Managing Your Customer That Misbehaves in the B2B Space
Isn’t the Customer Always Right?
Actually, no, they aren’t! In the B2B space, we often find ourselves working with clients and customers to develop and sell our products and services. And yet, sometimes, things do not always go as planned. I recently paid a visit to one customer who has started to change the rules as they go. Despite the contractual commitments between both companies, this customer has started to step beyond the bounds of our previous agreements by introducing “additional requirements” that needed to be met. While change happens, they are using these new requirements as a reason to delay a large payment milestone that they were already delinquent on paying. In short, they’re becoming a bad customer.
At first, we might just say “well the customer is always right, so we need to do it.” But there are legitimate times when our customers are not right and try to change the rules in the middle of the game. Negotiating with customers is all about leverage. When you find yourself in this situation, depending on your goals and your interests, you have several options.
Here are 7 strategies for managing customers that misbehave, and how I am using them to negotiate with mine.
0. Know What Value You Are Adding
The first item on our list is less of an approach itself, and more of a method to help you decide which strategy to employ. By knowing how it is that you add value to a particular customer you can identify their pain points; and in turn, identify your bargaining power. If and when you find yourself in a position where you need to send clear signals to your customer, having a good sense of how you can prompt customer action can help guide your decision making.
My Example: In my particular case, outlined above, there are three specific things we have been doing that our customer greatly values: First, we send a team to the customer about every 6 weeks to collaborate and work through issues face to face. No other partner or supplier working on the project has nearly this much interaction, and the customer has said they greatly appreciate the level of support they are getting. Second, as a favor, we have helped them work through issues with other suppliers with whom we have worked before. And third, we have assisted the customer on items that are beyond our official scope. All of this was done strategically, to better give our company an advantage, should future negotiations be necessary.
“Negotiating with customers is all about leverage.”
1. Document Well
You can’t always predict when a customer will step out of line, but to help protect yourself should things head south, it’s always a good idea to document well. Through program memos, meeting minutes and carefully crafted presentations, you can build a history that supports your position. Imagine, for instance, that during several meetings with your customer you stated you would provide solution X and the customer concurred with your approach. Then, should your customer later say they want solution Y, you have built a case that gives you some leverage: “For the past 6 months, we have presented what we were doing, and you agreed. Now, you’re looking to change that? Why did I waste 6 months?” Even if the customer does demand something else, you are in a good position to recover commercial losses or negotiate for something else as an offset. It’s often said in sports that the best offense is a good defense. In business, building a clear written trail of history is a great form of defense.
My Example: In our case, we have built up a written record since before the contract was even signed. This documentation will assist us recovering commercial losses and support our position that any other path than previously agreed constitutes a change.
Global Business Negotiations by Claude Cellich and Subhash Jain
Global Business Negotiations is a detailed, yet readable resource that can help you improve your negotiating skills for the global business environment. The book includes strategies, techniques and tips to help you approach, manage and close a negotiation.
2. Do Nothing, Even if It Hurts
Even if it can be bad for business, sometimes the best strategy for you when your customer misbehaves is to do nothing, and adapt and adjust as changes arise. If you’re trying to penetrate a new market, or you’re trying to forge a relationship with a new client, sometimes you may be willing to take it on the chin and lessen your profit margins for the purposes of the customer relationship, the market, or for favorable position for the next project coming down the line.
My Example: In our situation, while we could take this approach, our belief was that doing nothing at this point would only set expectations that we are willing to accept unfunded changes, which is not in line with our original business case and interests. While the customer and market is important to us, we are not willing to take the business at a loss.
3. Decouple Agreements
Let’s say you’re developing customized software for your customer. Then, after several months of work, your customer wants to change their requirements on you. While you deem it technically feasible, it financially requires more resources, time and effort on your part. If this happens, consider decoupling the technical agreement from your commercial agreement. In other words, state that you’ll realign your technical development plan, and document that both parties agree to negotiate the commercial impact at a later date. As stated in Strategy #1, a well-documented record can help you implement this plan.
