In 1932 Walter Cannon, professor of physiology at Harvard Medical School, published the book The Wisdom of the Body. This book expanded on his research from 1915 where he coined the term “Fight or Flight” to describe our responses to various threats. His research showed that, when threatened, the body releases hormones from the endocrine system and is followed by an increase in heart rate coupled with anxiety. In other words, every quarter-end in a sales bullpen. We can predict, therefore, that the closer it gets to the end of the period, the stronger the physiological stress will be on the sales team. However, there is a key nuance in this. Those reps that have already hit their numbers for the quarter will be calm, and won’t face that same threat. Their colleagues fighting to hit their numbers will be exhibiting all of the signs of stress and anxiety – and that is when the threat to the company comes into play. When the hormones are released, will the sales team hold the line on price? Will they FIGHT or will they FLY to lower the offer point to eliminate, or at least alleviate, the threat. This is where sales structure combined with the unintended impacts of incentive compensation design come into play. Lets start with the management team. Price adjustments below a certain point have to be approved by a series of executives, and THEY will be experiencing their own pressures. Is the company hitting THEIR numbers? How much is the VP of Sales willing to fight with the CFO on a lower price, and what level of stress is the CFO under at the same time? Each of these pressures can impact the response to the threat. My friend Alan Benson at the Carlson School of Management has done some research on how sales managers respond to pressures at the end of the quarter. He found that managers are more likely to give quota relief to reps (thereby reducing the threat) depending on how the manager themselves are doing against their own plan. It isn’t the company, it isn’t the rep – it’s the manager. Sometimes the threat to the rep is not felt in the slightest by the management team. The sales manager might already be over quota, and not see the value in dropping price to hit the arbitrary deadline of a given period end date. It might hurt the rep, but it won’t hurt the manager. On the other side, the rep might be fine on their numbers and it is the manager who needs the rep to drop the price and bring the deal in faster. In each of these situations the threat is different, the person perceiving the threat can change, and the response can trigger interesting interactions in the office.
Three Quick Pricing Negotiation Tips:
- Analyze your pricing patterns as you approach end-of-period. See how much your reps are fighting to hold the line.
- Check your manager’s incentives. Are they too focused on the period end, or do they have the flexibility in how THEY are measured to take a higher price even if it means pushing out a month.
- Watch-out for bullpen culture. If you are selling value, you should be willing to fight to hold the line. If instead your reps are constantly in flight mode – you need to re-think your team and the incentives that are motivating their behavior.