How to be Negotiation Ready with Bruce Scheer and Todd Snelgrove

Bruce Scheer: Welcome to the ValuePros Show, where value pros get value ready. Hi. I'm Bruce Scheer. And in this episode of the ValuePros Show, we're diving deep into the critical skill of being negotiation ready. I'm joined by value selling expert Todd Snelgrove as we explore how to quantify and communicate value effectively during negotiations. We'll discuss moving beyond price based selling using total profit added concepts and leveraging behavioral economics in a b two b context. And you might wonder why is there a mountain here on the screen, and I'm getting ready to negotiate Mount Rainier in my backyard up in the state of Washington. So I wish you success in this episode.

Bruce Scheer: Please join us now. Hey. So, Todd, I'm glad you're back to the ValuePros Show. Today's episode's gonna be just fantastic. We're we're talking about how to be negotiation ready. And just to give a quick level of context, we've put together a value ready assessment, and it follows the buying journey across these four key phases of build trust, understand needs, deliver insights, and then drive execution. So Todd is just a pure expert around how do you drive execution and being value ready. So there's 3 key dimensions that Todd's talking about.

Bruce Scheer: The first one is approval ready, and we have an episode on that. And I I strongly recommend you watch that or listen to it on your favorite podcast player, but it's fantastic in terms of just getting everything approval ready. Next, Todd's pushing into negotiation ready, what we're talking about in this episode, and then we'll do another episode around how to show up and be impact ready and how do you lay all the groundwork to see that customer success. So that's the overall context. Again, we're all into this area of driving execution, which value pros do. So, Todd, let's go ahead and jump into being negotiation ready. What do you have to tell us here?

Todd Snelgrove: Well, thanks, Bruce. And in the last episode, we talked about making sure we're engaging procurement, engaging them early, getting them to think about value versus lowest price, and so that we're prepared when we get into negotiations to frame that and have that discussion and price based on it. So that's what I wanna talk about today. And the first thing I want to make sure is that people go in with what's truly valuable to the client. And I know we've covered this by the discovery sessions and all that, but I hear a lot of people using the term USP, unique selling proposition. Mhmm. That's famous value. And I'll give you 2, I'm gonna say, quick examples.

Todd Snelgrove: It's unique. The assumption is unique is valuable, and I'm gonna give a story of this bearing company I used to work for. Great company, but two examples of what was unique, they assume was valuable. So the first one was when I was interviewed for the company 30 years ago in Canada, the managing director was Swedish, and I said, and I'm making numbers up, compared to certain competitors, we're 10, 15, 20% higher in price. Why do they buy from you? That was my attempt to ask what their value proposition was when I was a 20 something year old. And he looked at me straight faced, and he said, we're Swedish. I started laughing. And then I realized he wasn't joking and went, I just cost myself a job.

Todd Snelgrove: Oops. And he goes, no. You don't understand. And I said, you people pay 20% more on a $10,000,000 contract because your head office is in Sweden? Yes. And I just said and he goes, what I meant by that was that I'm gonna pair for we spend more money on research and development. We have more engineer. Whatever it was, I went, that's not the same as where your head office is, and you wouldn't believe how many times I hear, I'm closer. My head office is American.

Todd Snelgrove: Click the button. Buy American. But I mean, the location of your head office better be only a very small part of your value proposition. Mhmm. 2nd one, this is hilarious. We'll come back later and talk about how to develop new products and put the value concepts throughout it, but this company created a bearing that was quieter. And in a very niche market, sound is important. If your dishwasher is running in your where your kitchen is, you know, sound, etcetera.

Todd Snelgrove: But of course, they took this value proposition. This bearing will run quieter whenever the measurement was, and they launched it to every market. And I was with a colleague, and we're going to a key account meeting at a huge paper company. And, of course, they put the meeting in the the management room on the floor. So you have to walk through the facility. You get there. We sit down, and then in comes the management team. And they walk in with the hard helmets on, the safety glasses on, and the earplugs.

Todd Snelgrove: And my colleague, of course, doesn't pivot. He goes through the presentation because that's what he had prepared, and here's our head office. We've been in relationship. 3rd slide. And this new solo show we wanna talk about is gonna run 10%, whatever was quieter. The manager stands up, the maintenance mill manager stands up. He goes, are you serious? I'm like, colleague goes, yes. We can prove it.

Todd Snelgrove: He goes, have you ever been in a paper mill? And I just started laughing, like, the sound of the bearings are you couldn't hear because the machines make all the noise. The point is just because it's unique, doesn't mean it's valuable. My here's something unique and I'll leave you with this, Bruce. I'm Canadian, not American. That's unique. Does it mean it's valuable? Probably not. Maybe I sound funny, but just always think, just because it's unique, what's the value to that customer, that segment, that persona? Okay?

Bruce Scheer: Brilliant. No. That totally makes sense, especially if you're talking all about you. How does that translate into value for that client? What's the real meaning behind that if your location's a certain place? What's the value? So what? Just playing that technique, Todd. So what? Where's the real value?

Todd Snelgrove: 100%. So what? Yeah. Whatever. What I wanna talk about is if you're gonna do value quantification, you're in the negotiations. You need to be prepared, which, hopefully, by now, we all agreed to. But the question is, where do I find the numbers? And before this thing called the Internet, it was much tougher, but believe it or not, there's great places. One is company targets. Most companies in their 10 q, their 10 k, their, you know, their core annual report, they'll put numbers in, go in, search the document, and just look for numbers or downtime or these types of things, especially if it's a key account.

Todd Snelgrove: I mean, again, you're not gonna do this for everybody you're talking to, but they will put their targets there. Or funny enough, I love when customers say, I can't share that, and we're walking down a hallway to the meeting room, and on the wall is all these graphs and KPI targets. I'm like, it's right there. Downtime, OE, whatever the targets are, safety, buy this, whatever. Do some research, because companies are much better if you put a number out. They'll say high, low, we changed it. If you go in with the old open ended questions, what's your uptime target, as an example, I'm not telling you that. That's proprietary.

