Antiquated Negotiation Methodology – Do You Really Want to Hurt Your Business?
In response to MarvelousJazz (on Twitter):
@WorldNegotiator Can you elaborate on what “antiquated negotiation methodology” you are referring to&how is it possibly hurting my company?
I was referring to the ‘old school’ paradigm exemplified by Chester Karrass who pioneered the professional training of negotiators in the USA during the 1970s, based upon his 1968 PhD thesis.
Other theorists in the field of negotiation research have defined this as the ‘ploys & tactics’ or ‘streetwise’ approach. Karrass and his research work was a product of the 1960s, which was completed before Armstrong landed on the Moon.
Owing to the nature of how the ploys & tactics approach to negotiation works there enough deficiencies for me to write a book about – and I am doing, but here I will leave a singular example which is one of the most damaging of all:
Customer Loyalty
In today’s competitive environment companies are continually seeking ways to build customer loyalty. Enlightened businesses understand that it can cost five to ten times as much to gain a new customer than to keep a customer they already have.
Imagine a leaky bucket.
As a company loses customers from the holes in the bottom of the bucket, expensive-to-attract new customers must continually be added, topping-up the leaky bucket.
If the enterprise can even partially stop the leak, the bucket remains fuller.
Increasing the number of customers you can keep, even by a very small margin can double profits! It does not matter what business you are in either, the potential to increase your returns can be substantial.
Research by Bain & Company (Reichheld, The Loyalty Effect 2008) examines a wide range of different industries including insurance, banking, logistics management, advertising, real estate services, and computer software companies.
They discovered the impact of a five percentage point increase in customer retention rate translated into a 35% to 95% increase in customer net present value. In fact, most of these gains were in the 75% to 95% range.
For example, if a credit card company could keep an extra 5% of its customers per annum (taking its customer retention rate from 90% to 95%) then the lifetime total profits from an average customer will typically rise by 75%.
Reichheld takes this further and compares two businesses, one with a customer retention rate of 90%, and the other with a rate of 95%. The leak in the first company’s bucket is 10%, double that of the second firm’s leak of 5%. If both firms were to add new customers at the rate of 10% per year, the first business will have no net growth in customer numbers at all, whereas the second firm will achieve 5% net growth per year. A compound rate of 5% growth over fourteen years is enough to double the size of the second business; while the first business will show no real growth at all over the same period. All other things equal, increasing customer retention by 10% would be enough to double any company’s size in only seven years.
Further analysis of the relationship between customer retention and productivity is discussed in Reichheld’s book, and also their impact on profitability. All the numbers and results are from real enterprises, and their figures are very impressive!
What is worth bearing in mind when considering the above, is what sort of negotiation training and methodology a company is employing.
Are your sales people and customer service staff being schooled in distributive (ploys & tactics driven) ways of negotiating with customers – and might they be poking more holes in the bottom of their bucket?
This is just one of the disadvantages of the ‘old school’ populist paradigm, yet you’ll find numerous books and proponents still pushing this misguided & flawed approach.
world negotiator 