14/09/2011

By Ian Newall, Open Course Manager, Huthwaite International

You are sitting in front of your customer when she says: "Your proposal is great. I would like you to have the contract but first we must just run it past Procurement." Your blood turns to ice.

At the next meeting you find yourself sitting in front of an impassive stranger who is asking you to justify the 'excessive' price of your product or service. Your nice customer contact is nowhere to be seen. You realise that you are mumbling and repeating yourself unnecessarily. You wonder how you came to be living this nightmare.

This is a scenario that is becoming more frequent and which SME businesses need to be able to handle.

Procurement professionals often use the Kraljic model to classify their purchasing portfolio. Space does not allow a detailed explanation of the model. There is plenty of information on the Internet, simply type 'Kraljic' into your favourite search engine.

Essentially, the Kraljic model analyses suppliers in two dimensions: supplier risk and profit impact.

Supplier risk is about scarcity. How unique is your solution? In other words, how many competitors do you have? If you have no competition you will constitute high supplier risk. If you have many competitors then your solution is not scarce and the customer will classify you as low supplier risk.

Profit impact is the extent to which your solution will contribute to your customer's profits.

If your customer perceives your solution as having low profit impact and low supplier risk your product or service will be commoditized. Procurement professionals will not value your solution and will approach any negotiation from the position that you are one of many suppliers providing that product or service. The negotiation will be focussed on getting the best possible price and you could find yourself having to choose between caving in to price pressure or withdrawing.

So what should you do?

Firstly, you need to convince your customer that you are best able to meet their needs. This is easier said than done. Telling your customer that you are the best is not effective. Huthwaite research has shown that the seller should ask clever questions that uncover and develop those customer needs that the seller is best able to satisfy. Think about your product or service. What does it do that is unique or better than any other supplier? Now think about the questions you should ask in order to get your customer to articulate those needs. Once those needs are 'on the table' you can show how you can meet them and the customer will understand, in the words they have used, why your solution best meets their needs. You have now established some degree of scarcity for your product or solution.

Secondly, you may have been talking to a technical expert. For example, if you are selling an IT solution, your main contact may be the IT Manager, in which case the value of your solution may be seen as making things easier for the IT department. However, if you are able to translate the benefits to IT into benefits to the business (for example, less system downtime = more effective customer service = more customers = higher profits) you will be demonstrating profit impact. If you can reinforce this by meeting other key players such as the Financial Director, or at least making sure that the FD gets the message, the value of your product or service will be further reinforced in the customer company.

Finally, involve Procurement early. Your instinct may be to avoid the Procurement Department at all costs but it is far better that they are involved early in the sale so that they also appreciate the value and uniqueness of you product or service.

If you would like to read articles and white papers about selling to procurement professionals/buyers go to: www.huthwaite.co.uk

If you would like to attend a Huthwaite Negotiation Skills course go to: www.huthwaite.co.uk


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