Improving Negotiating Leverage – BATNA

“Rajeev, we have been given a mandate by our management. Due to the Covid-19 crisis leading to a steep fall in customer demand, you are expected to reduce the price of your cutting tools by 50%,” said Mr. Padmanabhan, (the purchase manager of Shockproof, a shock absorber manufacturing company from Delhi) adding a veiled threat, “else we have no choice but to switch over to the competition.” Rajeev is a technocrat running ‘Techno Enterprises,’ a MSME manufacturing cutting tools enterprise with a turnover of around Rs. 10 crores. When asked about the customer details, he shared his understanding that ‘Shockproof’ is a major supplier of shock absorbers with a turnover of ₹ 1000 crores catering mainly for the two wheeler industry.

One of the questions often asked in our training and consulting assignments is ‘how does one deal with such arm-twisting tactics, especially when the customer is too big compared to the supplier?’

One important concept in Negotiation theory is BATNA, which stands for the Best Alternative To a Negotiated Agreement, a term coined by Roger Fisher and William Ury of the Harvard Program on Negotiation. BATNA is an important tool while preparing for negotiation. Both parties have their BATNA independent of each other. The party having a stronger BATNA has a stronger negotiating leverage. In case the parties are not able to conclude the negotiation, the best option each one has can be called as their BATNA. In the above example, if the negotiations fail, the BATNA for the customer and vendor can be improved as follows:

Customer: Look for other vendors who can give a similar product at the desired price.

Vendor: Develop alternate customers who can provide the requisite amount of volumes at the desired price.

It is not as simple as it looks above. Does the customer have a vendor who can provide deliveries just in time to meet his production targets? Alternatively, does the vendor have alternate customers where his current inventory can be offloaded? Now you will appreciate that BATNA is not only decided by the number of options but also the feasibility and attractiveness of those options.

Whose BATNA is stronger? The conventional answer favours that of the buyer who is much bigger in size. Some points to ponder:

  1. Identify your BATNA: The tool required for cutting/drilling is made with precision which requires tungsten carbide or diamond as the raw material. It also requires a great deal of R&D to develop a tool for a specific application. The vendor has been supplying the tools for the last 15 years. With considerable technical expertise, the production department found the tool useful. The rejection rate was less than 1% and the cost-per-component was low.
  2. Identify the weakness in the other party’s BATNA: The seller knows that the buyer has the option of other vendor but also has the critical information that the rejection rate of the competition’s tool is close to 50%. Also, the shop floor people do not appreciate the tools supplied by the competition.
  3. Spot the customer’s bluff: Even though the Indian two-wheeler volumes fell by 15% in FY 20, the impact on Shockproof was much lesser at around 8.4%. The customer was able to absorb the shock (pun not intended) as it focussed more on improving the content per vehicle. As per a newspaper report, Shockproof had notched up a top-line of ₹ 5000 crores and its EBIDTA rose by 4% to Rs. 800 crores. (Remember the excuse of the Covid -19 crisis the purchase manager articulated earlier?)
  4. Do Proper Homework: Rajeev shared that the customer’s turnover was ₹ 1000 crores, whereas in reality it was 5 times. This can be perceived two ways: conventionally it may produce a feeling of helplessness. Alternatively the helplessness could be transformed into strength as in the end result of a David vs. Goliath fight. The vendor could feel that a supply of ₹ 1 Crore of material is insignificant from the customer’s perspective and there need not be any need for the customer to be so aggressive in reducing the price. Can David stand his ground?
  5. Improve your BATNA: Let us take a different example where both the customer and the vendor are equally strong. For its Power PC, Apple had developed its microprocessor in collaboration with Motorola and IBM. In 2005, Steve Jobs took a call to switch over to Intel, which apart from being a market leader in microprocessors was offering a cutting edge technology in computing. Developing microprocessors needs a huge investment and also technical expertise. Intel had both and was the only vendor for such a high-technology product. With a single vendor, the vulnerability was high for Apple. Three years later, Apple bought over a 150-employee start-up in chip design called PA semi. Most of the team members had worked earlier at Intel, including Johny Srouji who now reports directly to Apple CEO Tim Cook. In 2020 Apple announced that it will use its in-house microprocessors for the new range of Macs. ( International Herald Tribune, Don Clark and Jack Nicas – After 15 years Apple prepares to break up with Intel DH – June 23, 2020)
  6. Risk Mitigation: Apple was giving a business worth $3.4 Billion of microprocessors for Macs to Intel every year according to C.J. Muse an Evercore analyst. For Intel it was like losing a major account which was powering around 20 million Macs shipped by Apple annually. The impact of such a Key Account leaving Intel can be minimized when the figure is perceived not in absolute numbers but by the percentile share. Apple was contributing to 5% of Intel’s annual business and the total no of PCs sold annually are 260 million. While understanding one’s BATNA, apart from the actual value an account produces, the share of the total business also needs to be considered. It is better not to keep too many eggs in too few baskets. An important tool in risk mitigation is the sales funnel which can help in improving your BATNA.
  7. Guard against Pitfalls while analyzing one’s BATNA: There are two mistakes people make while going in for negotiations. Either they are too optimistic or too pessimistic.