Todd Snelgrove: We hear it's 94%. I wish it was only 94. We're at 96. So do some research, throw a number out. There's a lot of industry websites, and I think here's an example. So this is, believe it or not, there's an industry website for packaging machinery, people that make machinery for the packaging industry, and they wrote a report on the total cost of ownership for the food and beverage industry. There's KPIs all over this. So if I can't get it from the company, I do an industry search, pumps, average life of, I think, Google search.

Todd Snelgrove: What is the average downtime, especially with AI that you can do these days? Ask to walk the process. Believe it or not, some companies love to take you on tours. They have full time people take you on tours. And I hate to say act dumb. How come? What does that do? I got away with it because I wasn't an industry expert, but it's amazing what I'd see. I remember walking a pulp and paper facility, and I didn't realize how many pumps they had. So I asked the gentleman, I said, any idea what your life is on these pumps? And he says, yeah. We get 3 years.

Todd Snelgrove: And between you and me, I knew best practice was 11 years. I just found an opportunity. But again, walking the facility, for some reason, didn't think of pulp and papers having pumps. Unsmart. It was that stuff. When you're doing your research and asking the customer, one customer said, I can't tell you this. Turns out at Google, the customer's name, Reliability, they had written reports that were published at conferences that had detailed numbers in it. So one person said it was proprietary.

Todd Snelgrove: The other person said it's not. This is the idea of what's the average life of the pump, what's best practices with the pump. I mean, again, getting some KPIs by application or whatever you're selling into. And then you can always put a what if number out. You know, it's just one of these things. I don't think we'd live on these, but if I could improve energy by 1%, what would that be worth? I didn't say I will. I know that I have a bunch of solutions that are energy focused. I didn't know this, but I was in South Africa once, and there was a thing in the some paper.

Todd Snelgrove: The percentage of energy consumption by the steel mills was just horrendous, we'll say. So, like, oh my word. If I could change that 1%, that's more of their total spend with me. Didn't say I could do it, but I think we need an audit. I know I've got 20 different offerings that can do this, but I didn't realize the impact. So what if big number, I got some stuff there. Let's have a meeting and really see what we can do.

Bruce Scheer: I love it, what you're seeing there, especially as it relates to being discovery ready. We have another episode on that that I hope everybody will check out because it's really brilliant. And Todd's just really making this real. How do you be discovery ready and all that preparation that needs to go into being negotiation ready? So just absolutely perfect. Love it.

Todd Snelgrove: And and, Bruce, a simple takeaway is if somebody gets industry information, that's great. I mean, I don't need to know each company's numbers. It'd be great if I did, but put a Wiki somewhere. I mean, we don't need another SharePoint, but somewhere where you upload this stuff and then have somebody smart correlate it, clean it out, or something. So you start to build that industry application, your solution knowledge database. So every time somebody's going to a client, they don't need to start from scratch because my guess is your colleague's gonna end up with a similar client. But I'm calling on Coke, not Pepsi, or I'm calling on Miller Brewing. Close enough for me to get some ideas.

Bruce Scheer: Yeah. Absolutely. Building that benchmark database, etcetera. How smart is that to just to help everybody for some of those repeat conversations that need to be having and building that credibility? Perfect. Absolutely, Todd.

Todd Snelgrove: The last point, one of my consulting clients, they hired summer student summer marketing students and a summer engineering student to do it. They listed all the things we're looking for and by industry, and it turns out these kids can go through the interact much better and faster and apply stuff than the manage the smart people who go through and go, that's BS or that's old or we don't agree with that. But I mean, either way, there's ways to do it that's not near as tight as soon as it went.

Bruce Scheer: So. You bet. Makes sense.

Todd Snelgrove: I wanted to just talk quickly about, you know, we're in the negotiation phase, but to make sure that value is part of all the solutions you're bringing to your clientele. Because they're gonna we're in negotiation. They're going to challenge you. You said this solution will save me this much as an example. You better have some meat behind there, not just a bunch of what ifs or I hope it could or, you know, I pray that it will will be. So this is a process called the stage gate process. When people create new products or services, I don't wanna get deep dive here, but at every stage, you should be asking yourself a value question. Okay? So when when the company's thinking through, what am I going to build when, where, why, and how? Now the question is, what could that value be for the customer? And I've got a database because I've been working with tools that say for this industry or for this benefit, energy reduction, it had this much of an impact.

Todd Snelgrove: So I should be building things that have big impact. No impact, quiet. Why would I spend a bunch of money on doing something quiet if the value quantification says there is no customer value? That's a stop. Or it's very niche. Maybe we realize it's a niche product, needs to be priced differently, but I'm amazed at how many companies launch a product, and then you find that there's no customer value that's quantifiable, or the customers are willing to pay for. I would go back and go through the tool and say, I've got data points. Downtime is big in this industry. Does this solution do this? So I can mine what I've done by benefit to figure out the possible or probable range of impact.

Todd Snelgrove: Build a customer what if business case. Not if everybody bought something, we'd sell this much. I love that thing. But if I did something that helped increase production by 1%, what would that be worth? And then start to say, wait a minute. If it's only gonna be worth x to the customer, I know that the cost is much more. I would probably stop. If I can increase Salesforce efficiency by 1%, making a number up, and my target customer's x size, but the solution's gonna cost y, I got a problem. So value better be higher than cost by now, by a magnitude.

Todd Snelgrove: We'll change these, and we can play with margins, but now I'm building something. Add the functionalities that create the most value because the engineers can build something and make it purple or in diamonds or shiny. But if I do this, what will be the incremental value versus incremental cost? Trade off discussions. And then when I'm testing these with customer, get the validation. Here's the existing state. Here's whatever their energy is or lubricant or downtime or whatever that is. I did my thing. What was the change? I'm amazed at how many companies launched products or services with no benchmarks.

