B2B Digital Negotiations - Driving higher customer engagement in ecommerce channels

We’ve seen a significant change in how businesses engage with customers throughout their sales cycle recently. In response to the COVID-19 pandemic, most B2B companies accelerated their efforts to digitise customer journeys, shifted meetings to video conferences, and started exploring self-service platforms to execute sales. In many ways, this change was inevitable, had been foreseen, and widely debated. There was, however, no catalyst for change, until now that is. 

Organisations had previously been slow to adapt, unsure whether customers would accept the new reality, and fearful that internal teams (especially in sales) would rebel against the changes. Online sales and e-commerce have become increasingly critical channels for companies in almost all industries during periods of lockdown.

As a result, businesses have been able to decrease their cost of sales and are well-positioned to capture more data points around the transaction. Insights gained from this data will ultimately offer organisations that ability to fine-tune their offers, their pricing and optimise margins.

While traditional face-to-face meetings might return to normal at some point in the future, virtual and online sales now has a foot in the door as the new standard. Digital sales will, however, need improvement. Despite the rapid digital transformation, B2B e-commerce often fails to deliver a better customer experience than traditional channels. Insufficient product descriptions, lack of transparency into product availability, and slow response times are among the most cited reasons for reluctance to purchase online.[1] 

Additionally, most e-commerce sites do not allow for the same quality of engagement as a phone call to a sales rep. Buyers cannot cite a competing offer or try to negotiate commercial terms to achieve a better deal. E-commerce sites often act as an order entry system, rather than solutions that aim to make the buyer’s job easier. The overall experience is less personalised than it will need to be.

Nevertheless, the current shift to virtual sales creates a massive opportunity to delight B2B buyers and generate higher engagement.

Negotiations represent the last mile of pricing and sales activities, a dialogue where parties align their interests. When discussing commercial terms, sales take into account more business context, offer alternatives, explore deal urgency and review other value drivers. The interaction with the customer provides sales with a chance to collect competitor information and deliver trade-offs for better pricing. For the buyer, negotiation creates a sense of balance of power during the customer journey.

Reimagining negotiations goes beyond simply modernising the digital selling process. Self-service solutions enable customers to control their journeys and allow sellers to capture more data points. A recent McKinsey study cites a potential gain of 1-5% market share for B2B companies when digitising customer journeys and creating new ways to engage.[2] Another study from A.T. Kearney suggested that companies delivering a better and more engaging customer experience through their online platforms outperform their peers twice in terms of sales growth.[3]

The challenge for B2B e-commerce platforms and marketplaces is to improve the customer experience without adding complexity to the purchasing process. Modern solutions need to deliver relevant product information, as well as contextual and personalised pricing to the customer. Additionally, incorporating the last price paid into the offer is a standard expectation from B2B buyers in most industries.

Beyond providing proper pricing based on customer segmentation and transaction history, many customers may need to negotiate further for a better deal. With technology and architectural advancement in digital sales platforms, there are multiple ways to enable digital negotiations successfully.

Tactical Delivery Creates Higher Engagement in Self-Service

Digital negotiations add a controlled dialogue to the virtual selling process and allow organisations to offer a win-win environment to their customers. Buyers have a chance to use the e-commerce platform to control spending, while sales remain in control of the process and can manage the potential trade-offs.

Imagine the following situation: A B2B buyer logs in to a dedicated e-commerce website. They immediately have access to an up-to-date product catalogue with prices that reflect who they are as a customer (based upon your segmentation). Having identified the items they need; they want to see a better price offered on an article where they have a competitive offer: “instead of 120 EUR per piece, they want to pay a 110 EUR unit price.” The platform allows the customer to enter their price request. As a response, the system suggests an increase in the number of items the customer is required to purchase to get their target price: “buying 2000 units more will support the price that is requested.” The buyer decides to allocate more volume and automatically receives improved pricing. If the proposal is not accepted, the system escalates the deal to a sales rep.

5 Steps of Digital Negotiation

Designing a negotiation workflow includes five key steps (see Figure 1) – all with several design aspects on how to engage, negotiate, and make informed decisions throughout the process. Defining the negotiation process also helps to build an early business case with identifying key value components driving scope, impact, and adoption across customers and the sales team.

Figure 1 – Design framework for digital negotiation workflows

1.     Preparation

Identifying the scope of business that is fit for automation will require analysis of sales and customer behaviour. Customer profitability and growth potential are usually key qualifying factors for allowing any concessions. A purchasing behaviour-based segmentation (e.g. volume buyers vs deal optimisers) will drive the opportunity to pursue different objectives across the customer base such as revenue growth vs margin optimisation. Typically, smaller sized transactions are good candidates for digitally-enabled negotiation strategies, as large deals require special attention.

