Re-framing Negotiations: Leveraging Assumed Value to Navigate Cost Challenges
Negotiation is not just about haggling over prices; it's about understanding and leveraging the underlying value that drives the relationship between parties.
The Weekly Walkaway highlights negotiation in its ‘good’, ‘bad’ and sometimes ‘downright ugly’ forms. Issue No. 74 (19th April 2024).
Thought of The Week
Re-framing Negotiations: Leveraging Assumed Value to Navigate Cost Challenges
A client wanted to maintain the same valued service while at the same time resisting any increase in cost.
Sound familiar?
Of course it does.
Well here it is Walkawayers! One epic golden nugget. One beautiful piece that will immediately help you with your current predicament.
Because lets be blunt people, negotiation is not just about haggling over prices; it's about understanding and leveraging the underlying value that drives the relationship between parties.
Yes, there are some; competitive, arrogant and lacking in refinement, who would just haggle on price all day every day because, well they just can’t handle the complexity.
Simples!
And they don’t go very far!
Now, if you are willing, and able to handle a little bit of complexity then by strategically clawing back assumed value and presenting conditional proposals that highlight the real impact of changes, you can navigate cost challenges with confidence and finesse, ultimately forging stronger relationships and better outcomes.
C’mon you lot.
It’s real, your negotiation landscape is fraught with challenges, especially when it comes to discussions about cost.
In fact most of the coaching calls I have right now with individuals and teams from SME’s of 360 recruiters to Global MSP’s are about cost challenges.
Recently, I had a coaching session with a valued client who had found themselves in this same predicament.
It will be familiar to many of you.
Their client wanted to maintain the same valued service while at the same time resisting any increase in cost.
The reality is that this scenario is not uncommon, particularly in industries where human capital services are pivotal. The costs associated are on the rise, fact!
Human capital, the lifeblood of all organisations, has become increasingly expensive to procure and maintain.
Salary costs are spiralling upward, outpacing inflation, and legislative changes have further burdened the cost of hiring flexible workers.
Just at a time when current economic change and uncertainty requires the use of flexible workers to ensure the continued profitability of these organisations.
In my clients case, their ‘client’ is leveraging the compliance of their ongoing contract to shift the burden of these additional costs onto them.
Sound familiar?
The contract, with its specified indexation and margin over time, is being used as a powerful tactic (compliance) to maintain the status quo without shouldering any extra financial responsibility.
Well, why should they?
It is not in their interest to accept any more costs.. their stakeholders will be screaming blue murder to resist any extra cost burdens, won’t they?
If I was coaching them I’d have advised a similar approach. Show zero flexibility. See how much you can squeeze, but plan to bend and flex to give satisfaction, later on…
14 years of collaboration! 14 years of relationship and they do this! What? Really?
Not very mutual or Fair!!
But as we discussed last week there is no such thing as Fairness in negotiation.
Now first of all let's deal with the usual approach of untrained negotiators.
Their approach, and for some what is now their old, tired, traditional approach, is to;
SELL! SELL SELL!
They sell, argue, persuade, justify their need for a higher fees!
This just weakens their position. We have spoken about this on numerous occasions.
Sales and Negotiation are very different things that achieve very different objectives.
No amount of Challenger Sales is going to fix this issue. Trust me.
You can't use your consultative, solution, relationship, value based nor insight selling techniques. Why? Because it is just not in their interest.
The more you sell the more you weaken your position.
Instead, it is imperative to adopt a more strategic negotiation approach.
One that re-frames the conversation around the value already being delivered and the consequences to them if you maintain or alter the current arrangement.
There are a few possible strategies to adopt. Today we will focus on ‘Clawing Back Assumed Value’
This is a very effective strategy.
By clawing back assumed value you refocus your client's attention on the tangible and sometimes the priceless intangible benefits they stand to lose if they don't accept all or some of the burden of change.
But how and how do you keep the relationship from turning sour!
Do it wrong and yes, big conflict!
Of course the big question is always how and it is at this stage we say goodbye to our non paying members.
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To achieve this, it's crucial to first conduct a thorough brainstorming session to identify and pinpoint all the areas of value the client derives from the contract.
Many of these values will have become ingrained over time, making them assumed rather than explicitly acknowledged.
Once these variables are identified, the next step is to assign a specific value to each independently.
This process will allow you to quantify the worth of each aspect of the service provided.
Training costs X amount.
Car allowance costs Y amount.
Payment Terms cost Z amount etc..
With these values in hand, you can now link them to the cost of change or the cost of maintaining the status quo.
Think of a pair scales.
Where you might be willing to lose value to continue the contract, carry the cost burden, you must be able to ‘claw back’ value elsewhere to ensure profitability.
Next it is all about using your refined conditional trading technique. Remember;
you must keep these proposals conditional (if you.. then we…);
remain warm on them but firm on the issues;
repackage the proposals to bring back in the value you have clawed back but linked to a necessary increase in costs.
Make proposals that outline the consequences of various actions.
Demonstrate the direct correlation between changes in value and the associated cost adjustments.
Don’t sell it. Don’t explain it. Just propose it.
Proposing to withdraw certain services or benefits in response to the client's resistance to increased costs highlights the real impact on the client's operations.
For instance, you might propose;
‘If you agree to us withdrawing training and inducting new hires, then we can shoulder 20% of the increase in costs.’
‘Additionally, if you agree to take on the responsibility of providing your own car allowances, then we can shoulder a further 20% increase in the costs."
‘And if you reset the payment terms from 90 days to 30 days then we can accept to shoulder a further 20% of the additional costs’.
These conditional proposals underscore the value-for-cost trade-offs inherent in the negotiation, making it more difficult for the client to dismiss the need for adjustments.
The key lies in shifting the narrative from a simple discussion of costs to a comprehensive assessment of value and its implications.
By accepting its a negotiation not sales and by re-framing the negotiation around the value delivered and the consequences of maintaining or altering the current arrangement, you position yourselves more effectively.
Sales weakens your position. Negotiation empowers your position.
Now you can drive the conversation towards a more mutually beneficial outcome and improve the relationship while you do so.
No more arguing with them, while you try to explain and justify yourself. No more frustration with them for not accepting what is to you just logical, rational fair business practice.
BUT - Remember: repackage your proposals to bring back-in the value you have clawed back but now you link to a necessary increase in costs.
You must repackage your proposals to bring back-in the value you clawed back?
For instance, you might propose;
‘But, if you agree to an increase in costs of 20% then we will be able to continue training and inducting your new hires’
‘Additionally, if you agree to shoulder an extra 20% of costs then we will be able to continue to provide car allowances.’
‘And if you pay an extra 20% of the increase in costs then we will be able accept 60 days payment terms.’
Nothing should be agreed until everything is agreed….. keep all the variables alive and the complexity is in the repackaging and ensuring an appropriate value exchange.
Conclusion
Negotiation is not just about haggling over prices!
It is about understanding and leveraging the underlying value that drives the relationship between parties.
This is complex but it is in this complexity that you are able to find mutually agreeable solutions.
Do not sell it! Negotiate it!
By strategically clawing back assumed value and presenting conditional proposals that highlight the real impact of changes, you can navigate challenges, like cost, with confidence and finesse, ultimately forging stronger relationships and better outcomes.
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