Before working with a powerful FMCG company in Europe I asked of
the thousands of points of sale they have how many client
relationships they lose every year to competing companies. The
company proudly announced that last year they lost less than 1%
annually to competition.
I dared to suggest that 1% is probably not enough and that they
need to lose more business. This did not deter them from working
with us and here’s why...
Large companies with lots of employees often apply
across-the-board campaigns; discount policies and permit their
staff to offer certain concessions when facing customers. Prior to
putting their staff through Scotwork training these concessions are
unfortunately more often than not gifted unconditionally and
therefore counter-productive. Their sales staff finds themselves in
a destructive race between their company and the competition as to
which side will concede the most to the client. In order to
maintain losses at less than 1%, they are often giving away a great
deal more than they need do, to more than 99% of their clients.
If they don’t trade and they just show “good will” the company
gets no return other than an extended commitment for the business
they already had, and often with some erosion of profit. Even
worse, a precedent has been set whereby the client is encouraged to
try the same “game” next time around and the seller’s relationship
is not in anyway improved at the time of the following round of
discussions, for e.g. the annual agreements.
It's probable that if they gave away less and lost say 2% of
their relationships they would probably make a great deal more
profit overall this year from the 98% than they made last year from
the 99% plus. Further, if they do not merely give concessions but
develop a “Scotwork- based” negotiating culture, those negotiated
commercial relationships would be richer, and a lot more difficult
to break on price alone.
The fundamental problem here is that we don't have properly
prepared limit positions or if we do, staff and even businesses
don't have the courage to test them. A potential or existing client
suggests that the competitor’s offer is better and the temptation
is to try and beat it every time but in doing so the truth is
rarely tested, perhaps even never.
If you are strong in your market make it a policy to establish
limit positions subject to constant review and test them until you
lose a little. It is an iterative process. It is important to lose
some business and to understand why it was lost because that
enables you to establish the market conditions and reassess those
limit/walkaway positions. If you are not losing very much at all or
suffering resource shortages (in small business read “overworked”),
you should probably think about improving your profitability until
you start to miss out on a few less profitable “opportunities”.
If you are under pressure in your market it is perhaps even more
important as a company to establish how far you should go in
pursuit of business. We know this is not easy to do, but to
continue without a walk-away position and pursue business at all
costs will ultimately result in loss of profits, and misdirected
resources in situations that perhaps should never have been
negotiated in the first place, where walking away in the short or
even long term will have been better than winning at a loss. Having
a limit position helps you to understand that, and considered and
monitored limit positions allow management to establish some remote
control over negotiations and spend less time in damage
It may seem a counter-intuitive suggestion but ask yourself "Are
you losing enough business?", if you aren’t, then maybe we should
be talking to you.