You cannot sell value to everyone

SEGMENT STRATEGY

Once we know which segment which customer belongs to, we work towards creating our customized pitches for each segment.

The general guidelines for the pitch are as follows:

1. For each category we break down our differentiated strength into a sub-category. For example “greater financial stability” became a sub-category under the broader head “supply”.
2. Our overall motive was to re-frame the problem for the customer. For example a customer initial problem statement might be to “choose the cheapest vendor”. We would try to re-frame the problem during the negotiation to something along the lines of “choose a stable supplier who is committed to future innovation”.
3. Once the problem statements are re-framed, our pitch would center on positioning ourselves as a better choice vis-à-vis our competition.

(The above guidelines work well for all customer segments barring transactional customers. The pitch for transactional customers will be discussed below.)

Reframing the problem is by far the most challenging step and requires intense creativity from the negotiators side. However on the whole its tone should be empathetic—it is important to convince the customer that you are concerned about their well-being.
We have found two approaches that are effective:

1. I am concerned about you — This approach can be used to compete against a competitor who is going through supply issue, financial instability, et cetera. The overall intent should be to educate the customer about the risk of collaborating with our competitor.
2. I am concerned about my future and so you should be concerned — Effective for product lines where very few competitors survive. A price-war in such a situation could result in more players quitting and would end up making the market monopolistic. The customer should be educated about the risks and dangers of having a monopolistic supplier market.

Now for a case-in-point we have put together a table where we detail our strategy against hypothetical competitor A in front of the various segments:

Click table to enlarge.

Table 1

NEGOTIATING AGAINST TRANSACTIONAL CUSTOMERS

Transactional customers, by definition, don’t see any differentiated value in our offering. Their behavior indicates that we don’t have any differentiated strength. Negotiation texts call it stealing or grabbing a position of strength from the supplier. The supplier in this case must negotiate from a position of weakness. We always have the choice to go along with this position of weakness and reduce the negotiation to a bargaining exercise, especially if we have a low wallet share for this customer—thus a very established position of weakness (which we can be very successful if know how to trade well and push the customer to give more concessions incrementally).

But if we choose to establish our position of strength, we can choose to ‘educate’ our customers using the afore-mentioned approach to recognize and reward what we represent and deliver. Often times, however, it doesn’t work—especially when the customer has a high appetite for risk in its procurement tactics and is strategically focused in eroding the selling power of its vendors. So in order to establish our position of strength we might have to do radical ‘signaling’ or ‘posturing’ to demand that the customer pay attention to how much we can control. There are various degrees of how clearly we can show our position of strength. We can move from a very mild show of power to a shocking display of power.

Click table to enlarge.

Table 2 part 1

Click table to enlarge.

Table 2 part 2