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 limitation.
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.
Mike Freedman