Todd Snelgrove: Like, nothing. I mean, and I'm like, you tested this. Why didn't you? No. Well, we didn't think to. Oh, my goodness. I better have a business case that's a sample by some basic examples, you know, a process industry, a discrete industry, a big customer, a small customer with somewhere because then the sales team can go higher or lower, but it looks and feels like I've got something. I've got the value case. I've got the value story.

Todd Snelgrove: I've got the value research versus most companies go through this thing that they throw it to marketing and sales and go, go. And last just taken, I can't remember where this came from, but something like 90% of new products failed, probably because they didn't put the customer's value mindset through anything. I can build it. They will buy it. I wanna build it. It's neat that I can do it. Those are not why I'm gonna buy it, and then not what I'm gonna pay for.

Bruce Scheer: Well, Todd, this is super interesting. I love how you're laying out kind of this product development process and how you should be thinking about what you're building in terms of the value it's delivering, and and does that exceed the cost of building it and making that relevant for that buyer? Through that whole process, getting a benchmark data, looking at test data, which is often missed, where you have an opportunity to prove what that value could be. Well, any other kinda thoughts around this to summarize what you're just talking about?

Todd Snelgrove: The only thing is it's the same process for service creation or software. When I say product, it's because I can't say 3 words all the time or if we run another give it more clarity. But it's maybe it's a small variation, but I've done work with the software world, and I'm amazed. I built it. And the customer goes, That doesn't create that much value for me. That's neat.

Bruce Scheer: Totally makes sense. Excellent. Okay.

Todd Snelgrove: So, yeah, again, just wanted to hit that point that, you know, you get that value knowledge as you're building things so that you have it because you will be challenged during the negotiation. So we talked about where to find some numbers and then also to make sure we got some numbers while you're building things. We're in negotiation. There's a bunch of different negotiation things to think about, but one that I'm amazed at is that companies don't have a list of trade offs. We never haggle. Haggle means when you ask me to do the same thing for less money. I'm gonna negotiate. You don't wanna pay x? Why? I want more share.

Todd Snelgrove: I want better terms. I want a longer agreement. I want a annual price increase. I want a customer video testimonial if it does why. I mean, if you brainstorm with your team of all the possible trade offs, and then maybe even put what is it worth to the company, now you've gotta zing and zang, what's it worth? Because marketing might say, a video testimonial, I make you up a number, is worth $20. Mhmm. So the sales team might not be. I'm making numbers up, but or giving away terms might mean more to you than you think or might mean less.

Todd Snelgrove: I don't know. But there should be a list that's built with all the smart people in the company because everybody will have different value drivers so that you have that there. It's not just price. So I think it's a great exercise just to do on a Friday afternoon meeting with the team. What could we do? And just having that list, one client that I work with had their people be laminated and put on their desk. Because they said, you get into the negotiation. The customer asked, could you just rush ship that? Okay. I won't charge you.

Todd Snelgrove: Yeah. I'm gonna charge you. So throw your trade off list ahead of time and what is it worth to you. And if you're smart, you can figure out what's worth to the customer. You wanna give away things that are worth a lot to them and not much to you. Perfect. Lot. No, man.

Bruce Scheer: It makes sense. Yeah. And getting me out of the 0 sum game where where it's just take, but give to get through all these different mechanisms of trade off. Yeah. That that's really smart.

Todd Snelgrove: One thing from a procurement person, which, again, blew my mind, was we were doing everything based on dollars. And I think after the 1st year, I had a key account person that was managing the deal. I was the commercial person, and I think our sales only went up, like, 4%. So I went, woah. He promised blah blah blah. Get in the plane and go there. He goes, Todd, we're in the middle of a recession. We sell to the automotive industry.

Todd Snelgrove: They're not buying. What we should do is renegotiate this and make it market share. I can control market share. And as I grow, you grow, number 1. Number 2, you kinda told me that the more I buy from you, the the more I spend with you, the less I'll spend. It'll last longer, so, technically, dollars. And I like I said, I could control it. Now we do I know what? Lines is better, better long term.

Todd Snelgrove: It's less cyclical. So imagine the market doubled. You know, he'll hit his target of moving up 10%, but there was a lot more on the table. So again, it was one of those learnings afterwards. I'm like, yeah, market share might be a better way to do it. Okay. Yeah. Makes sense.

Todd Snelgrove: So I use a model to try to figure out where the value is for the customer. You've got it to all. I just wanted to put this out there, and I make sure the procurement and the technical user understands it. It's an evolution of total cost of ownership, but now we're into the real numbers. We don't we've shown them some business cases. Now we're gonna show where it's gonna hit, who's gonna get the benefit, how is it gonna be measured, maybe we'll do we contract on it? So total cost of ownership only looked at helping customers reduce costs. My position is I do a lot of things that help a customer be more profitable. Increasing revenue is not a cost reduction, as an example.

Bruce Scheer: Mhmm.

Todd Snelgrove: So I was sitting with the procurement association, believe it or not, Bruce, at Oxford in the UK. It was Chartered Institute of Procurement and Supply. And I was saying this, and the professor there, professor Choi, said, you're saying that if we follow this method, we'll be more profitable. I would call it total profit added. And I'm like, done. So that's how we came up with the term. And I quickly go through the concept. I'm gonna apply it to somebody that makes and somebody that buys a car.

Todd Snelgrove: Now this can be evolved into any industry. So renewable energies calls it levelized cost of energy. The medical world calls it total cost of care. Take the model, change the words, change the value drivers in each one of these processes with somewhere to start. Okay? So use a car because most people should know what a car is. There's a group of people that design and build cars. Okay? Now those engineers are making design trade offs. They could make that car last for a 1000 years.

Todd Snelgrove: It'd be in diamonds and stainless steel and but the price would be too high. So they're making design trade offs of what do we think customers want? What are they willing to pay? How long do we do want it to last? But there's also things that you as a supplier can help that company do that are not cost reductions. If you could help them get to market earlier than they were going to be or earlier versus a competitor, in some industries that is huge. Now, if you're selling in the high-tech world, those life cycles of, we'll just say a phone is 2 years, if they're waiting on a chip or they're waiting on a packaging or whatever, if you could time to market's everything. Pharmaceutical world, it's a 10 year patent. I've heard stories of people spending a year to 2 years getting the production ramped up. I mean, time to market can be. If you could help them increase their sales, I've added something to your product.

