Combating Commoditization and Upholding Value: Marketing's Role in Shaping Negotiation Strategy

Buyers today are aggressive. As recent ITSMA research shows, they want their B2B technology and services providers to be reliable, competent, and responsive, but they also want low prices. According to Julie Schwartz, senior vice president of thought leadership and research at ITSMA, "It used to be that low cost was equated with poor quality. But now, with globalization and the advent of offshoring, this just isn't the case anymore."

At the same time, systems companies, software providers, consulting firms, systems integrators, telcom and networking firms, and others are increasingly vying for the same business, and converging technologies have eliminated competitive restrictions based on place or time. The sales force is no longer selling to the IT director based on "speeds and feeds" but is instead facing senior business buyers who care less about features and functionality and more about business value. Deals are bigger, opportunities are fewer, and the sales cycle is longer and more complex. The sales force is struggling to adapt.

A Vicious Circle

According to a new research study by the Strategic Account Management Association (SAMA) and Think! Inc., a vast majority (80%) of the 361 study respondents said that "they see mounting irrational competitive behavior, such as competitors drastically lowering prices or giving away services." This type of behavior, added Barrett Moore, a negotiation consultant at Think! Inc., is a problem because "giving away value tarnishes brand perception and signals competitors to do the same, lowering margins for everyone."

Only 9% of the study's respondents reported that "they have a well-defined strategy to respond to competitive behaviors like drastically lowering prices or giving away services," and a mere 5% of them "rated their capability in customer negotiation as highly effective." To break the irrational sales circle they're caught in, companies must develop a clear negotiation strategy.

Turning the Ship Around

The report stresses that, contrary to popular belief, negotiation is much more than "a set of soft skills made up of reactive verbal tactics … [It's] also about far more than determining mere price for volume. It's about everything you have to offer that the competition doesn't, from length of contract to delivery and from follow-up to customer support and service." In other words, positioning plays a large role in strategic negotiation, and this is where marketing must be involved.

Effective positioning starts with a thorough understanding of market and customer needs. Marketers need to conduct research that gives them a solid understanding of what their customers value so that they can ensure that the company develops relevant offerings and is able to articulate their value in a language that customers will understand. In addition, it's extremely important for marketers to know how customers perceive their company in relation to competitors. This knowledge enables the company to sharpen competitive differentiation, which is essential to avoiding commoditization.

Next, marketers need to create clear and compelling value propositions for each and every product, service, and solution the company offers, and they need to make sure that this information is available to sales in the formats sales finds most useful and instructive. Obviously, the more closely marketing and sales collaborate, the better the results will be. For example, companies that employ Account-Based Marketing (ABM)—an approach that treats an individual account as a market in its own right—at this stage of the game are able to target value props not just to a certain customer segment, but to specific individuals within specific customer accounts. This strengthens the sales rep's position during negotiation and leads to better results.

Once the value proposition for any given offering has been created, the company must determine what negotiation success should look like. The SAMA/Think! Inc. study recommends that leaders from across the company's silos come together to establish what a successful negotiation looks like for each of them as well as what the collective vision needs to be. For example, product management might be entirely pleased if a sales rep sells software to a customer and throws in maintenance services for free. Maintenance, finance, and services marketing, on the other hand, will not be happy. There need to be clear boundaries around what can and cannot be offered during negotiations. Together with sales, marketing can take the lead on initiating these cross-functional meetings.

Marketing will probably be less involved in defining the negotiation process for the sales force, but this is also, according to the study, a critical step in combating commoditization and upholding value. In fact, Moore has seen companies experience a 200% ROI within six months of making improvements to their negotiation strategies and processes.

So don't ignore the irrational behavior of your sales team; by taking the steps outlined in this article, marketers can help break the vicious circle of discounting and giving away services for free.