Updated: Feb 22
As we often tell clients, negotiating without leverage is just begging. One of the key elements of leverage is having a clear, compelling, and consistent message surrounding your deal that resonates with your team and your suppliers.
Let’s look at some typical client messaging and examine which of these help – or hurt – the chances of getting a good deal from a supplier.
“IBM is taking advantage of its incumbency and needs to fix the pricing if they want to get the deal done this quarter.” You can see where the buyer is trying to go, but this does not provide any compelling reason for the vendor to budge on price, so it’s not a strong message.
“We’ve decided on your SaaS solution. Can you put together the final document so we can discuss the terms?” This message lets the seller know you’ve already picked them before you’ve even started negotiating for what you want or need in the agreement. When you remove all uncertainty about a deal, your leverage evaporates, and it is very difficult to get a competitive deal outcome.
“I want Oracle to recommit to bringing value to us and move away from the transactional pattern it has fallen into.” Clients often tell Oracle they're unhappy with them, to no avail. This kind of empty message does nothing to convey you might consider another option and fails to achieve any leverage.
“Our preference is to do a one-year renewal.” This short and sweet message let’s the supplier know you’re not interested in committing to a three- or a five-year deal and it offers an alternative. This message uses term length, which can be a key source of leverage, and though it needs more context, is the start of a strong message.
“Your price is 50% too high according to our benchmarks.” Suppliers hear this every day, and it’s one of the weakest messages. It tells them that you've taken the time to benchmark the solution, so you’re going to do a deal. Their response: “I don't know where you've gotten your benchmark, but this pricing is better than 80% of the deals out there. A few customers may be getting better deals, but they’re buying much more product than you. Your deal is very competitive and we're standing behind it.”
“Our short-term software needs are limited and uncertainty around this program limits our ability to consume your products for the foreseeable future.” This is the start of a solid message because it articulates that you've done your forecasting and modeling, and you may not be able to buy and consume as much product as the vendor proposes. It casts uncertainty on the deal and builds leverage.
“We are a Fortune 50 company, and you need to do much better on pricing to win our business.” This is a weak message that only signals to the supplier that you’ve probably got a lot of money to spend.
Very few of these messages above – which we hear routinely – are strong. To address this common problem, we examined the components of a good, a mediocre, and a poor message plan.
Good messages are supported by our actions. They must be aligned across the organization because suppliers' will test your message. When they hear something from sourcing, they go talk to somebody in IT or the business unit to validate what they've been told. If they hear the same message from everybody, the message gains credibility and indicates your commitment to it.
When we think about message development, we must also ask ourselves what outcome do we want to achieve with this message, or what reaction from your sales team do you want to invoke? Is it panic or concern, or is it happiness and euphoria, or maybe something in between, like you want to motivate them to work harder for your deal?
If you want to provoke a negative response, the things you may want to incorporate into a message are budget constraints, or some new competitive solution, or something that’s happened in the marketplace causing a sudden downturn like a pandemic, a trade war, a merger or divestiture.
Conversely, a message that will positively impact a sales team’s response would relate to their quota or bonus potential or touch on some revenue accelerator. The point is, your message must be deliberately positive or negative, with clear reasoning to back it up so it can make it through the approval process at the vendor’s chain of command. The more solid the message, the more likely it will be carried up the ladder.
We’ve seen success with messages such as “If you give me a competitive deal (as defined by the client, I'm likely to do it right now, as opposed to three or six months from now,” This is a scenario where you could potentially drive a very good deal. Another example would be a message built around RFPs, which forces the seller to be competitive.
We’ve seen disasters when clients get very close to a renewal deadline, and the vendor knows they’ve got the deal. It’s very difficult to regain leverage when this happens, and buyers must work hard to somehow change the facts of their situation to come up with a message that moves the needle in their favor. To that end, we’ve identified the four key elements for effective messages. no matter where you are in the process.
The first key element of messaging is must motivate the sales team to tell your story within their organization, because if they’re not motivated, the message is going to fall on deaf ears.
Next: it must give their sales leadership a decision to make, which we call “a fork in the road”. That decision may be as simple as, “I'm not going to change anything,” or, “I'm going to give into the request and grant the client a better deal.”
The next key element: it must summarize your leverage. Remember, if you've got no alternatives, and you've got no time, and the supplier knows they're getting the deal because somebody in your business told them, you’ve got no leverage. And if you don't have leverage, you won't have a strong message.
The final thing a strong message needs is the ability to speed up or slow down a deal. Maybe it uses sales incentives by implying that if they give you a better deal, you’ll sign early. Conversely, you tell them the deal isn’t going to happen until after the vendor’s FYE. Either you’re trying to pull the deal forward and accelerate it, or you want to decelerate because it's not working in your favor.
Buyers often find themselves in a tight spot with suppliers because suppliers are expert at extracting the most revenue money out of each deal, and at short-circuiting the buyers’ sources of leverage. A typical scenario: the client has less than three months before a needed storage refresh, and no alternative solutions have been qualified. This type of situation calls for the buyer to get creative and craft a message that compels the sales rep to provide a better deal. In this case, the client discovered the need for a future purchase they could leverage, and came up with the following winning message:
This may appear to be a simple message, but it contains all four of the needed components. The added expenditure will motivate the sales team., it provides the sales executives with a decision to make, it conveys leverage, and works to accelerate the deal before year end.
This is a very brief discussion based on a recent webinar about building effective messages that significantly impact leverage. At ClearEdge Academy, we offer a highly interactive certification program on the subject. To download the webinar, click here. To learn more about leverage management training or our messaging program at ClearEdge Academy, please visit our website or contact your ClearEdge representative.
Andrew Ozlowski is a Managing Director at ClearEdge Partners and leads ClearEdge Academy.