We assisted a client who provided outsourced back-office and information management services.  Senior Account Representatives worked with the client’s 40 largest customers on a daily basis, providing advice, a liaison to internal client technical groups, and selling new services as well as working hard to build up trust with their customer. These same Account Representatives were also responsible for negotiating renewals of the contracts.  These negotiations were often damaging to the relationship with the customer.

The product pricing authority for a variety of electronic products also created internal conflicts.  Product managers, compensated based on their own P&L’s had little incentive to be flexible on the price of their product in order to develop a better deal for the client or its customer.  A product manager might veto the Account Representative’s proposal to reduce the price for a product on which the customer was price-sensitive in return for increasing it on other products the customer really valued.

This led the customer and client to miss a jointly beneficial trade.  At times, product managers who learned that the customer valued their products highly might then push to raise prices.  After a sequence of such interchanges, the customer’s trust in the Account Representative would be damaged, jeopardizing post-negotiation support and future sales opportunities. In addition, because the customer now perceived that the Account Representative lacked authority to make sensible trades, the customer might seek concessions by bypassing the Account Representative to talk with a senior executive.

We worked with the client to create a smaller team that would be responsible for the contract renewals of the 40 largest clients.  Rather than conduct one renegotiation every two to four years, these negotiators would develop much more experience in such negotiations across customers.  We established compensation programs for the negotiators that rewarded profitability, not just revenue and provided discretion to make tradeoffs in the pricing of various products.

In addition, we worked with human resources and the relevant senior executives to alter the compensation packages of the Product Managers such that they benefited from making tradeoffs that were in the firm’s overall interests.  Account Representatives would still participate in the negotiations but would focus on building and maintaining the customer relationship.

Based upon our understanding of these issues, we developed a customized program for these new negotiators and the other Account Representatives.  Beyond basic negotiation topics, we used client-specific information to focus training on using various kinds of customer-client differences to maximize the value of agreements.  We also developed a customized negotiation exercise based upon a client-customer negotiation that focused on better coordinating client negotiations with internal negotiations.