Equally, not all products should be subject to negotiation. Profitability, rotation, and inventory levels are required inputs to evaluate the items eligible for negotiations. Identify products with higher profitability and sensitivity of volume for price negotiations; select fast movers for bonus bargaining. The goal is to ensure alignment with business strategy and customer interest. For example, distributors could select item categories that could drive higher volumes and provide a chance to optimise supplier side bonuses.

A good starting point to define scope is to interview sales reps and review quoting history against transaction data. Your businesses experience should tell you which products or commercial terms customers care about the most. Select the ones that your sales reps negotiated successfully in the past and proved the existence of clear trade-offs.

2.     Initiation

Consider who should make the first suggestion for a counterproposal. The customer could suggest a preferred price level first; alternatively, the system could proactively provide information about the price at the next volume threshold. Since customers often use previously negotiated prices as an anchor, it is vital to present the negotiation as a trade-off: the seller supports a lower price if a higher volume is purchased. Clearly communicated conditions will prevent margin erosion when quoting different quantities.

A proactive guidance method helps the seller to control the process while still allowing the buyer to bargain for concessions. Providing upfront negotiation options supports decision automation but requires proof that the customer is interested in negotiating the proposed commercial terms. With business-user friendly systems, it is relatively easy to test customer reactions to proposals. Reactive approaches allow for more flexible engagement with the buyer but may lengthen the time to close the agreement.

3.     Bargaining

Offering customers the chance to negotiate allows for differentiated bargaining strategies. It is often possible to systemise a portion of the commercial negotiation, while some discussions will still require sales rep involvement.

Those enabled by an e-commerce platform can be as simple as a price-quantity trade-off based on volume thresholds or balancing break-even on discounted items. The system could also offer other commercial terms (e.g. payment options) or trade-off types (e.g. delivery dates) based on segmentation to make the deal more attractive (see Figure 2). The latter can be critical in project deals, where volume is not a matter for negotiation.

Figure 2 – Example set of bargaining components (trade-offs)

Overall, clear decision rules provide more control over the profitability of the negotiated deal. Defining commercial policies help to simulate the impact and create business scenarios. Minimum margin levels and additional approval requirements protect from profit leakages.

Next to trade-offs, businesses looking to encode predefined policies should consider guided self-service options which help the buyers to reduce their overall costs. A virtual assistant can guide the buyer towards a better deal by proposing product alternatives, different freight options or alternative payment terms. A checklist or a simple workflow presented during the quoting process will help to optimise the transaction.

More personalised trade-offs, based on segmentation, and dynamic negotiation workflows (i.e. offers dependent on previous choices in the deal negotiation cycle) should aim to deliver context-specific offers to the buyer.

4.     Closing

Proposals and counters that require manual approval take a longer time to close. At times of high sales-activity, requests could end up queued in a sales rep’s mailbox. Identifying thresholds for automated approvals or providing self-service guidance options reduce the number of deals that require human attention. A predefined decision-routing mechanism will help to determine which transactions are good candidates for decision automation. Outliers, especially from high-value customers, will always need the human touch.

Facilitating manual approvals through a workflow triggered by the e-commerce system will help to capture decision rationale and avoid conflict with the sales team in the deployment of this new technology.

The decision process influences execution efficiency. Thus, digital negotiations should aim to empower sales reps to respond to approval requests quickly. Some companies use a matrix type of approach, elevating the approval decision in the sales hierarchy based on margin impact and customer size. For example, small impact deals usually do not need the attention of more senior sales executives, even if the request comes from a large customer.

A digital negotiation system should have a routing component built into their decision automation process. Additionally, identifying the right decision-makers who possess the relevant information and authority is critical. The system should route requested approval for non-standard discounts or different concessions to the appropriate sales rep with the option to approve, reject, counter the proposal.

Mistakes companies often make to deliver the approval to officials who do not add value to the process. Revising the number of approvers and keeping only the relevant ones will improve the decision-making algorithm. The key is to design an approval flow that delivers the right context to the approver and optimise it for business impact vs effort spent to approve. Besides turnaround times, good routing design balances the number of decisions a person should make in a day.

5.     Tracking

Measuring the results of the negotiation – and customer behaviour throughout the process – becomes critical to improve its design. Early identification of positive results helps to amplify those and weed out assumptions with lower returns. Benefit tracking will help to build sales rep confidence in the system and share success stories across the organisation.

