If you want to sell value but they want to buy at close to cost, there is a conflict. How agencies deal with and negotiate that conflict will be one of the key factors in their future success.
No surprises. Agencies suck at negotiating! Don’t feel too bad. Most service industries do. Lawyers, accountants and consultants suffer from the same fate. We know because we track their performance, competence and capability too.
The reasons in my view are many.
Here are some that echo the IPA’s 2016 survey on Pricing, Selling and Negotiation. Which of them resonate with you?
1. Management – it starts at the top
Most service businesses are so obsessed with winning top line revenue that they focus on it above all things. “Just win it, then we can sort out the fee”. Sadly, it doesn’t work like that. The time when in many respects you have the most power is when you are setting up the relationship. It is a rare business indeed in the agency world that discounts to win the business and then is able to put prices up in the next years’ review. What are you actually targeting your teams on? If your teams think that the ultimate prize is to win the client at any price, then that is just what they will do, especially if your behaviour role models and encourages it. Do you look at your clients and prospects and think about what the value of the client is? Do you sack or put non-performing clients on a warning? I do recognise that margin is only one of a range of measures by which you might want to categorise these customers, but it certainly should be a clear and important one. I have coached agencies who, when pushed in my negotiation rehearsal exercises, (how often do you rehearse the pitch? Always I assume. What about the commercial negotiation? Never! Thought so.) were pushed to zero profit and still wanted the business, realising only later how hard it was to get that business back on commercial track.
2. Client facing people are not commercially astute
The fact that most people in your agency do not understand value pricing is not a surprise either. My view is that if you ask most finance directors they will tell you that most of the value is lost in the negotiation before they are asked to pick up the pieces and the leverage and power has been conceded to the buyer. Buyers are increasingly data-driven, and the easiest way for them to attack pricing is to rubbish the detail of a cost-plus price. This is partly because a cost-plus price is the sum of a large number of components, and as the agency reveals these components, in order to justify the cost, it is providing the ammunition which enables the buyer to attack them shopping list style. I was working with a Procurement Director who said she understood how her agencies made money far more than her account handlers did. Is that your agency? Procurement are great at asking for more. It’s easy. It costs them nothing to ask. The problem for you is you give to protect the relationship, create a commercially unviable outcome and then end up destroying it by bitching about clients not understanding you.
3. We take the enthusiasm for the work into the commercial discussion
People who work in agencies tend to be enthusiastic, sales-orientated, 'can do' deliverers. They are great at what they do by displaying all these traits, and you love them for it. But you certainly have to be nervous of sending them into a meeting with a Rottweiler from procurement. That ‘can do’ attitude and their ‘no problem’ approach will screw them into the ground just as soon as the Rottweiler smells their ‘helpfulness’ – which he labels weakness and exploits it. Understanding when to say no, or figuring out the clever way of saying yes but achieving some commensurate benefit takes a different mind-set. Over 90% of respondents spend some time arguing their case by justifying costs. Fair enough, but have these advocates been trained in how to present the arguments in the best way? What persuasive techniques are available and which of them they are adept at using? I know that this should be a no-brainer in an industry whose business is persuasion but I ask the question nevertheless.
I have to declare an interest here. For the last 9 years, having spent the 25 years before that in agencies culminating in the sale of the business, I founded to a global network. I have spent most of my working life teaching and coaching people about the art and skill of negotiation.
So anything I say here, despite the fact that it is backed by observed research and real world consulting, has an obvious bias. I want agencies to get better at it. You have to get better at it. Believe it or not your clients need you to get better at recognising where you genuinely add value and protecting it, otherwise they risk you not delivering. That’s their problem too.
Negotiating skill improvement leads to a holistic improvement: patently, pricing will improve if an agency’s commercial skill improves. I would suggest that all the other issues, which appear to be client or market driven, are in fact subject to modification with better agency skill. That is because a client’s subjective view (agency could always do better) and agency subjective view (we are achieving or over-achieving on our promises to client) will always be in conflict; but the perceptions are changeable with appropriate skill – of handling facts, of making proposals, of trading value, of handling teams, of resolving conflicts more quickly. These are the meat and drink of commercial negotiation reality.
Alan Smith and Stephen White
Scotwork are sponsors of the forthcoming IPA Commercial Conference. The IPA will be unveiling survey results on commercial and pricing strategies at the conference and this article is based on a preview shared with the author.
Last updated 20/06/2016