Dealing With Procurement? Just Say No

The hue and cry raised by agencies today as they deal with the professional buyers of their services is louder than ever. With each new business win, a short-lived celebration is soon tempered by the demands from client procurement managers who not only seek to negotiate lower pricing (which is their job), but increasingly endeavor to dictate to agencies exactly how they should sell, package and price their services.

Much of the fault lies with agencies, who have become increasingly reactive and risk-adverse in today’s economic climate. Instead of innovating new ways to showcase and sell their value, most firms fall back on the outmoded and misguided cost-plus approach, which leaves the door open for seasoned procurement professionals to drill down on every aspect of an agency’s cost structure. 

Price Taker or Price Maker?

The newest weaponization of procurement tools is sophisticated software populated with “should cost” data compiled by third-party consultants, which is served up to agencies in the form of massive spreadsheet templates. Agencies are increasingly expected to accept the pricing indicated by the "benchmarks" aggregated by these sophisticated scoping tools, putting agencies in the subservient role of price taker instead of price maker.

It doesn’t have to be this way. Agencies must wake up and realize they are the seller, and it’s the seller’s job to package and price their services. Their client buyers are just filling a void created by somewhat unimaginative agency managers who have allowed themselves to get caught in the simplistic rhythm of the cost-plus system. They accept the idea that the cost-plus approach is “what is” and have talked themselves into believing they have no power to change it.

But since when do buyers decide the pricing approaches and strategies of the seller? Just because a procurement professional requests full and complete transparency into your costs doesn’t mean you have to provide it. They do this because you let them; and as long as they get a “yes” from you and your team, they’ll keep asking until they get a “no.” A diplomatic “no” early in the process establishes the fact that you’re different from other firms. Others can continue selling their costs and join the race to the bottom, but your firm sells value created, not costs incurred.

The Complex B2B Sale: A Right Way and a Wrong Way

The benefits of respectfully challenging the buyer's assumptions are well documented. In the book “The Challenger Sale,” authors Brent Adamson and Matthew Dixon present convincing research that demonstrates, quite counterintuitively, that in complex B2B sales (the world of professional services), it’s the “challenger” approach that is by far the most effective. 

“Challenger” sellers employ disruptive insights that invite and inspire buyers to think differently about their buying process. The challenger approach seeks to take back control of the purchase conversation by presenting a different perspective. By articulating and reframing the real value drivers involved in the sale, the challenger presents new and better ways for the customer to think about what they’re really buying. 

Contrast that with the far more common “Relationship Builder” approach, which seeks to avoid conflict, resolve tension, and provides bend-over-backwards responsiveness to buyer requests and demands. According to the research, the challenger approach engenders much more respect and confidence in a buyer-seller transaction; so much so that “Challengers” outperform “Relationship Builders” by a factor of almost 13 to one.

Change Your Price, or Change the Dialogue

Professional buyers are trained to bring the compensation dialogue down to the lowest common denominator (costs) — that’s their job. The seller’s job is to change the dialogue. Next time you’re asked for detailed cost information, consider responding something like this:

Unlike most other firms who offer only one standardized compensation model based on hours or time of staff, our pricing model is based on the belief that what our clients are really buying are outputs and outcomes, not inputs. So in place of detailed information about our costs, we provide detailed information about the problems we propose to solve and the value we intend to create for your business. We know that marketers are under intense pressure to lower costs, but we also know that what they ultimately need most is better business results. Our approach trades conversations about hourly rates and staffing plans for discussions about desired outcomes, revenue goals, marketing effectiveness, and what really matters: the success of your brand in the marketplace.

Instead of fretting about how to negotiate, focus instead on what to negotiate. Procurement professionals didn’t create the current system — agencies did. Now that it’s clear this system doesn’t serve the best interests of either party, it’s time to adopt a more effective approach. And its the job of the seller, not the buyer, to do it.

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Tim Williams leads Ignition Consulting Group, a consultancy that advises agencies and other professional firms in the areas of business strategy and pricing practices.

Twitter: @TimWilliamsICG