Traditional Solutions Don’t Work
One popular tactic to combat the rise of procurement is to invest in training salespeople to understand customer value and develop better relationships with their customers. During the past decade, companies have been spending more dollars on sales transformation. Some estimates point to yearly training budgets of $1,000–$1,200 per salesperson. With an estimate of 15 million salespeople in the U.S. alone, that’s a lot of training dollars. This segment of training is also one of the fastest-growing service segments. However, the cost of the training is small compared to the wasted time and unnecessary discounting that occurs because the training doesn’t prepare salespeople for effectively dealing with the pricing games purchasing people play.
All these efforts that go into understanding value and developing relationships are good for some customers but wasted with others that play a sophisticated game like poker to get lower prices. These customers are usually purchasing professionals, but they might also be department managers or senior executives who are being coached by a purchasing professional on how to get high value for low prices. The list of tactics to bluff and win against the salesperson is long and well known. The problem is that nothing in the relationship or value-oriented sales training programs can help salespeople deal with the games these customers play.
In fact, many of the training programs teach tactics that fall right into the traps purchasing professionals use to get high-value products and services for low prices. Just the simple threat of putting the business out to bid is often enough to drain dramatic price discounts from a salesperson who is just trying to satisfy the customer. Why? Because salespeople have been trained that customer satisfaction is important.
If the threat isn’t enough, another common tactic is to actually put the purchase out to bid, qualifying several vendors that are, in truth, unacceptable to the customer. These other vendors are rabbits, invited simply to drive the price of the preferred or advantaged player as low as possible. This practice has always been used with commoditized products and industries, but it is now occurring in highly differentiated areas such as software, professional services, and medical equipment. I’m aware of one senior procurement executive at a large international technology company who invited his one supplier to a reverse auction. Instead of pitting the supplier against other vendors, this supplier was actually competing against several other procurement people who worked for the customer!
At one time, only the big guys, the marquee-named companies, seemed to have all the advantages. They used their scale and brand to squeeze the little guys. Now even medium and small buyers have learned the tactics of the mighty and are squeezing their suppliers. Even large, world-class suppliers in high-value industries and services are seeing their margins shrink from run-ins with procurement. Buyers have learned to get lower prices and will continue to use that power until vendors figure out a way to blunt those efforts with better tactics of their own. Negotiating with Backbone is written to help them do just that.