Being too Optimistic: There is a tendency to aggregate all the options and assume it to be The BATNA. Consider for example, Rajesh, an unemployed engineer in Bangalore who has applied for a job in IT and feels that he deserves a salary of Rs. 10 lakhs as he has the following options:

  • Has applied for similar jobs in Mumbai and Delhi.
  • Has plans of a start-up in 3-D printing.
  • Is exploring further studies in the US by answering GRE and TOEFL.
  • Is pursuing MBA by giving CAT.
  • Joining the family’s 2-decade old fabrication business which is running well.

It is risky to assume the sum total of all these options as the best alternative because at any moment Rajesh can select only the best one. Contrast this with Gautam who already has a job with a ₹8 lakhs CTC. You will appreciate that Gautam has a better BATNA than Rajesh as a bird in hand is worth two in the bush!

Being excessively Pessimistic: The other mistake in negotiation is being too pessimistic when one is too committed to reaching an agreement without any preparation. There is an assumption that agreeing to all of the customers’ demands will make him happy, giving rise to a long-term business and relationship.

In the cutting tool example, the vendor though small in size vis-à-vis the customer, had a better product quality, a low rejection rate, a lower component cost and a shorter delivery period vis-à-vis the competition, which meant him having a better BATNA than the customer. Does it mean that he should rest on his laurels? Competition will be always trying to catch up with him, which necessitates him having to improve his BATNA all the time so as to keep the competition at bay.

Thus, negotiating strength, rather than being decided by the absolute size of a party or the size of the deal (as in the case of Apple vs. Intel) or the number of back-up options, is decided by your BATNA.

Whether you are a buyer or a seller, starting a new venture or looking out for a new job opportunity, please spend time in identifying and developing your BATNA.

Remember, in life, you do not get what you deserve, but what you negotiate and that is decided by your BATNA, the Best Alternative to a Negotiated Agreement!

Rajan Parulekar – Director, Hospitality Paradigm

 

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Tips for Hospitality Sales Persons post Covid-19

1. Work on building relationships with organizations. When the outbreak has lessened and customers are considering rebooking, they are going to remember how you treated them. Focus first on maintaining relationships and then on prospecting in the future rather than trying to do any hard sells. Check in on customers to see how they are doing and find out what specifically they need. Focus on what we can control right now. What we can control is having conversations with customers and getting their feedback by asking the right, quality questions.

2. Be aware of new and current opportunities. Airline fares are extremely low right now and people are still taking advantage of that. If you recollect, after 9/11, leisure travel was one of the first segments to come back. People are stressed and they need to get out there and blow off a little steam.

3. Businesses are going to change the way they operate. This is going to be a completely new world that our sales organizations are going to be facing. Some may be naive and say that the virus is gone and it is business as normal, however it’s not going to be business as normal. You are going to have to rearrange your whole sales strategies, your staffing levels, and your business mixes to really recover what you can on the back end of this. As more people are working remotely, it is possible that business travel may decrease, possibly even permanently, but because this crisis has taught us to work more efficiently from a distance, there may be more of a need for us to convene in person at conferences in the future. The possibility of renting out boardroom suites to employees who need a place to focus on their remote work instead of working from home may emerge. Hotel rooms may have to become adaptable to conversion to such needs.