Todd Snelgrove: Your product now will be easier to maintain. Your product will use less water or energy. I could help you differentiate and sell more. It's not a cost reduction or margins. So somebody builds something. Quick story, Bruce. Now we get to this phase called acquisition. I'm gonna go off topic here, but I think it's very important.

Todd Snelgrove: So I had a slide that had these components to it, and I'm in South Africa years ago, and my CEO was in the room. I had met him, but he wouldn't have remembered who I was. And the best thing is he had to listen to 90 minutes of me do my value value quantification to a big distributor customer conference that we were hosting. And he grabbed my boss, who was the president at the time, and said, I need that guy. And Phil goes, of course. So I meet our CEO on the on the cocktail hour. He goes, hey. First thing I want you to do is talk to our chief procurement officer.

Todd Snelgrove: He talks value, says we buy by value. We give rewards to our people based on total cost. There's no way he's gonna model as advanced, is what he said, is what you have on the sales side. And I want if I believe this on my sales side, which I truly do, I should be buying this way. So I sent an email to this gentleman. His name is Bo Inge Stinson, Swedish gentleman, older than I am, been in the business procurement his whole life, very smart guy. I think Volvo and then Sandvik, like, he'd been around. Hey.

Todd Snelgrove: I've been Sweden in a few weeks. I'd like to give an hour with you to talk about value and how you quantify it and choose suppliers and basically go away, go away. And I'm like, hey. Your boss told my boss that we should meet. I'm like, let's just meet and get it over with. Show me our model of what we measure, how we measure it, and then how we make a value decision. So if you put the information back up, Bruce, I asked him and he came back and he said, well, we take what the business wants, and then we look at things like price, inventory, payment, shipping, minimum order quantity, return things, maybe sustainability, but receiving costs, these types of things. And I said, Boeing, good.

Todd Snelgrove: That's great. That's called landed cost, not total cost even. What do you mean? And I said, but, yep. Because once you buy it, you don't use it. He goes, of course not. I you know, I'm procuring on behalf of some function within the business. Here's where the terms will change for everybody that's listening. Somebody buys it, then somebody's gonna use it.

Todd Snelgrove: Use it, we'll say. So someone's gonna install it, operate it, maintain it. Someone's gonna take the car, and they're gonna drive the car, operate the car. Now, here's this will change by everybody here, but work on this list. You know, how much energy? How much water? How much ache? How much lubricant? How long will it last? When it fails, can I repair it? Can I refurbish it, update it, repair it? Can it help me increase my production? That's not a cost reduction. Can it help me increase the quality, tier 1 versus tier 2? You know, we're is it easy to install? Can I get spare parts? I won't say the name there. Some companies think razor blade. They sell you the initial one cheap, but the only way you can get parts for it is from them.

Todd Snelgrove: Oops. I know I'm gonna need replacement. I should think through that. And for some industries and most initial total cost of ownership never looked at is disposal cost. And the only reason why I started looking at this was I was told by lubricant people that the cost to manage and dispose of lubricant is 2 times the price to buy it. What? Todd, you can't just take lubricant and put it in the water and have it wash away. And I'm like, never thought of that. And he goes, oh, yeah.

Todd Snelgrove: You gotta take and clean it, and I won't bore you with it all. Like, so this isn't important in some world. So in some places, disposal now back to the car example. Disposal is called resale value. Okay? So example, not here to pick a car company, but one car company sells a premium car for a $100,000. Another one sells a premium car for $75,000. They both are 4 wheel cars. They both have all the same finishing, different logo on the front, but I mean, that's a a significant price difference.

Todd Snelgrove: You know, we'll skip operation for a second. We get to disposal. The $100,000 car company will if they're smart and they've trained their people to do this, say, in 5 years, I'm making up numbers, this car will only lose half of its value. It'll be worth 50,000. The $75,000 car is going to depreciate much faster. It's designed to look pretty than in 5 years, it's only worth 20,000. I paid less, but just the quick math is I was 55 for the cheaper car depreciation and 50 for the more expensive car. What I'm paying for is the difference.

Todd Snelgrove: Now, of course, you have the interest rates and all these into the calculation, but in certain asset classes, the disposal or the resale value is very important. Some people forget about. Now, in other industries, what if you take away their disposal problem? They don't have to pay to have it disposed of when I sell you the new thing, I take the old one away. Maybe I refurbish it. Maybe I use that as a secondary market. You know, ink cartridges, either way, we don't have time to get any new last point here is operating cost. How much fuel will go back to the car? Miles per gallon. What's the average repair cost? Didn't know this, but I guess the aluminum vehicles, Bruce, that are lighter, the cost to fix them is 2 to 3 times as much as the old steel one.

Todd Snelgrove: Because when aluminum gets bent, you can't stretch it or you have to replace the whole panel. Now you'd have to do a probability analysis. Last thing, hopefully, this is a funny joke. I did this slide. There was a Swedish gentleman in the room. He came up to me. He goes, why didn't you use Volvo as the example? I'd used, Mercedes versus Cadillac, I think. Said, well, it's a story.

Todd Snelgrove: And he goes, you didn't talk about car insurance. And I said, well, isn't car insurance the same? You know, Bruce might pay differently than Todd based on where we live, how many accidents Bruce has had, but all things being equal, Todd buys a sports car that's red. It should be give or take the same. Like, it's not worth getting into that detail. He goes, no. A Volvo whatever car is much cheaper to insure than whatever car. And I said, no way. Mhmm.

