Carragee Consulting

Roosevelt, Pareto, Kaldor-Hicks & Sales Negotiation

Assistant Secretary of the Navy, Teddy Roosevelt once referred to President William Mckinley as not-spineless, but having “no more back bone than a chocolate eclair”. I was reminded of this quote I first ran across in a high school history class when I re-read Holden Advisor’s book “Negotiating with Backbone: Eight Strategies to Defend Your Price and Value”.

Addressing a prospective customer or their procurement professionals with witty insults wasn’t listed as one of the 8 strategies to defend price and value, but you have to imagine Roosevelt’s wit and oratory were factors in his successful career.

Instead, Holden suggests probing for the features of a proposal which are truly valuable to a prospect by presenting “Give-Get” tradeoffs instead of rolling over to the request for discounting. If you have a pure price buyer they should happily trade away “value added” services or advanced features that don’t meet their core use case for a lower price — essentially a down-sell to the right assortment for their application and budget.

In B2B sales this is often a question of whose business can more efficiently achieve the same outcome. An example I like is from the roofing industry where bundles of shingles can be delivered not to a warehouse or even just a job site, but actually delivered onto the roof itself, eliminating the need to haul 60-80lbs bundles up a ladder.

To understand which products and services truly bring value to your customers is the job of pricing. To defend the right prices to the proper end-use is a core sales function. Together the successful partnership between Pricing and Sales should result in properly segmented and optimized pricing.

Knowing how an end customer uses your products and services and the types of capital/labor trades offs they make in their business process is essential to understanding how to position an “efficiency gain” argument. Eg would you rather pay $X more per bundle of shingles for Rooftop delivery or exhaust your crew hauling them up ladders and increasing your worksite injury risks? On other hand, maybe the job site lends itself to using a conveyer vs boom truck or your worried that the structure isn’t sturdy enough to concentrate the building materials during tear-off?

Job by job the value of Rooftop delivery may differ, so if that cost is always factored into a premium price bundled offering, then it may result in losing sales. During a pricing negotiation if that service can be added al la carte (or removed in the T&Cs with a predetermined discount) it can be easily used by the Sales team in “Give-get” negotiations that maintain the margins for both the Distributor and the Builder to efficiently run their business operations.

Its worth taking a step back to Micro Economics to remember that there are many different definitions of efficiency. A sub-categorization of when and how to use “Give-get” trade-offs in negotiation could be to help sellers identify if you are getting stuck in a Pareto vs a Kaldor-Hicks equilibrium.

If everyone in the sales cycle is thinking in terms of Pareto efficiency, where no one can be made better off unless someone is made worse off, then negotiations will come to a stand-still, where defending your value can result in either correctly calling the customer bluff or having to walk away from the sale. When your boxed into a view of efficiency based on the Pareto criteria then you see it as a Zero Sum game.

If instead, Pricing and Product Management have equipped their Sales org with good price bundles, flanking offerings and a toolkit to support “Give-Get” negotiations, you may be thinking more in line with Kaldor-Hicks – where a change in the offering or allocation of resources produces a net benefit for at least one party, even if it results in a reduction in benefit for one. This means that the winning party could hypothetically compensate the losing part (share a portion of the benefit) turning the sales negotiation into Positive Sum Game. 

Wouldn’t you rather work in a Sales Org geared toward finding the Win-Win outcomes of Kaldor-Hicks than getting stuck in a Pareto standoff? For Pricing to structure their offerings so that Sales can more effectively defend value, discount less and close more business is an internal Win-Win.