My Example: For our customer, this is our starting point. The changes they have requested may take us some time to figure out, both technically and commercially. Our preference is to close the milestone as previously agreed and defer negotiations on the “new requirements” until the impact is fully understood.
4. Ramp Down Your Resources and Support
Should things heat up and your customer begin to act out-of-line, sometimes the right path for you might be to reduce your resources on the project. Whether you state this as a ‘threat’ to the customer to prompt a certain response, or you legitimately do it to help protect your budget, reducing staff assigned to the project can be an effective countermeasure. As stated in Strategy #0, if your customer highly values your response time, your timeliness or the level of support you provide, stating that you will reduce that support can be an effective way to prompt a customer to agree to certain terms or to meet previously negotiated agreements.
My Example: Should things escalate, our team is prepared to document in writing that we are reducing support for the program. Our intent behind this is will be to let the our customer know that the service they have come to greatly appreciate and value, will not be available to them if they continue to ignore their agreements.
5. Withhold Deliverables
Depending on the type of work you do, sometimes your most effective bargaining chip is to withhold information and deliverables. If your customer is delinquent on payments, or has otherwise been falling short on their commitments, you can put pressure on them by proceeding with work, but refraining from giving them the output. For instance, let’s say your customer is opening up a new, highly-publicized factory. You’ve been contracted to develop the optimal production floor layout, so they know where to place the machines. However, your customer has failed to make a significant milestone payment. You are in a strong position should you continue to mature the floor layout, but not share the updated plans until the customer makes their payment.
My Example: In our case, this strategy does not give us much bargaining power at this point in time, as we are still in the early phases of the project. However, this is a viable approach, and has worked for us on prior projects when we were in a later phase and our customer was under pressure to meet their commitments to their customer.
Getting to Yes by Roger Fisher, William L. Ury and Bruce Patton
Getting to Yes: Negotiating Agreement Without Giving In is an international best seller that provides practical approaches and strategies to negotiation. This is a good book for anyone in management and marketing, who has to work through conflict and reach agreements with another party. The skills and tips provided are valuable in day to day business, as well as negotiating a deal for a large scale contract.
6. Stop All Work
Sometimes, your best bet is to stop all work, either as a threat to prompt customer action, or as a firm decision until the customer meets their obligations. While drastic, this can be a very effective strategy when the circumstances are right. Again, it goes back to knowing how it is that you add value and how the customer would respond to losing that value. Before invoking this strategy, though, consider these drawbacks:
- Will stopping all work sour the long-term relationship?
- If you stop all work now and resume again in 3 months when the dispute is settled, can something happen during that time that may impact the longer term success of the project?
- Does this strategy put you at risk in any way, such as being replaced by your competitor?
My Example: This is something we might consider in the future, if our disagreement is not resolved, but the long-term relationship with the customer is important to us. However, we do not expect our issue to escalate to this point.
7. Take Legal Action
Not every match is made in heaven, and business is business. If things sour enough, sometimes your best option is to take legal action to recover losses or to at least get what you are owed. Success with this course of action depends heavily on #1, a clear and coherent documented history. If the history is vague and the record is unclear, taking legal actions may not work in your favor. However, if you have a well-documented history that shows you’ve met your obligations and your customer has not, legal action may be your best bet. Of course, you need to be prepared to forego new business with the client in the near future.
My Example: Our intent is to fulfill the needs and agreements within our contract. To date, we have been acting beyond those agreements, to help build a good standing with the customer. So while we do not intend to take legal action in any way, we may eventually draw back our level of support to be exactly in line with our legal obligation.
Not Every Customer is a Good Customer
Even though we all depend on our customers to keep our businesses growing, it is not unusual to find ourselves in a position where we need to manage clients. Not every customer is a good customer, and sometimes you need to take steps to protect your business when your customers fail to meet their obligations. The next time your customer pushes the limits, consider these strategies to help you manage the situation.
What strategies have you used to manage your customers? Leave a comment and share with the MRH Community!
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