Understanding what your customer wants
William Cohen, first graduate of Drucker’s PhD program, discusses the revolutionary management consultant’s insights on the nature of negotiationAdd bookmark
“It’s not what you want to sell, it’s what your customer wants to buy.” Those words were spoken in my classroom by well-known direct marketing expert Freeman Gosden Jr. who attended as a guest speaker. In one sentence, Gosden summed up what Peter Drucker considered the essence of good sales and marketing.
Drucker found that all too frequently sellers proudly introduced additional features in their products or services, frequently at considerable expense, that were unwanted or considered less desirable by prospects, ignoring what was wanted or even demanded.
When the customer failed to buy the product or service the seller, suffering losses, declared that the customer was irrational. Was the customer irrational or did the seller fail in negotiating, by not fulfilling the customer’s wants and needs?
We negotiate everything
When attempting to persuade a prospect to purchase a product or service because of its unique properties, we are negotiating. If we fail to negotiate effectively, we fail to make a sale.
As highlighted in a recent TV advert for Little Caesar’s Pizza, price is not the whole story. With foods, the right taste is of significant importance. We also negotiate service features that accompany our products, and not only the quality of that service but how it is provided.
Some service providers are preferred over others providing the same service, even if the quality of the service is the same, if it is not what the customer wants. Why else are some doctors preferred over others, to the extent that some patients will reject a perfectly good doctor who has graduated from a top medical school in favor of one who is lesser known and may objectively possess less ability?
Sometimes we say that a customer prefers a doctor who has a better ‘bedside manner’ or will reject another they claim lacks this quality, even without being able to define what this means.
Further examples of this might include starting salaries, raises, terms of employment, automobiles or homes; the list is extensive and dependent on many factors, all of which can be of significant importance to a particular customer or customer group. We negotiate with these every single day. Consequently, it is no surprise that our political leaders must negotiate with voters as well as with representatives of foreign institutions and adversaries.
It would be difficult to overestimate the influence of negotiation on our professional, and even our personal lives. What makes this even more challenging is that frequently we must negotiate with varied entities that we have not explored fully, and with limited understanding of their motivations.
Thais is what both Freeman Gosden and Peter Drucker were stressing. If we examine negotiation closely, we can see it is actually a dialogue between parties in which both want to reach a beneficial outcome, although they may understand the benefits entirely differently and consequently reach a misunderstanding with regard to what the consumer wants.
Negotiators need to understand what the other party really wants in order to increase their chances of closing deals and reaching a favorable agreement, maximizing their own benefits and their customer’s to achieve mutual satisfaction. As I wrote last month, King Gillette made a fortune and restructured an entire industry by practically giving away his safety razor after recognizing that what his customers really wanted was a good shave provided by the blades. So Gillette decided to give away the razor and make more money selling blades.
There are many definitions of the term ‘win-win’ negotiation
The ‘win-win’ negotiation has become a popular term over the last thirty years or so, but if you look closely, even a negotiation under the most draconian terms may technically be a ‘win-win’.
The Treaty of Versailles is an example. When this treaty was forced on Germany, ending World War I, it was thought that it ended ‘the war to end all wars’. In fact, it led to a much larger war. Germany’s armies were undefeated, but its civilian population was suffering to the point of revolution, so the rulers of Germany had to make peace.
The terms the allies insisted upon were extremely severe, with Germany not only suffering the humiliation of having to formally accept responsibility for the entire war, but also from loss of territory and agreements to pay almost impossible war reparations to the victorious allies. Still, it was a ‘win-win’ in that Germany avoided civil collapse. Recognition of what Germany really wanted and needed, and adjustment of the resulting treaty accordingly, might have prevented World War II.
One of the most popular books on negotiation infers that both sides in most negotiations are fair-minded. That may be true, but whether your negotiating partner is fair-minded or not is irrelevant. In business, it has helped to further the myth of the ‘irrational customer’. However, Drucker maintained that the customer is never irrational and that the customer sometimes just does nnot see the situation in the same way as the seller.
We all want to be fair and ethical
One should be ethical and, of course, seek common interests and compromises that work in negotiations. Nevertheless, it is foolish to assume that the other side always seeks the high ground in negotiations and what someone else considers fair and that your own interpretation of what is ethical is the same as someone else’s. The allies thought themselves fair and ethical when they imposed the Treaty of Versailles. After all, they had paid heavily for their victory in both life and treasure.
A salesman may not always weigh your interests equal to theirs when their own income or career is at stake. The same may be true for an opposing attorney when the very ethics of their profession dictate they must do everything within the law and rules of legal ethics to protect and seek their client’s best interests, not necessarily yours.
Alternatively, when you negotiate a starting salary at work, your potential employer may see it in the best interests of the company to keep your starting compensation as low as possible. He may be limited by company policy, which he sees as reasonable, to increases of three per cent or less in a year or a salary no more than 20 per cent higher than that of your most recent employment. Those are facts in the human resources policies of some companies.
As a consequence, even a 10 per cent difference in starting compensation could be the equivalent of more than three years’ worth of raises, no matter how spectacular the new employee’s performance is. If you depend on a negotiating adversary’s goodwill, regardless of implied promises or intent, you may be greatly disappointed.
We must sometimes negotiate from a position of weakness
If this were not challenging enough, we frequently must negotiate with those who have more power in the situation than ourselves. How do we deal with or seek joint and common interests with a wealthier adversary against whom we have little influence? If you are a millionaire, you can hire a high-priced lawyer. But what if you are not and you must negotiate with an entity such as the U.S. government, a large corporation, or a traffic officer?
The most important factors in negotiation
It is true that it is never what you want that is of primary importance: it is not what you want to sell, but what your customer wants to buy. IBM was considered one of, if not the best, marketing company in the world at the time that Steve Jobs, who could not construct a computer board by himself, led a small team with limited engineering, scientific, or marketing education. They introduced the Apple personal computer, creating an entire new industry because it was what was wanted. IBM had hundreds of scientists with PhDs; Jobs did not have a single one. IBM was the largest computer firm in the world selling billions of dollars in massive computers in the U.S. and internationally, with revenue of $20bn a year; Jobs was selling computer boards in the U.S. with sales of a couple hundred thousand dollars. IBM had one of the largest work forces in the world with about 300,000 employees; Jobs had maybe a dozen employees.
However, IBM’s estimate of the PC market in the U.S. was wrong because it wanted to sell a product than was different from what the customer wanted to buy. The assumption made by IBM was that the PC would have essentially the same features as the giant models they were currently selling to governments and corporations, just scaled down for the individual. Jobs saw the market differently. The PC that he visualized was inferior in comparison, with limited capabilities. However, Jobs’ PC was affordable to his prospects and the market for his computer was practically unlimited.
It is important to remember that Jobs competed not only with IBM, but many existing companies. He did not have the same level of financial resources or personnel, and yet he was successful in competing with organizations many times his size and in selling his product to potential customers. He knew that it was not what he wanted to sell, but what they wanted (and could afford) to buy.