Kirsten,
what are some of the typical challenges
that B2B companies encounter commercially?
One of the things we observe is that with
companies who have a lot of business on contracts,
that they actually tend to lose a lot of margin every
time those contracts are up for renegotiation or renewals.
Due to a lot of commoditization dynamics in the market,
competitors being extremely aggressive on discounting,
procurement playing the game and doing
what it takes to get to a lower price.
Can you give some examples of what
this might look like for B2B companies?
Yes. One of the examples that come to mind is a situation
where a large global company were in a renegotiation
situation and they actually faced competitors who quoted 30%
below their price.
So that forced them to either be extremely
aggressive or to accept losing market share to avoid
losing margin on that specific contract volume.
What are some of the key insights that
led to this new approach?
We have at least three main observations.
The first one being that salespeople in general
are way too late into the renegotiation,
meaning that it's often the procurement side who takes initiative,
and then it's very often too late to apply the tactics
that are most likely to lead you to a successful outcome.
Secondly,
to counter the price pressure from procurement,
we then often see that salespeople's
response is to introduce a product upgrade,
a new product,
a new service,
etc.,
which is basically way too late when you're late in the
renegotiation because what procurement is looking for at this
point is to put pressure on price and achieve a discount.
And thirdly,
when we look into the planning and tactics
that goes into these renegotiation,
it's very often characterized by a huge absence of plans and targets.
So the salespeople often enter these negotiations without any plan,
without any clear target,
and without that,
you don't stand a chance against the procurement
side who is often really well prepared.
What is some of the proof that this insight we just
discussed is worth looking into for B2B companies?
Well,
we typically see three benefit categories.
First,
we see salespeople coming home from negotiations where
they would normally lose a little bit of margin or volume,
actually having either increased volume or increased the price.
Secondly,
we actually see that when you apply the right
approach in being timely and reminding customer
of the value that you have actually delivered,
we have seen examples of companies
being able to increase prices up to 10%,
despite there actually being quite aggressive companies.
And thirdly, when you have a competitive offers.
And thirdly,
when you are timely in renegotiations,
your chance of actually positioning and upgrade
to the solution increases quite significantly.
Most recently,
we worked with a company who actually identified a 90 million Danish
kroner contract volume by the proactive approach and carrying
that into the renegotiation put them in a totally different position
as it was actually anchored with the executive
level management team of the organization.
How did the clients respond to this approach
of the vendor behaving in a different way?
The majority of feedback we've seen from the
customers to our customers is quite positive.
We have,
and I'm quoting,
we have procurement people saying,
we were not aware that you delivered this much value to our company.
Thank you for reminding me of that.
We have had,
and I'm quoting again,
procurement people saying,
I was not aware that the benefits with you,
was this much compared to competition.
So the current proof points is that it actually falls well
into the procurement cycle because they are basically interested
in getting a solution that is most valuable to the company.
But if there's no value in the dialogue,
they fall back on price.
But when you suddenly are the one introducing the added values,
the delta values to competition,
then they have a different number to compare to.
Okay, great insights, great story.
So what is the solution?
The solution has three major components.
One is that you actually have a framework
for how do you deal with renegotiations.
A renegotiation starts the day you win the contract,
not six months before your customer is ready to renegotiate.
So knowing exactly what to do by when throughout
the course of the entire contract period.
That's the first component.
Second component is that you can actually bring
to your customer solid evidence of the value
you deliver to them during the contract period.
You can document it and you can visualize it.
So that it's crystal clear that if they squeeze
you out or if they lose the business with you,
they stand to lose value.
And thirdly,
you need to have a leadership team who can reinforce this
as well as they reinforce focus on new customer acquisition.
That you have leaders who coach in the account plans
and in an ongoing dialogue on the strategies to win
the next renewal with any given large volume customer.