Todd Snelgrove: All years you've been talking about safety, it must mean that if I'm in a Volvo car and I get into an accident, I don't get as hurt or less death or something. He he goes, nope. That's not why. And he said, well, why? And he looked to me, and I love Swedish people, but he looked at me with a very straight face. He was, nobody steals Volvo cars. He started laughing. I mean, is that a good thing or a bad thing? But I think when I traveled the world, it was Cadillacs you saw everywhere, not Volvos. It turns out there's a chip in the key that actually matches the gearbox and it won't work.

Todd Snelgrove: You can't hot wire. But I'm like, I never thought of insurance and maybe you should point that out, lowest cost to operate, because it would make me then think. Sorry for all the stories there, Bruce, but hopefully put some clarity on the map there.

Bruce Scheer: Oh, absolutely. No. No. I love the stories, love the car analogy, and just how you're pushing into all these different dimensions of cost, cost drivers, and and how to minimize those. And then also the revenue enhancing drivers and how to promote those as it relates to value in that customer's eyes as part of our topic, getting negotiation ready. So really framing that up in such detail, just not going with normal assumptions, but even like you talked about with insurance, you know, how that was a completely different perspective that your client was sharing with you and enabling you to frame value to be negotiation ready. So that's really powerful stuff.

Todd Snelgrove: Right. I mean, it's just I find it, funny how many people don't do this. And the the last point is if your customer says I buy best value, I buy a total cost of ownership, I would follow-up. Let's sit down. You show me what you measure. I'll show you mine. And that's back to my CEO. We measure 7 or 8 things. You say we can affect 400? The same term might mean different things to different people. Usually, when I go through this, they go, wow. We don't know how to measure that, or we wanted to or how would you? I mean, it'll open up a different discussion in general. Oh my gosh.

Bruce Scheer: Yeah. Yeah. Beautiful. And then and, again, and taking all that pressure off the negotiation where you're really mutually creating value together. Beautiful.

Todd Snelgrove: Yeah. We're focusing on that, not a discount or something. So

Bruce Scheer: Yeah. Absolutely.

Todd Snelgrove: What's interesting is, turns out, I like to use the statistics. Usually, I frame it this way, and then I get into some statistics that through the biggest cost is not that acquisition phase. The biggest cost is in use space.

Bruce Scheer: Mhmm.

Todd Snelgrove: So it's like, why are we arguing over the price to buy 5% less when a lot of the cost will happen when you're using it? And as my old chief procurement, he assumed the cost was the same. It's not. Just because they look the same and smell the same, how they operate are completely different, and it might not be the product or service. It's how we implement it. And

Bruce Scheer: I love it because I I know on acquisition costs and, Todd, with your history at SKF, you guys were like at a it was at a 1.5 multiple over the next best alternative very often. And if you're competing on acquisition costs, that's a hard sell. But when you're looking at the whole life cycle of assets and how your component promotes that and elongates that, and then all the other things around maintenance costs, etcetera, oh my gosh. You're projecting a completely different value picture, but, of course, that buyer needs to see that. It needs to be value in their eyes, not just yours. But that's a beautiful way to set the stage for you. Again, back to taking the pressure off that 0 sum game negotiation and mutually creating value and and broadening perspective about what you know, where that value lies.

Todd Snelgrove: Last point as we move to the next statistics number is a lot of times here, the procurement personnel say, I don't know those numbers. You need to go talk to them. That's what I wanted to do. I couldn't get to the head of department of sustainability, which, like, know the energy calculations. I wouldn't now I've got procurement pushing into the business versus I'm being the gatekeeper, but I had to have a number. I had to have a reference. They could either accept that or say, no. You need to go.

Todd Snelgrove: I didn't want them going to try to find it. I'll do it. I know what how to ask the questions. I'll go talk to them. Give me the names of who you think are in these areas. You gotta go talk to the head of maintenance. They know those things. That's what I wanted to. So they became an ally working together versus across the table.

Bruce Scheer: Brilliant.

Todd Snelgrove: You know? The negotiation, they sitting side by side versus across negotiating. And how would you measure this? Or have you thought of this? We've talked about it. We don't know how to do it. I've done some research. I can help you. And so you see that the big numbers are usually in in in the operating phase. And if you do the research, you'll be able to find numerous statistics. We don't have time to go through all of them.

Todd Snelgrove: I'm gonna use one set of examples here because I come from the b2b world. So this is Accenture's look at total life cycle costs, on different assets. So we can look at 4 different types of assets. Say you were to go buy a new airplane, a Boeing or Airbus, only 8% of its cost is the initial price. 92% is during the use of it. Financing, depreciation, fuel, maintenance, labor on the plane, these types of things. A class 8 truck, which is an 18 wheeler, it's 11%. 80, 90% is when you use it.

Todd Snelgrove: Industrial equipment, gearboxes, fans, blowers, pumps, it's 12%. So I used to say to customers, okay. And I know it's tough listening to this. Maybe grab a piece of paper, come back and listen to this when you got some paper. But I'd say, you wanna know what? I could make your product 10% more expensive, which is a big deal. Somebody's selling a $10,000 piece of equipment. I'm gonna make an 11,000 by changing a component. Like, components are only a small part, but I will help your customer reduce their operating cost by 2%.

Todd Snelgrove: And I remember the first person that I said this to, he looked and said, I don't know what math they teach you in Canada, but why would I ever actually, it was my chief procurement officer. He was, why would I ever pay 10% more to get 2% less? And I said, you need to look at the denominator. What do you mean? A 10% increase of 12% is 1.2. A 2% change of 88% is 1.76. Trust me, when you got a piece of paper, you do 2% of a bigger number is more impactful than 10% of a smaller number.

Bruce Scheer: Okay.

Todd Snelgrove: Wow. In turn, though, it's 45% more impactful. We're looking, it's called reframing, but we're relooking at it. And just the last example for anybody who remembers having a home printer that work from home, should you look at the price of the printer, the price of the ink cartridge, or the price of paper? I would suggest you look at the average price per page printed because most companies would say, Bruce's printer's 400, Todd's printer's 300. The $300 one's good enough. Then somebody would be smart and say, woah. Bruce's ink is cheaper than Todd's ink. Bruce's is 40, and Todd's 50.

