Regrettably, price is often the most feared objection to salespeople. Salespeople often get tense. They argue, or worse, they consent. The customer says the prices are too high and the salesperson agrees. As a defensive measure, these salespeople automatically drop to their lowest margin. It has been told many times, “Salespeople who live with price, die with price.”
Here is another mental shortcoming to consider when negotiating. Many salespeople understandably expect a negotiation stage between their proposal and acceptance. But when I ask them if that is always necessary, or just something they have become accustomed to (and possibly trained their buyers to expect), they admit to the latter. Seems to me that if we change our outlook towards negotiating to one of creating fashion and solving needs, we might execute differently, and eliminate loads of unnecessary negotiations. The solution: Simply, adopt the idea that what you are doing is delivering value and sell that way.
Before discussing price, make sure you know the customer’s needs and that the customer appreciates the value of your product. This can be easily accomplished by using trial closes or questions. If the answer is ‘no’ to either of these questions, you are at a disadvantage in negotiations. If she doesn’t understand the value, she will not appreciate your price or counter-price. In this case, do not say “no” to her questions of price. Say, “Yes, so we can discuss price, may I ask a few additional questions and get some detail?.” From there you rebuild and re-access value based on needs.
Before we move on, let us discuss how to manage the situation when a customer comes into your store and starts discussing price right away. Remember that our industry is first about fashion. She or he came into your store looking for a beautiful home, not just a low price. You might hear, “I want the best price and so forth.” Realize that price objections stated at the beginning of the sales interview are merely tactics by the customer that say, “Treat me right or I will go elsewhere.”
Acknowledge this objection and move on to the main issue of selecting the proper color, style, and quality needed to suit her needs of a beautiful home. A simple: “I’m glad you asked, Custom Flooring is by no means a high-priced store. And, naturally, I understand how important price is and I will work with you on cost,” or “Understandably, everybody is looking for a good deal and we understand that price is important. So that I can help you with price, let me gather some information,” should usually suffice.
When a customer brings up price not at once, but still early in the sales interview, ask to put price aside for the moment and address all other obstacles to make sure there are no other deterrents to do business. If there are, address them first. When you negotiate, make sure it is purely price that is on the table, or those other obstacles might be used as ammunition against you during the negotiation phase. “Is there anything other than price that is concerning you?”
Naturally, there are several ways a negotiation can come out—the win-win, win-lose, lose-win and lose-lose. Keep in mind at the onset that with a collaborative approach to selling, your goal in negotiations is to reach a win-win solution where the seller and the buyer are both happy. If you go with one of the other approaches, all the trust, credibility, and goodwill that you have built may be lost and your relationship with the prospective client will probably be lost as well.
Keep in mind some customers are shrewd. In part, this means that in negotiating, certain customers will ask for more than they expect to get. But, this in turn means you need to resist the temptation to automatically reduce your price or offer your deepest discount. To be effective, the negotiating process is one of give and take, careful not to give too much, too quick.
Furthermore, realize that during negotiations customers are not always completely honest in their dealings with you. Call it human nature, but If someone is attempting to parley a better or equal deal than what they have been quoted at another store, they may exaggerate the low price they were offered. If their offer seems too low to be true, it probably is.
Sometimes, in cases where a customer offers a competitor’s price too close or even below my actual cost of goods delivered, it becomes difficult to negotiate reasonable terms. When this happens, either the price was offered as a mistake, the customer is somehow being offered a truly wholesale offer, the customer is deflating her quote (lying), or the customer is unknowingly being sold second quality merchandise.
Regardless, now is the time to become blatantly honest. Not knowing what is happening for sure, I have effectively stated, “Ms. Customer, I cannot sell you first quality goods at that price. Maybe my competitor can, but I can’t.” Watch and listen for her response, “What do you mean, etc.?” I simply restate my conclusion. I am, of course, implying “buyer beware.”
With this possibility in mind, we give our customer a chance to avoid such a purchase and consider a more reasonable price currently under discussion, and perhaps thank you for your honesty. If, instead, the price was merely a ploy to receive the lowest price, she now has a means to retreat from her much too low quote. Please note that I rarely use this tactic.
At this point, many of the preliminaries of negotiating have been addressed. In the next column, some specific negotiating strategies will be discussed that will be useful for a successful outcome in brokering win-win situations.
Good selling to you.