Further, adoption tracking is a crucial piece of the puzzle. Monitoring usage and compliance with guidelines can expose insights about the relevance or accuracy of proposed trade-offs. Digital negotiations are facilitators for customer engagement. By closing the loop on the process flow, the company will leverage learnings from customer feedback.

Next to customer purchasing habits, go-to-market strategy and commercial excellence maturity should include the design of services for digital negotiation. The flexibility across negotiation tactics and counterproposals is critical to support customer-centric innovation. Some customers will happily accept a price-volume trade-off, while others would be more interested to hear about cheaper product alternatives. With a solution that provides a framework for commercial discussions, B2B e-commerce businesses deliver a higher level of personalised experience for customers.

Designing a digital negotiation approach will create requirements for both front-end and back-end capabilities. However, personalisation should not result in higher procurement complexity. E-commerce platforms must propose simple, easy-to-understand trade-offs to buyers. Simplicity is essential; the process must feel like a natural flow, rather than an overabundance of different options. Whether it is simple rules logic or predictive algorithms encoded to decide on negotiation strategies, the user must see only simple choices.

“Buy more, and you’ll get a better price.” or “Choose a different delivery date, and you’re shipping is free.”

Providing the ability for customers to comment and propose alternative trade-offs will capture feedback, which will be a crucial input to improve the relevance of proposed strategies.

***** The not so distant future – capabilities to monitor for digital negotiations *****

“Hey, Alexa! How do I get a better deal on the products I selected”?” – a question that procurement agents might be asking sooner rather than later.

AI technology enables significant capabilities to make digital negotiation experience more powerful:

• Personalised prices will become the standard, already considering micro-segmentation and customer agreements.
• Product configurations will be more dynamic, accounting for availability and desired outcomes.
• Promotions and cross-sell recommendations – dynamically identified based on transaction context – will be more accurate for the buyer.

Identifying which trade-offs to offer and reacting to customer choices will be a part of a multi-strategy negotiation approach supported by machine learning. Thanks to chatbots powered by the latest natural language processing algorithms, the guided digital negotiation process will have a conversational feel – just like speaking to a sales rep.

Overall, AI will power the business to enable and react to customer interactions. Automation will rise in significance as millennial buyers assume their roles. Picking up the phone is not an option; sending an email to a sales rep feels dated and lengthy. An intelligent e-commerce system provides more flexibility in volatile business environments –enabling to test bargaining strategies and to double down rapidly on the winners.

*****

Beyond negotiations and alternative offers, modern e-commerce systems should aim to make the buyer’s life easier. Providing accurate product information, inventory visibility, spend management, easy reordering and order tracking solutions will save efforts spent on administrative tasks for all parties. The time freed up can be redirected to value-added conversations.

A transformed operating model to support business innovation

Digital negotiation capabilities drive the opportunity to transform companies commercial operating models. Automation enables faster responses, significantly freeing up sales rep time to focus on large ticket items. The digitisation aspect enables the capture of more elements of customer engagement and monitors commercial term compliance. Feedback loops allow the organisation to leverage data for testing and fine-tuning negotiation components.

Process

Enabling strategic experimentation sits at the core of driving higher customer engagement. Testing tactics and proposals across different segments helps to elevate the solution to higher levels of maturity. Capturing how much discount customers request or on which item categories they want to negotiate are inputs for refining the solution. Data-driven insights should support rapid adjustments to the customer buying journey. Agility becomes a pivotal component to test-and-learn, and it should enable customer-centricity in all commercial operations. Faster paced transactions imply that B2B businesses must be able to evaluate the added value and efficiency of workflow changes.

Data, rules, and algorithms make the digital negotiation process highly scalable. Typical human bottlenecks do not exist when a self-service platform delivers the entire workflow. Adding more users or interactions will not see growth constraints, as modern software solutions supporting sales efficiency are capable of managing the whole complexity. Thus, with ‘today’s cloud technology, the marginal cost for scaling processes becomes close to zero.

People

With more sales time, opportunities arise to promote entrepreneurship and consultative selling. Faster, more frequent, and digitally recorded interactions can fuel organisational learning. Direct channels often benefit from insights captured in e-commerce and vice versa. Implementing digitised self-service solutions help the business to build a data-driven mindset, which is crucial to translate customer purchasing patterns into actionable recommendations. Businesses usually achieve higher value and efficiency gains when using cross-functional teams to design and operate commercial processes.