Todd Snelgrove: You wanna know what? The price of ink doesn't matter how many pages can I print, and then I have to make an assumption that the printer's gonna be for 3 years? You could do some algorithms here. Kodak's got a great little calculator trying to reframe the number from it's not the printer. It's not the ink. What you're buying is pages printed, and he picked these 3 scenarios that actually were cheaper. It sold me. I mean, that's what I'm really looking at. You know?

Bruce Scheer: Yeah. Absolutely. Or, gosh. I loved this book, Todd. I don't know if you've seen it. It's in a book called the Challenger Customer, this Xerox example of color printing. So they were able to get the average price for printed page to about the same with color ink versus black and white ink. But the upside, they started focusing on school districts and showing them how they get the test scores higher across the district if they move to color versus black and white because color is more effective in driving memory retention and learning, and you can get the higher test scores.

Bruce Scheer: If you do that, you get more grants, more money, you get more funding to drive the school district. So they really took it into your whole concept of total profit added. It's not all about cost to your people driving the upside as well.

Todd Snelgrove: Great book. I love the customer one the most because it's Me

Bruce Scheer: too. Yeah.

Todd Snelgrove: The one with preparation. What did you need to do? But now we're talking how am I with that customer really having these conversations. Yeah. Yeah. Now I wanna get into a few quick pricing things that you're gonna come into during negotiation, and, hopefully, these are some simple simple, easy to use takeaways. So the first is something called ZOPA, zone of possible agreement. So the customer has a perceived value of you versus the next best alternative, but the perceived value, let's just say, I perceive this to be a $100, and you have a marginal cost. Your marginal cost is $20.

Todd Snelgrove: So you have this $80 range here, and where the negotiation lands in there is all based on power in general. So if the customer is very powerful, lots of competitors lack of differentiation, They're huge. You need them more than they need you. They will use all the power strategies to drive you close to marginal cost. This is the automotive mindset. Sell it to me at marginal cost. Make it up somewhere else. You need me like me.

Todd Snelgrove: Okay? Mhmm. You have markets where it's split. You need me, I need you, you know, for whatever reasons. And then there are markets of powerful sellers. We're differentiated enough. You have access to something. You have capacity. These are all zero sum gates. What value is solely about is saying, you know, we need to change where the discussion is. You perceive the value to be a 100. I just showed you the math. I'm worth a 150. Now when I hire number, what the customer is looking for is what's called value surplus. I perceive it to be a 150. I pay a 100. I get $50 extra.

Todd Snelgrove: They will never pay more than their perceived value. If I perceive this bottle of water to be $10, the most I would ever pay is $10. That's the most. I mean, I would never pay 12. The most I perceive it to be, and that the power would change. When do we need the water? How badly do we need the water? But our job is to perceive the value to be this, you didn't realize there's much more. I think this your odds example, we're not buying pages. We're not buying copier versus copier.

Todd Snelgrove: We're talking student score. We're talking grants. We're talking profitability. I'm reframing that to a much bigger value. So first three example, we're 0 sum game, who's got power negotiations. My job is to reframe that, and there's much more value here than you realized. Let's put it in a different way. Perfect.

Bruce Scheer: Yeah. That value sharing. Yep.

Todd Snelgrove: So we wanna show the increased economic value of the customer versus the other option is these people that say, I'm just gonna be a volume junkie and make it up somewhere. We don't have time, but everybody that's done that's gone bankrupt. And so there's one choice here. Accept that the customer's gonna hammer you, and it's a low margin business, and we don't need salespeople. It's just they're gonna switch to the lowest price person or say, I create value. This is what that value is. This is what it's worth to you, and I'm gonna charge you for that. Not the easiest, but it's possible, and it's the only lifestyle that makes sense.

Todd Snelgrove: Something I find that happens in negotiations a lot, maybe it's only my personal example, is my colleagues would wanna give the customers as many choices as possible. And I hate to say, maybe it's the American idea that the customer can have their shoes in purple or green and this or that or whatever. So there's actually a study done. I believe it was in Sweden. Doesn't matter. It's called the JAM study. And just think of well, just assume a lot of people are North America. When you're going to a specialty retailer, we'll say Whole Foods as an example, people are drawn to a lot of choice.

Todd Snelgrove: The JAM, it's raspberry, strawberry, caramel, purple, whatever. Then they mix them and there's different sizes. People were very drawn to it, but most people don't buy. There's too many choices. It confuses me. I could choose the wrong one. I don't know. Too much risk.

Todd Snelgrove: So the research says, give choice, but not too many choices. So, and we'll talk next about how do you price those choices, but limit choices is the best, and never give 2 choices. If you give 2 choices, which I see a lot of companies do, well, they'll say the gold package and the basic package. It's called the shed lot study. You have to buy a lot for your shed at home. You go to, we'll just say, Home Depot, and there's a $20 one, and there's a $10 one. Subconsciously, assume they're both the rotary dial ones, like, they're not different. Do I really need a $20 one? What's really a value in there? Nobody's broke I mean, 70 to 85% of people will justify the lowest price one is good enough when giving 2 options.

Bruce Scheer: Mhmm.

Todd Snelgrove: So be careful. And a lot of companies, like, well, you know, I'll have my premium version. I'll have a low price version. So give choice, never give 2 choices. There's a lot of research around this. I'm just giving you one example. There's something though called the compromise effect, where the go ahead. Xerox.

Todd Snelgrove: Here we go. They've got 2 printers that have different functionality. So back to the lock, one's rotary and one's with those finger ones. I mean, similar but different, and the specifications are very close. I won't bore you with that. One prints 40 pages a minute, one prints 44. One does something by this versus this. The example and that was used in a business case is that the basic one, we'll call it, was 10,000.

