Reed Holden is my mentor, so I’m extremely biased. Still, this is a great book, especially for any firm pricer who has to deal with procurement, which Reed writes is the new normal.
The final frontier of good pricing is the customer negotiation, and Reed explores this with verve, and an enormous amount of tacit knowledge accumulated from years as a salesman and pricing expert.
He points out “that 80 percent of procurement managers give the other 20 percent a bad name.” I have to say, this has not been my experience with the procurement folks I’ve met, but that’s probably because I only deal in the professional sector, not with general procurement.
What makes this book so useful is Reed documents all of the games procurement plays—from delays, waiting for the end-of-period discounts, to using vendors as “Rabbits” simply to drive down the price of the preferred vendor. There’s many effective tactics offered to deal with each of these scenarios.
And this advice needs to be shouted from the rooftop:
Discounting is a fool’s response. Those who live and die by discounting don’t live very long. Trad[ing] margins for revenues, they undermine the success of their business, which needs profits more than revenue to survive.”
The most important strategy, though, is to know your value, and to be an equal with procurement, not a supplicant. Only equals can negotiate. If you don’t know your value, procurement will drag you to the one topic they know well: price. You must change the conversation to value.
I also love this advice:
Spending the time on the proposal is actually easier than going to the customer with the tough questions.
Here are some of the questions Reed insists you answer before submitting a proposal:
- What is the process for evaluating vendors and proposals?
- What are the names and positions of everyone in the process?
- Who is the ultimate decision maker?
- What is their timeframe for evaluating vendors and finalizing the deal?
- How many other vendors are approved to supply the product or service?
- What are their names?
- Do any of those other vendors have existing relationships with the decision maker?
- Which vendor is the preferred vendor?
- What are your criteria for selection of vendors?
- Are you interested in vendors that might be able to provide more value to your firm?
- When and how do we get an opportunity to understand how we can add more value?
- Are you satisfied with your current vendor?
- If you have no prior relationship with the customer, why are they asking you to bid?
- Do budget dollars exist for the requested products and services?
- How much is the budget?
- What is the process to get approval to use budget dollars?
If you don’t know the answers [to three or more of these], pack up your bags and look for another opportunity.
The book documents eight different scenarios you can find yourself in. You’ll learn excellent strategies for dealing with price buyers, value buyers, and relationship buyers. The tough buyer is the poker player, who are value or relationship buyers in drag.
Counter intuitively, price buyers may be the easiest to deal with, since at least they are upfront about their expectations of the lowest price. Reed cites research that only 30%-35% of buyers were real price buyers, and that’s in commodity markets. For professional firms, it’s much less, probably single digits.
Reed’s ten tactics for winning the procurement game are exactly right:
- Qualify, qualify, qualify
- Understand your foundation of value
- Develop give-get options [lower price, strip out value]
- Map the buying center
- Where appropriate, build trust
- Use the policy ploy
- Delay, delay, delay
- Redefine risk
- Dealing with reverse auctions
- Do your homework
Being a William F. Buckley fan, I appreciated the story of when he was hired to speak at the University of Texas in the mid-1960s, when he was just starting his career as a lecturer. The Daily Texan university newspaper criticized the amount young Buckley was being paid, which was a record amount.
At his talk, Buckley read the most accusatory part of the article aloud, and said to a thundering applause:
I never said I was worth it. I only said I wouldn’t do it for less.
My only quibble with this book—Reed and I have discussed this before—is his use of the poker analogy. He writes:
The way is to consider the negotiation with the economic buyer as a game of poker.
Wagering, like a customer negotiation, is a zero-sum game. That is, every dime that ends up in one pocket is taken out of another.
Remember, you’re in a zero-sum game. The goal of procurement is to grab as much of the pot as possible.
Yet enterprise is not a zero-sum game, otherwise their could be no growth or value created. In the long run, both parties to a transaction benefit, no matter what price is finally agreed upon.
The zero-sum mentality has many deleterious effects, and I believe this analogy needs to be buried. Linguistics matter—a lot.
We must change the conversation to value, something both sides want to maximize. It’s the one area where interests are aligned—the opposite of a zero-sum game.
That quibble aside, this is a fantastic book, and a must-read. Even if you don’t deal with procurement, you will learn strategies from one of the world’s foremost pricing experts.
It’s also an optimistic book, as Reed believes that high value products and services are not dead. With all the talk of the “new normal,” this is a refreshing and empowering message.