4. We’re in uncharted territory. Some people are predicting that the coronavirus will affect the industry for just a few months, while others have heard that it could last up to a year. This is something different than anything the industry has faced before. It is quickly becoming apparent that this is less SARS and a lot more 9/11 in how it feels. People are scared to fly or they are being restricted to fly. So that’s a different set of changes in demand and hotels will have to deal with that.

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What great sales people do…

Just as great brands cultivate mutually beneficial relationships with their customers, great salespeople cultivate a deep connection between their company and their client’s business. To borrow a term, the best salespeople are brand evangelists.

Guy Kawasaki first adopted the term “evangelism” into the business world by applying it to an innovative approach to sales, marketing, and management.  Evangelism, as he defined it, means “convincing people to believe in your product or ideas as much as you do” because evangelists believe that what they offer is truly helpful and valuable to others.

Brand evangelists — that is, great salespeople — build up support within a market for a brand so that it becomes the brand leader in its category.

Importantly, brand evangelism is not another one of the customer-centric or customer-driven sales approaches that have become popular in recent years.  Customer-centric sales and most other sales improvement approaches are pursued for the sole purpose of increasing sales.  Brand evangelism is about engaging customers in a way that produces stronger and more valuable brands and sustaining long-term business success for their companies and their clients.

This is what great salespeople do.

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Value Proposition

Creating a Value Proposition

A value proposition is a promise of value to be delivered and acknowledged and a belief from the customer that value will be appealed and experienced. A value proposition can apply to an entire organization, or parts thereof, or customer accounts, or products or services. Benefits help in creating a value proposition for the guest. Hence to create a value proposition for a guest, the product/service must be first seen from the guest’s perspective rather than the organisation’s perspective.

The value proposition is, by definition, different than a company’s mission statement. A mission statement talks about how the company is going to offer a product or service to a specific market segment, while a value proposition explains why the people/companies in that market segment should want to engage with that business.

Value is innately subjective. Different people value the same thing differently.

For a restaurant, you must establish the value proposition that will best resonate with your target customer base. Make sure that the value proposition permeates through each part of the restaurant. For example, if your value proposition is simply “great seafood and the largest selection of white wines in the city,” then all restaurant employees should focus on delivering that value proposition. The wait-staff should lead with this statement at each table they serve. The kitchen should have a consistent menu of popular and unique seafood, and must also try to add a unique, seasonal choice. The wine-waiter should do the same—highlight the wide selection, but suggest special “pairings” of wine with featured seafood.

Deciding on the value proposition also helps with its focus. You might have a fantastic kitchen staff that makes great-tasting food, but you can’t be all things to all people. No single restaurant has the best steak, chicken, fish, wine, beer, appetizers and dessert. Any restaurant that tries to be the best at everything will find that they have spread themselves too thin. When you create an appealing value proposition for your restaurant, you are creating a reason for people to choose it over other options.

Keep in mind that your value proposition does not necessarily need to be food-related. For example, if you’re running a beach bar, your value proposition could be “sun-downer cocktails” or “beach games” or “trendy local live musical performances”.  Different people value things differently. Some people may not be interested in beach games, but you need to research what your guests may want and use the answers in creating your value proposition.

In summary, to ensure that your value proposition is successful, you must strategize such that the value as perceived by the guest is actually greater than the actual value in the product or service you are offering.

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Up Selling and Cross Selling

An up-sell is to get the guest to spend more money – buy a more expensive model of the same type of product, or additional features that relate to the product in question. A cross-sell is to get the guest to spend more money by adding more products from other categories than the product being viewed or purchased.

