Customer Types

Understanding the Prospect’s Game/Strategy

Before sitting down with prospective customers, try to determine what game the customer is planning to play. You can’t put together a negotiating strategy until you have a good understanding of what the customer wants out of the game. Understand the tactics that will be used to get you to do things that are not in the best interest of the company, and employ tactics that get the best things for the company.

Avoid Panic Pricing

Panic pricing is pulling the price discount lever too often, too much, and without thinking about the alternatives. Buyers are drawn to insecurity and desperation like sharks are drawn to blood in the water. So the first thing you must be able to do is manage your desperation.
Even if desperation is not there, many buyers have figured out how to create it. The easiest trick is to delay a purchase. The longer they can wait, the more desperate salespeople become. This type of desperation makes salespeople poor negotiators because they are too anxious to close a deal and are willing to make concessions to get the order.

For example, consider a customer that doesn’t plan to start an order for another 3 months because they have timed their restocking/procurement cycle, but tell you they are ready to start now. So you treat the negotiation as urgent and needed to be closed as quickly as possible. However, the customer has time and plans to use that time to wear you down to make concessions on prices, quantities, refunds or anything else they are seeking. This can be difficult to identify when a customer is employing this tactic, but it is important that the salesperson is always aware of this tactic and attempts to identify it.

Avoid Quantity Pricing

Quantity pricing is a simple yet effective tactic employed by customers. Giving an illusion of a larger order than what will be eventually finalized can be a customer’s plan from the beginning. A larger quantity of a product or a larger number of products, the goal being to make the order appear larger than what it will be, is given to the salesperson. The end game is isolating the negotiation on a per product basis so to lower the price and therefore diminish our margin.

For example, a customer requests an RFQ for 10 products with quantities that are twice the MOQ. Once the prices are provided to the customer based on those quantities, the customer will negotiate the product prices one-by-one, perhaps citing the total value of the order to bring the salesperson’s attention to the overall value and profitability of the order. Then the customer will reduce the quantities by half and/or remove 5 products from the order, sometimes being the higher value products, leaving a much smaller order with much less value and profit. This is a common diversion tactic utilizing the quantity and total order value as the illusion.

However, note that such a tactic is not always the case. It is common that the customer might not be employing such a tactic, instead just the normal process of finalizing an order can be limiting the products to those that meet the customer’s pricing and quantity requirements. It is important for the salesperson to always be aware to identify if the customer is unintentionally vs intentionally utilizing a quantity pricing tactic to squeeze margins.

Four Types of Customers

The toughest challenge that companies face today is dealing with the margin-draining games played by some customers to gain additional discounts. Each customer type requires a different selling approach.

The four primary customer types are:

1. Price Buyers: These customers want to buy products only at the lowest possible price. They are less concerned about value, differentiation or relationships.
2. Relationship Buyers: These customers want to trust and have dependable relationships with their suppliers, and they expect suppliers to take good care of them.
3. Value Buyers: These customers understand value and want suppliers to be able to provide the most value in their relations.
4. Poker Player Buyers: These are relationship or value buyers who have learned that if they act like a price buyer, they can get high value for low prices.

Price Buyers

Price-buying customers care only about the lowest price possible for a given product or service. They don’t commit to any particularly supplier by making sure they are able to change suppliers easily and at will.

Negotiating with Price Buyers

Some things to think about when negotiating with a price buyer:

• Conduct an extensive cost analysis that includes all costs of service and support before you develop a price.
• Strip away all value-added features in pricing the deal.
• Establish a rational walkaway price so you don’t agree to a price that will cost the company money.

Relationship Buyers

Relationship buyers expect their suppliers to invest in understanding the business their products or services support. They have a high level of trust in and loyalty to their suppliers.

Negotiating with Relationship Buyers

Here are the tactics to consider when negotiating with relationship buyers

• Develop an intimate knowledge of the prospect, concentrating on specific problems, value drivers and possible solutions.
• Focus on making decisions that are in the customer’s best interest.
• Continually probe for areas of dissatisfaction and the impact of current work.

Value Buyers

Value buyers favor suppliers who add value to their operations in terms of increased efficiencies, reduced costs, increased sales and high margins.

Negotiating with Value Buyers

When negotiating with a value buyer:

• Don’t focus on price during initial discussions.
• Focus completely on discovering differential value compared to competitors.
• Present an extensive list of where and how you can provide value relative to other vendors in the negotiation, and quantify that value to defend your position.

Poker Players

Poker players are value- or relationship-buyers in price buyer disguise. Their intent in acting like a price buyer is to force the negotiation into a bluffing situation that will benefit the buyer at the expense of the seller. Poker players try to take advantage of you using a technique called nibbling – always asking for more – often little things.

Negotiating with Poker Players

When negotiating with a poker player:

• Establish valued give-gets ahead of time.
• Pre-plan tactics that the poker player will use and prepare an appropriate response to each.
• Recognize that you have value, and don’t roll over and start discounting, which will validate poker-playing behavior.