Todd Snelgrove: The more advanced one was 12,800, 28% more. 90% of businesses said the low price one's good enough. How often do I need to print, whatever, 50 pages or whatever, 45 pages a minute versus 40? The value differential is not worth the value price here in their minds. Again, Xerox got out of this by changing the whole value discussion. In this case, 2 options people would revert. What Xerox did was create a higher end option. It prints even a little bit faster, and I think it'd have one more function, And they priced it at 17,500. 80% of the people now took the middle one.

Todd Snelgrove: Three options is the choice. Never 2. And you position the one you want them to buy by moving the price around. So either you push the high one way up, then the middle one becomes normal, or you do the popcorn example where you take the middle one and you price it close to the large one. So if anybody's been to the movie theaters, there's the $3 popcorn and the $7 one. $3 is enough. We'd never eat the whole one. Kids were going for dinner afterwards.

Todd Snelgrove: They create a $6.50 middle one. Nobody's ever bought the $6.50 one because for 50¢ more, look how much more I get. You've anchored on something else. So I know these are b to c things, but you're seeing this on Xerox, the Wall Street Journal's done it, Apple does it. But I think the consumer examples of what I'm trying to do is because we've all done it ourselves. So give choice, Don't give too many choices. 3 is

Bruce Scheer: the optimal number. I am curious a little bit on this. You're talking now a little bit about probably human psychology and where you're moving out of rational land and probably into irrational land. And I'm just curious, Todd, with your experience because you've been making really strong rational cases here so far, doing the math, doing the numbers, identifying areas of value, proving that, getting your benchmark research done to make sure there's evidence there so the customer can believe in that, all that rationality. Now you switch track and get into kind of a realm of irrationality. How does that play out? What's your observation there?

Todd Snelgrove: Great question. So 2 things. 1 is something called behavioral economics. It's actually taught. And long story short, I was sitting in a MBA, executive MBA class, and the professor said, I've been talking about B2C pricing. And I said, does it apply to me? And got on the computer. I think it was at the 3rd slide, and here we go, oh, and I won't say the word. I'm like, we do everything wrong.

Todd Snelgrove: We confuse our customers. My colleagues would give customers 47 tab options. The other thing I forgot to say is what customers will start to do is unbundle you. If option d is x and option a was y, and the only difference is these, I can reverse figure out your cost. So that it also goes to a committee. I've got 7 people or whatever the numbers on a committee. Now I've given them 40 choices. You'll never get an answer.

Todd Snelgrove: Right? There's 3. I can give an answer. And then again, as I said, there's a bunch of business examples, but again, this is Xerox. Xerox isn't selling to mom and pop. These are the examples of $10,000 things not home for taking the apple, could be individual. It's funny enough how behavioral psychology exists with all of us. And back to the last episode, which hopefully everybody's listened to, remember the Aristotle three elements, the logic, but there isn't an emotional thing happening there. Again, maybe it's just Todd.

Todd Snelgrove: Well, for that much, a little bit more, look how much more I get. Or the other way around, I don't need that. The middle one's good enough. So

Bruce Scheer: That's interesting that you highlight that. Yeah. I've been reading a book, Todd, called the truth behind pricing, and, interestingly, the author helped me set price for National Speakers Association where I was president last year, and I was considering setting a new price. But we had to really look at the behavioral aspects of all this and how many members were we gonna lose by making a change versus can we do a better job of showcasing the value behind the price that we had. We chose the latter, But, again, we really went into the area of behavioral psychology more than the rational dollars and cents. And it's interesting to hear you say that, hey. That people are human. Humans buy from humans, and this tree's all the way up to mega b to b buying decisions.

Bruce Scheer: So very interesting.

Todd Snelgrove: But even in the b to b world, I could have the most expensive version, unlimited services, 24 hour turnaround time, tree repair. I would get very excited about it, but in this case, the middle one's good enough. Right? So I could use services around the product to make these bundles. Mhmm. If it's the exact same product, that one you pay for every call, that's 7 day turnaround time. It's a pass fail 1 year warranty. The one on the right cost more, but it's unlimited days that I paid. Again, you can use services around the product to differentiate them even if it's the same product.

Todd Snelgrove: That's why I see a lot of b to b companies doing SLA or service level agreements as being the terms. Excellent. So one thing that I did a 100 years ago was create a value agreement. It's not near as complicated as it sounds. We can't get into all the details here, but yes, I'm higher price. I am not discounting. I create value. That's my short speech.

Todd Snelgrove: And what I'm gonna do, I'm gonna guarantee that value. If I don't deliver that value, I will write you a check. What's the downside? And, well, in the next episode, I'll maybe add some more color on this, but we'll just use 10% because it's a number everybody can understand. But a 10% value agreement every year is worth more than a 10% price cut over 5 years. It's actually worth 3 times as much. 1, it compounds. 2, it's something you've learned. Once you save 10% energy, you keep saving 10% energy.

Todd Snelgrove: Once you reduce your inventory, whatever that's worth, you keep saving it. We don't have the math, so I had a tool because back in 20 something years ago, there was no tools to use. Spent way too much time and money building a tool, but build 1. And back to the 3 options, we had an option, which was the full service Monty. Think of the outsource deal. Pay me less than you're paying now, but you're gonna pay me all these performance kickers. Okay? I'm gonna come in and take over your IT as an example. What was your average cost to run it? I'll do it for less, but when I hit these KPIs, you pay me more.

Todd Snelgrove: Customers loved it. Nobody bought it. It's a great way to get you excited. Very few. I wouldn't say nobody, but very few. It's, k. You're a supplier. Now you wanna take over my paper mills, my steel mills.

Todd Snelgrove: You're only a component. I make paper. What do you know? But if the customer was hammering me price, price, price, I guarantee you a cost savings tomorrow. What are your 10 KPIs? Pay me a little bit less, but when I exceed those, you're gonna pay me and it between us, it's gonna hurt. It's a way to rediscuss the argument with customers. They're like, woah. Full modality, the right side of that three options. You're still getting the bearings, but now there's people involved, and now there's a performance metric.