Say the guest is planning a special anniversary dinner with his wife at your hotel. He comes to reserve a table in your restaurant for a 3 course table d’hôte dinner with a bottle of domestic house wine. You offer:

  • A three course table d’hôte seafood dinner in the private gazebo on the restaurant lawns with a bottle of champagne ~ Up-sell, same product family, more expensive
  • A couples Swedish Massage at your spa followed by a 3 course table d’hôte seafood dinner in the private gazebo on the restaurant lawns with a bottle of champagne ~ Cross-sell

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Importance of Understanding Needs

Selling when needs are absent, may lead to lot of objections. Also. if the needs are abstract and not formed clearly, the selling process may still lead to some objections. Creating concrete needs make the selling process smooth. A high-pressure salesman is the one who starts selling before establishing concrete needs whereas the effective salesman spends time in creating and developing the right type of needs. There are essentially two types of needs:

  • Abstract or Unclear Needs: Dissatisfaction/Problem may make the customer worried and make him think towards change. However due to inadequate value propositions he may live with the problem rather than accept your solution, making price the main issue.
  • Concrete or Clearly Felt Needs: These are the strong desires and wants which are clearly felt and perceived by the customers. Concrete needs make your selling process smooth.

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Features, Advantages & Benefits

Features: Facts or characteristics of a product or a service. Example: Our hotel provides 24-hour services which include a state-of-the-art Business Centre, Concierge service, Doctor on call, In-room dining, i-pod with docking station, Laundry and dry-cleaning, Broadband and Wi-Fi internet, Car and Limousine service, and various other international amenities and services. Research shows:

  • Features have a small impact during the initial stages of a selling process
  • Telling more features creates an opportunity for the guest to front more objections
  • Features have very less impact in the advanced stages of a sales call

Advantages: Show how a product can be used or is better than that of the competition. Example: Our hotel is the closest to the international airport as well as near the central business district and is located in a high security zone. Research shows:

  • Advantages have a positive effect in the initial stage of a selling process.
  • Have less impact in the latter stages of the sales cycle.

Benefits: Show how a product can meet the concrete need expressed by the guest. Examples: Having our own Pan-Asian restaurant ensures that your Japanese guests staying at our hotel will be very comfortable with us, especially since our staff have also learnt basic Japanese and will be able to converse with your guests / Is parking a major concern? Do not worry as our hotel offers parking for up to 400 cars at any point of time / Our rooms with balconies directly overlooking the sea will offer your guests the opportunity to take in the sea-spray during their stay. Research shows:

  • Benefits have a consistently high impact throughout the selling cycle.

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Info, Time, Power – Negotiating Leverages

Information, Time & Power – Leverages of Negotiation

In negotiations, Leverage is power. Whoever has the most… wins

Here are some primary questions you must ask yourself when you are negotiating: “Who has the superior bargaining position? Why is it superior?” The next question you must ask is, “How and when can you use your leverage to your foremost advantage?” Timing and technique matter. Now, as you analyze your situation, realize that everything the opposing person wants or needs for agreement is to your advantage (as long as you understand their reasons). On the other hand, everything you need or desire for an agreement adds to the other side’s leverage (also only if they comprehend your reasons).

Hopefully your preparation has given you as much information as you need to be a strong negotiator. As you negotiate, new information will come up that will help you understand where the other person is coming from. As much as possible, make sure you don’t give too much information to the other side. Try not to contribute any knowledge that would grant them superior power. This is not easy, but the better you do it, the better your leverage during a negotiation.

You have to evaluate your leverage over and over again as well as the leverage the other person is showing you. Why? Because as talks move forward, events, positions, and attitudes change. More than likely, your adversary is also performing the same calculations. It’s very much like a chess match. Each advance changes the posture of the game. The correct moves at the proper time can threaten your contestant’s king. So you should deliberate many times on how and when to use your leverage during a negotiation to achieve dominance.

If you fail to stay updated and informed as the process unfolds, you may not maintain any advantage. If you require an emergency appendectomy the doctor and the hospital obviously have the advantage and the most leverage. You are not in the position to negotiate the cost of the operation while you’re rolling in pain on a gurney to the operating room. However should the sickness be one which is not an emergency and in which you can take a second or third opinion, your leverage increases as you may have options to obtain medical opinions with other hospitals and doctors.

Here’s another factor: It’s not entirely the scrutiny of powerful positions that creates leverage. It’s also how that force is handled. You can use it subtly or with a hammer. You can apply it when circumstances are proper and when you are at your best, or use it at the improper time and destroy your superiority.