It is critical to support digital negotiations with change management. A new way of working should empower sales reps: as digital negotiations provide complementary capabilities and data-driven insights. Next to sales reps, customers should also receive essential communications and training on additional options to engage during their purchasing process. Tracking and sharing success early on will help to identify internal advocates for the solution. Visible sponsorship should aim to underline the commitment to create a better customer experience and platform for more efficient sales conversations.

Infrastructure

A solution that enables higher customer engagement should not resemble an old-school ERP implementation with rigid rules and high costs every time you need to change a feature. The ability to adapt and scale are fundamental requirements for any technology supporting digital negotiations. B2B e-commerce sites can only achieve commercial excellence with platforms that enable business users to define the negotiation logic themselves. API connections across solutions enable scaling and the ability to leverage multiple data sources. As an example, distributors might consider linking the logic to supplier discount agreements and if available, to algorithms that estimate ship and debit conditions.

From a middle office perspective, there are several ways to expose self-service and negotiation capabilities in the front-end (see Figure 2). In a modern world, customers use e-commerce sites (public or dedicated) or direct CPQ (configure-price-quote) access during their purchasing process. Portals with separate configurator engines require integration with strong pricing capabilities to support digital negotiations. Customer log-on requirements enable the differentiation of prices and commercial terms. Public e-commerce portals typically expose list prices and propose product-related trade-offs (e.g. simple volume thresholds). On the other hand, an identified customer will benefit from a more relevant product catalogue, discounts defined by segmentation, order history and last prices paid. With AI support, B2B sellers can use more granular insights to drive deal attractiveness.

Figure 3 – A delivery framework for digital negotiations

 Governance

Distributors should evaluate the potential benefits of customer journey changes against costs and potential risks. Creating a rapid assessment method will help to optimise the scope for digital negotiations and other customer engagement components. An evaluation framework will support proposals for experiments – i.e. negotiation tactic changes – and create prioritisation among those. Benefits tracking and clear ownership assignment will allow the business to manage digital negotiations as a value-added service.

A Customer-First Perspective

Realising the transformational aspect of digital negotiations becomes key to delivering better customer experience. Overall, digital negotiations drive the organisation to become more customer-centric, create higher engagement and listen to buyer feedback.

They will also uncover new areas of growth potential. Satisfied customers with a higher share of wallet will help to identify segments where the company has opportunities to expand its sales. A transferable capability set highlights potential revenue side synergies for new acquisitions.

The business must define a set of KPIs focused on achieving the highest ROI on a commercial investment. Good candidates are the cost of sales, response times during the deal cycle, number of deals negotiated, win-loss ratios. Through engaging buyers in a digitally facilitated negotiation, distributors should aim to improve the overall customer experience.

The COVID-19 pandemic has significantly accelerated the need for digital transformation across various aspects of commerce. The world is not likely to turn back to old ways of doing business. Companies that are lagging digitisation of their customer engagement process will find themselves competing in a new reality. Business segments with digital negotiation solutions will improve customer retention, gain a higher share of wallet, and see better customer satisfaction scores. Identifying segments where the business is thriving and is scalable will boost capital allocation decisions. Best-in-class companies will look for ways to include suppliers and partners in the negotiation ecosystem.

Start with these 3 Steps

1 – Select tactics for negotiations

The best way to identify which commercial terms to offer for negotiation is to review transaction data and spend time with sales to review frequently discussed terms. A shortlist of potential concessions considered against strategy assumptions highlights the potential candidates. In-app usage measures and feedback will support the business user to refine and set-up further test cases.

2 – Build a platform

Implementing a digital negotiation solution starts with enabling a self-service customer portal. Whether in the form of an e-commerce site, direct access, or a marketplace, customers must be able to engage in a digital dialogue. Flexible CPQ back-ends provide usually provide a robust rules-based engine. Business users define relationships and trade-offs that the customer would self-select.

3 – Drive adoption

Recognising the transformational aspect of the new capability will decide on success. Adoption and change management key for all stakeholders – including customers – requires a new way of operating. Sellers should start with easy to configure items to maintain human touch, add complexity later as sellers’ and buyers’ confidence in the solution grows.

[1] B2B ecommerce is big but companies are failing to meet buyers’ expectations – https://econsultancy.com/b2b-ecommerce-failing-to-meet-buyers-expectations/

[2] Four pathways to digital growth that work for B2B companies – https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/four-pathways-to-digital-growth-that-work-for-b2b-companies

[3] MIT Sloan Management Review: Why Customer Experience Matters for B2B – https://sloanreview.mit.edu/article/why-customer-experience-matters-for-b2b/