The Kraljic Matrix
In some cases the answer is yes. If your services are overpriced, perhaps as a consequence of complacency or client inertia, then you should look very hard at your fee rates. You will need to consider what value these rates represent and also how they compare in your marketplace today. Continued success in a tight market depends on charging the ‘right’ price for the right services and convincing clients that your offer represents value for money – this means value in their eyes, not just yours.
When will clients pay a higher price?
The answer is when it makes good sense – to them – to do so: when buying from someone else is much more costly or risky than paying the premium they need to pay to continue to buy from you. One way of deciding whether to reduce your rates, or hold firm, is to use the matrix above.
The Kraljic Matrix
To use this tool, first of all list the different services you offer. Now plot these against the two axes. In doing so, be honest. You need to think how clients see your services, not how you would like them to see them. Those services that you’ve placed to the right are the ones where you can hold, or even increase, your rates. For the services you have placed towards the bottom and left, there are two possible strategies for you:
- Carry out actions that move services towards the right in the model. Find ways of differentiating your services in your clients’ minds, making them less easy to substitute and delivering greater value to those clients.
- Find profitable ways of delivering commodity services. Change the way in which you deliver these services and match low cost to low price.
What if you should not discount? How to get the best price
Remain confident in your rates and the value you bring. We know two surveyors who work for the same firm and have the same experience and expertise. They deliver the same range of services to clients and have done so for a number of years and in different market conditions. One, however, repeatedly secures better fees than his colleague. Why? It is because he believes that he can – simple as that. His fee confidence is stronger and this affects the rates he can command.
In contrast, his colleague lacks fee confidence and over time this has become a self-fulfilling prophecy. Whilst the confident surveyor believes he can gain a good rate and is rarely challenged, his colleague is convinced that clients are always fee sensitive. As a result he is often challenged on his fees.
How does this lack of confidence communicate itself to clients? Having observed the two surveyors in action, it is clear that they demonstrate their confidence (or lack of it) through their:
- Body language
- Use of words
- Tone of voice
In our experience, building an individual’s fee confidence is one of the hardest things to do. Building skills and knowledge can be done over time but there are some individuals who will never be confident in the fees they ought to charge. For those who can improve in this area, there are ways in which confidence can be developed. These are:
- Focusing on the value the client will gain from the service
- Working with others who are confident with the fees they charge
- Building a strong pipeline of clients and opportunities, so no one opportunity is desperately needed.
- Practising with colleagues how to handle fee negotiations
Negotiating the deal
In many situations there is no need to negotiate at all. The quality of our service, the appropriateness of the pricing, our understanding, our ability to articulate and convince clients of the benefits of our service and our confidence in handling fees, mean that they will be happy to accept our pr oposal.
In some situations, however the client may still want to negotiate. It is possible that our proposal is very attractive but the price seems expensive. It may be that they have other competing proposals and want to get the best possible deal. Should we negotiate? Yes, if there is a chance of negotiating a deal that is acceptable to both sides.
The ‘right’ deal
A deal that is good for both parties can be achieved when the two sides have different priorities and when they value some elements of the proposal in different ways. If the differences are known, then it’s possible to rearrange the jigsaw to benefit both parties. This implies that the better each side understands the other’s situation, the more opportunities there are to negotiate a good deal. To facilitate this, it is important to allow each side enough space to develop this understanding understanding. If negotiations take place before that understanding has been built then the result is likely to be conflict, unnecessary concessions and a sub-optimal deal.
The four phases of negotiation
It is the responsibility of the seller to manage the negotiation towards a good deal and a structure that can achieve this comprises 4 key phases:
- Phase 1 – Preparing
- Phase 2 – Discussing
- Phase 3 – Proposing
- Phase 4 – Bargaining
Phase 2 provides that vital space for both sides to build their understanding. This phase also makes it easier to propose alternatives and bargain the final deal. So what should you do in the discussing phase? Here are some tips:
- Set the scene in a way that presents openness as an advantage for both sides
- Build good communication and a feeling of trust between both sides
- Demonstrate genuine interest in the positions of the other side
- Explore what they want, but more importantly, why they want it
- Understand the motivations (interests) of the other side. A successful negotiation attempts to enable each side to achieve its underlying interests as far as possible
- Articulate your own positions, interests, priorities and needs and the reasons why they are so important.
- Listen well and avoid arguments
- Conclude this phase with an agreed picture as both sides see it.
On the basis of that agreed understanding, both sides are hopefully now in a position to creatively explore opportunities to achieve an acceptable deal and then come to a final agreement.
Handling the increasing price sensitivity of clients in the current economic environment involves doing a number of things:
- Analysing the services we offer and making sure they are priced appropriately
- Making sure surveyors involved in winning work for those services sees their value and are confident in the price they propose to charge
- Building each client’s motivation to buy through exceptional consultative selling
- Being skilled and confident to manage and carry out and negotiate to achieve the ‘best’ deal now, and to form a solid basis for the future of that client relationship.