Finally, there are two important questions to ask yourself continually: Who needs it more? Who has the greater motivation? If you determine the other side’s needs are greater than its wants, you have the advantage.

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Probing Techniques

Guidelines in using the Probing Technique

Request permission and then ask a few closed questions to get the client’s response and to know his inclination. [Explain that you are asking these questions to be able to subsequently match your product/service with his need].

Subsequently, ask open questions to get more details. Do not ask too many questions which may irritate the client. It is recommended to provide some info about your company/product after asking a few questions.

Note: Questions using ‘Why and ‘Who are tricky and should be used with caution.

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Ask and Ye shall Recieve

The seller’s task is to translate the value from his product to the guest’s mind. The selling process becomes easy if the guest’s needs are identified before proposing your solution. Asking the right questions will help the customer identify his needs. Though there are a wide variety of questions, the most important types of questions are:

Closed Questions… where the expected response is a YES or a NO.

Leading Questions… Can be considered as a type of closed question where you get a desired response which can be either a Yes or a No. If you are able to get three Yes’, it is possible that the customer’s apprehensions and resistance will be reduced.

Open Questions… where the customer is led to give a detailed answer. The simplest way to achieve this is to use the 6W+1H (What, Why, Where, When, Which, Who + How).

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The importance of Listening

There are four ways in which we communicate viz. reading, writing, speaking and listening. All of us use the above skills on a day-to-day basis. During our school and college days which skills were predominantly tested? Our competency was predominantly tested on the way we scored marks during the examinations. The marks, the grade etc. depended on what we wrote during the examination. The writing skills depended upon the way we read and understood a particular subject. Some of us had to answer the Viva Voce or Orals wherein our speaking skills in answering the questions were tested. Later on as we planned to enter a professional life, we attended interviews. In short, our skills in reading writing and speaking were predominantly tested.

But then why so much fuss about listening? We have been listening to our parents, our teachers, our bosses, our friends etc. all along. Then do we really need to know what listening skills are all about?

Hearing is involuntary. As students, when a minimum of 70% attendance was compulsory to qualify for the examination, did we really listen to all the lecturers? Or were we physically present while mentally absent? Listening is voluntary where our mind plays an active role and thus can be termed as hearing with an attentive mind.

Empathic Listening is the highest and the most effective form of listening. The listener not only responds to the words and actions of the speaker, but also understands the feelings beneath the words/actions/body language. Empathic listening is listening with an intent to understand, where the listener gets inside the other person’s frame of reference and sees the world the way the other person sees it.

For example, a guest who enters a lounge bar may have a reality of how he may quench his need for a hot brew and a light snack to tickle his taste buds. However the Lounge captain may look at this guest as just another ‘bill’ and how his order can help him towards his revenue objective.

If the Lounge captain is preoccupied with his operating reality without bothering about that of the guest, the communication may not be effective and he may try to push high-end beverages to the guest. On the contrary if he is able to look from the guest’s perspective, the Lounge Captain may fully understood the guest’s need for a coffee and light snack – thus paving his way towards an effective relationship.

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Upselling or Overkill?

On Christmas eve, I visited a popular seafood restaurant in Mumbai along with friends. Known for its popular seafood dishes and fresh fruits de mer, we were  looking forward to a culinary delight. What irked me however was the intention to upsell amongst all service staff. Right from the beginning, from the order for mineral water to the starters and the main course through dessert, there were a plethora of upselling techniques being used. Dishes not on the menu were being recommended, tiger prawns instead of king prawns were recommended, the catch of the day was shoved into our faces and so the evening wore on…

While the meal was a delight, the upselling did leave a poor taste in my mouth and this was aggravated when the basics of service were not being followed (e.g. ladies were not being served first on the table).

Where does operational training draw a line? Is it not more important for the service staff to know how to please a guest rather than killing the golden goose? I for one will not want to go to this restaurant again!

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Market Perception of Sales-People

How do Customers perceive Salesmen in general?

