“Your competitor’s price is 25% less, if you don’t lower your price you are out.” This type of threat from a professional buyer happens almost every day. Whether you sell services, industrial goods, or high-end medical devices, the story is similar. It’s part of the normal purchasing game, and the bag of tricks that professional buyers have learned to use over the years.
Of course, this could be real. It could be that your competition has an equivalent solution at a lower price. Alternatively, it could be that the professional buyer is simply bluffing. They want your solution, but have learned to test you to try to find how low you will go. In any case, for the uneducated salesperson, this knowledge “gap” can create significant selling stress, and margin leaks for your business.
Professional buyers have become an emboldened group. Over sixty percent of chief procurement officers (CPOs) believe that they have emerged from the recession as the winner. It’s clear why. Procurement as a function is growing both in scope of influence and, in many cases, organizational respect. In fact, 77% of CFOs believe that procurement has become more strategic as a function. As procurement pushes into new areas of spend and grows as a function, more and more salespeople are being exposed to the tactics and behaviors of these buyers.
It’s not unusual for salespeople to become anxious and intimidated at the mere mention of procurement being involved in the buying process. Many would prefer to avoid dealing with procurement all together. In some cases, this might be the right strategy. However, as procurement becomes a greater force in many buying situations, sales teams, and those who work with sales, need to gain a deeper perspective of professional buyers.
For those of you hoping procurement will go away or lose its influence over time, don’t bet on it. In a recent survey, 77% of business leader respondents said procurement has top management support. This is up from just over 50% back in 2003. So, part of the challenge of the new world of selling, where procurement and economic buyers play a much great role, is determining how to deal with this growing buying influence. Educating sales should start with a few basic areas.
- Procurement maturity & role – sophisticated procurement organizations are more open to a value discussion and willing to think outside the box. They also tend to have higher quality people, and the user buyer or business people allow them more influence in the buying process. The opposite is true as well. Unsophisticated procurement organizations are more likely to be price buyers, and have little influence with users or business leaders. For an uneducated salesperson, it is hard to decipher when procurement will and will not play a role in the buying decision. This is because even immature procurement organizations have learned to act like they are the decider. This is rarely the case.
- Spend category – how the customer views what you are selling is critical. This usually involves two dimensions. The first dimension is the relative amount they spend on your supplies. Second, it’s the characteristics of the supply market that influences their behaviors. Do they consider your supply or service to be strategic to their business? Or is it considered a commodity? Is it a relatively high area of spend for them? Is it a tight market with few suppliers and high switching costs or are there many suppliers? How influential are the user buyers and other buying center members in the purchasing decision? This will often drive their sourcing strategy and tactics.
- Procurement goals – procurement’s goals and their progress on goals can drive behaviors. Every procurement organization has a set of goals, and these goals almost always include a specific cost savings target. Procurement generally has four key areas of goals. These are: saving money, managing supplier risk, supplier diversity goals, and driving growth/innovation. Old School Buyers generally are more focused on price as a “cost savings” and are unable to recognize total cost of ownership savings, or savings beyond price.
- Organization buying rules – many government and large corporate buyers have specific rules about what spend needs to go out to bid and how the bid process will work. Also, many organizations have written and unwritten rules regarding how to treat suppliers. For some organizations, it is perfectly acceptable to use deceptive tactics in negotiations. In other organizations, suppliers are seen as a potential source of advantage, and such behaviors would be unacceptable.
Any successful negotiation requires understanding not just what the other party is doing, but more importantly, why they are doing it. As procurement plays a more important role in the buying process, it’s critical that the sales team better understands this buying influence and why they behave the way that they do.
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Christopher Provines has over twenty-four years of global experience. He began his career in hospital finance and reimbursement. After graduate school, he joined Johnson & Johnson and later moved to Siemens Healthcare. His roles have included vice-president-level positions at both companies. He has extensive global experience in a variety of functions, including strategic pricing, reimbursement, health outcomes, finance, procurement, commercial excellence, key account management, and business improvement. He is a world-leading thought leader in selling, defending, and capturing value. He is an adviser to many of the world’s leading companies. Chris has written many papers, articles, book chapters, and books. He is on the board of advisers for the Professional Pricing Society and is an award-winning adjunct professor at Rutgers University, where he teaches in the Supply Chain Management and Marketing Sciences Department. His research interests include the transformation of supply chains and the implications for suppliers.
Editor’s Note: This post originally appeared on Chris Provines’ blog. For more information on Chris, please visit his website.