Todd Snelgrove: We had this tool to measure no matter where we were. What I ended up doing was creating a more simple agreement. This is probably 5 pages that we had to add appendix to. Says, look it, I'm gonna guarantee you 10%, okay? And if I don't, I'll write you a check. I signed over 200 of these with Fortune 1,000 companies. Coke, Pepsi, let me I won't go through any paper mills, steel mills, OEM. They were happy to see me put my money where my mouth was, but we had to agree on what is value. They might say, not that this is right.

Todd Snelgrove: I don't care about labor. It's a fixed cost. I'm a union facility. You can't affect it. So and I'm not gonna save labor. Well, wait a minute. I couldn't like it. So by saying I won't do something, I got them to really figure out what value was. We talked about deal stupidity type thing. I I mean, we'll get to that. We have to agree on how we're gonna quantify these things. Energy is kilowatts type, whatever that formula is. Inventory reduction is whatever. I also agree to what numbers we will use. $25 per hour, I'm making numbers up for a maintenance person. There was one client in Europe.

Todd Snelgrove: Well, it depends on the level of the technician. It depends on which no. This is not a cost accounting down to the 3rd decimal point, because I don't know Bob, Pushy, or Joe. I don't know if it was this or that, but we're gonna choose $25. Close enough is close enough. Believe it or not, I figured out energy cost is very confusing. There's load charges and up charges and time of day charges. When they get the value, who signs off on it? If I exceed the value, what do I get? And then the stages of the case that it'll go through.

Todd Snelgrove: So 200 of these were signed. We never wrote a check. And just think of the impact. First deal ever signed without that contract was a $8,000,000 a year customer. It was a 5 year contract, so that's $40,000,000,000 under the agreement. The Kica person was given 10% to start with. That's $4,000,000 of cash. I had a full time job the next day.

Todd Snelgrove: That's all you do. So I'm not saying I'm that's good, but it's not as complicated as it sounds. I can prove to customers values better than price. It's hard value, but I have to agree on what is value. We're not gonna do this, so then you tell me afterwards, I don't care about energy. Turns out customers, once they get it, they say they don't care or it's not as valuable. So what is it, and how do we measure it? And I think this is a great quote from my old CEO. How many different creative ways does my sales team have to discount? We're professionals at this.

Todd Snelgrove: It's Tuesday. It's a new customer. It's a big order. End of the quarter, they promised me. I've got lots, will they say that? I don't have one way to guarantee value. If I deliver it now some customers might say, to engage, but if you're willing to put some guarantees on this, you must believe it. And again, you highly guarantee it was the whole proposal and the process and how it worked, but it wasn't just this. So not as hard as it sounds.

Todd Snelgrove: Once you know your value, once you can quantify it in a tool that's structured, you can start looking at these things. And again, any discount comes off the bottom line. It's not under the gross margin. Okay? So if you're publicly traded, 5% when you're 10% net is half. It's worth every point is worth everything.

Bruce Scheer: I love your points here, Todd. It's brilliant. And then also just turning back to the behavioral psychology, you're talking about, hey. You're more credible, more believable if you are offering that guarantee, meaning that you're sharing risk with them, hopefully, sharing some upside as well there, Todd, instead of giving the the discount away. You're you're you're getting more upside for for the other organization you're representing as a valued professional, and everybody wins in that regard. And, again, that believability, I love what you're seeing there. That's a credibility moment of truth, that client can have a little bit more comfort knowing that you believe you're gonna achieve that value for them, and you're gonna put some risk there.

Todd Snelgrove: And there was rewards, and some companies would say, well, if you do what you say you're gonna do, it'll end up paying you twice as much. Well, I know we'll just buy normally from you without the discount. Yeah. Yeah. This type thing. And the last point I wanna make is because I was the 1st company in the industry to do this, I got to set the rules. Yeah. It It's kinda become the norm, but it kinda follows the process.

Todd Snelgrove: So every industry's got competitors, spend some time, it's not near as risky. If you can discount, you can play with their money and not discount. Mhmm. Mhmm. I was gonna give them a 10%. Now I'm not, and then on the hook for 10%. If I don't hit anything, I've got nothing to lose. And even if customers could figure that out, I'd have to prove to them that my value is better, and I gave them no value.

Todd Snelgrove: So I said, I'm going to use a closing quote. This gentleman's from Australia, very well known in the key account world, and Steven Kozicki passed away a few years ago, but he was really into negotiations. And we did a session together, and he says, if you can't create and demonstrate, document, and quantify your value proposition, you will die in 5 years, Or prepare to live the life of being a commodity company selling on price. And anybody that knows anybody in that, that's not fun. You won't make any money. You won't have any fun. They will leave you at the dying because somebody's cheaper, and it's a race to the bottom. So I'm not saying it's a snap of the finger.

Todd Snelgrove: It's easy. Get some focus. Get some commitment from the team. Put a plan in place to do something. You've heard 9 episodes now. The tools are there. The training is there. The techniques are there. There's companies that do it. It's possible. You just gotta make the commitment that this is the number one priority in the business.

Bruce Scheer: Excellent. Well, Todd, this has been a fantastic episode. I'd just like to mention for everybody, Todd's featured on some other episodes here all around driving execution. Again, you can listen to the approval ready episode, and I hope you enjoy that. You can also watch it as well. And then what we've just concluded is negotiation ready ready episode, and then I'm excited for Todd and I to get together again where we're gonna be talking about being impact ready. So thanks so much, Todd, for this episode. Great, great content.

Bruce Scheer: Thanks, Bruce. Good seeing you. Thanks for tuning into this episode of the ValuePros Show. We've covered a lot of ground on being negotiation ready from quantifying total cost of ownership to being creative in your pricing strategies. If you found this valuable, be sure to check out our other episodes on being value ready, and don't forget to subscribe to the ValuePros Show on YouTube and your favorite podcast platform to stay updated on the latest value based selling and negotiation strategies. Until next time, this is Bruce Scheer reminding you to always lead with value.