We have come across quite a few good sales-people who are efficient and effective. They consistently achieve targets and are respected by their clients. However, the majority of sales-people do not meet the above criteria. What do clients feel about sales-people who call on them? In a survey carried out with various customers, the following observations were made about sales-people:

1. They talk too much.

2. They do not listen to our needs.

3. They display a ‘know-it-all’ attitude.

4. They try to sell without understanding our specific requirements.

5. They do not show much concern about our business process.

6. We are bombarded with unnecessary technical jargon.

7. Their follow-up is based only on their needs and not on ours.

8. They are desperate to close the order.

9. Very rarely do they follow up after collecting the order.

10. They become defensive when pointed out about product and service deficiencies.

Excerpt from Contextual Selling®: A New Sales Paradigm for the 21st Century.
Author – Rajan Parulekar

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Selling – A science or an Art?

There are two schools of thought about the profession of selling – whether it is a science which can be taught or an art that can be learned through experience?

In a survey of 173 marketing executives, 46 per cent perceived selling as an art, 8 per cent as science and 46 per cent perceived selling as an art evolving into science.

You may have come across some dynamic and charismatic salespeople and to some extent, advertising professionals, who perform consistently well and thus, get excellent results. Such people have tremendous enthusiasm and the gift of the gab. They feel selling can be learnt only on field by making sales calls. The more calls you make, the better is your experience and thus your success rate. While speaking to some of the top performers, I was told that success comes through experience and experience comes through failures. So, stated otherwise, one has to make lot of calls and face challenging situations like facing angry and egoistic customers who make you wait endlessly. It is also about closing a good number of orders, losing some, and while doing so have an inner resolve that one has to succeed come what may.

Essentially this school of thought, which says that learning ‘selling’ through years of “slogging in the field” rather than a systematic and fundamental body of knowledge can be dangerous as John Howard’s dictum “ Experiential Knowledge can be unreliable.” Selling as a science looks at selling from the perspective of human psychology and may also include Hertzberg and Abraham Maslow’s theory of motivation. Some of the conceptual frameworks in selling are: AIDA theory, which stands for getting the Attention of the customer, creating Interest, arouse Desire and enable him to take an Action. The other one is tell them what you want to tell them (Introduction), tell them (the Sales Pitch) and tell what you have told them (Summary and Order Closing).

Excerpt from Contextual Selling®: A New Sales Paradigm for the 21st Century.
Author – Rajan Parulekar

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Why Canned Presentations Fail

Is there any merit in salesmen making canned presentations? During a pre-training briefing, many clients insist that a standard script be taught, for use verbatim for their sales calls. Their justification for this is “it impresses the customer”.

The following are their reasons for still sticking to this outdated selling style.

  • Management pressure: It is assumed that the boss knows best. The sales team has been told that there is only one way of talking and so be it.
  • Low self-esteem of salesmen
  • Locus of control: The salesman feels that the customer is all too powerful, due to low self-esteem of the former. Under such a notion, he presumes that a canned speech may rescue him. This is termed as ‘premature cognitive commitment’ (PCC) by Ellen Langer, a renowned psychologist at Harvard Business School. A belief in PCC makes the salesman focus more on the outcome (I want to get this order) rather than the process (Can I understand the concerns he has about me , my organization and the products before selling?). This focus on the outcome leads to fatigue and exhaustion not only to the seller but also to the buyer because it is a mindless activity. To keep the customer engaged, he should move from mindlessness to mindfulness. It is assumed that practice makes perfect, but the truth is otherwise. It makes one mindless because whenever you perform an activity in a routine way, it moves out of your consciousness and becomes dull and boring.

Canned speeches fail for the following reasons:

  • The market has changed from a seller’s market to a buyer’s market. Today’s customers have more choices than earlier.
  • Customers anticipate what the salesman would say, thus making the conversation monotonous and boring.
  • Each customer is unique in terms of attitude, behaviour, culture, etc. Also, the same customer may display a different type of behaviour at different times. In the morning he may have the energy to listen to the salesperson, but in the subsequent post-lunch meeting he may not have the same energy level.
  • The attention span of customers has come down thanks to computers, mobiles, hand-helds, PDAs. A familiar script produces boredom and irritation in customers.

Excerpts taken from Contextual Selling® – A new sales paradigm for the 21st century (Author – Rajan Parulekar)

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