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The more I get to know procurement professionals through my pet project that is 20% – The Marketing Procurement Podcast, the more I am struck by how bad we in the creative professions are at negotiating.
I see six main reasons for this.
1. We’re Emotionally Attached to the Work
Creativity is personal, with a little bit of the creators left in every campaign, design or code. This puts us on the defensive in a negotiation: we want it more than the client does, even in cases where the raw facts say that we have the upper hand.
One of my more common exhortations is, “You want to get better at selling? Three words: No Sunk Costs.” There are lots of ways we overinvest in the sale and swing the power balance to the client (the pitch is designed, in part, to do just that), but the most damaging one by far is simply wanting it too much.
P=db/D
The formula P=db/D helps remind us that our power (P) in the sale is a function of our desirability (db) being greater than our desire (D). In other words, whoever wants it most has the least power.
The things we do to increase our desirability are long term activities that are months and years upstream from the negotiation. It is our desire, or at least the expression of that desire in a negotiation, that we must learn to modulate.
Emotionally, we almost never have the upperhand. We therefore have to find ways to compensate for this deficit, while doing what we can to tame those emotions.
2. We’ve Got the Wrong People Leading the Negotiations
See emotional attachment above.
At the smallest firms, the people doing the work are also handling any negotiations, and on the other side of the table is usually a small business owner or a department head in a medium-sized business. At the largest firms with the largest clients, the negotiations are more likely to be led (or significantly supported) by finance, with the client’s procurement team on the other side of the table.
As your firm grows, you want to look for the first opportunity to remove negotiating from the front lines. Too many firms let the wrong people—the emotionally invested—lead the negotiations for longer than they have to. Finance is the obvious place to look for a cooler head, but a person’s job title only hints at their strengths. When the bias of emotional sunk cost is factored out, the remaining characteristics to look for in a dedicated negotiator are an understanding of the commercial aspects of the firm, temperament and of course skill.
When the firm is large enough, negotiating skills need to be part of the hiring criteria for a finance or commercial director.
Hire a Contractor
If you find your firm at the negotiating table only rarely, then consider bringing in an outside negotiator or advisor once it becomes clear that a negotiation is on the horizon. My 20% podcast cohost Leah Power and I have interviewed a handful of these accomplished ex-procurement professionals who now advise agencies, each with different specialized backgrounds. Comb through the episodes or reach out if you want us to do some matchmaking.
3. We Lack Leverage
Your two most powerful points of leverage are your awareness of the options of both parties and your willingness to use yours and walk away.
The Client’s Options
Negotiation pros use the term BATNA (Best Alternative to a Negotiated Agreement) to describe each party’s options and thus measure their negotiating power. If the offerings and expected value of your firm are seen to be similar to those of numerous other firms then the client loses nothing by walking away and engaging with the next firm in line. They have all the leverage.
The idea that we lack leverage isn’t nearly as true as it used to be. While there was a time not long ago when all ad agencies and design firms were fungible and the client could use that leverage to get firms to pitch their ideas for free then dictate price and terms in the negotiation, the creative firm landscape is now more complex. I see it as fully bifurcated with large generalist agencies on one side and highly specialized entities on the other. The generalists continue to lack negotiating leverage while many specialists possess it but don’t use it. (See We’re Not Trained, below.)
The leverage swings to you when the client can see no like-for-like alternatives to hiring you, i.e., when you are effectively positioned. Undifferentiated agencies try to find a story of meaningful difference for every pitch. Specialized firms leverage a difference that is easily observed from afar (although they may still have to differentiate themselves from their much smaller number of direct competitors), and avoid a pitch altogether. These improved dynamics tend to carry through to the negotiating table.
Your Options
Assessing your own options is a bit more complex than assessing the client’s. Simply ask yourself what the consequences are of walking away from this negotiation. There are external and internal variables that go into answering the question. The external ones can be identified by your opponent and factored into their assessment of your BATNA, such as the fact you just lost a major client and are under financial pressure.
Money in the bank, high staff utilization, a deep sales pipeline and a robust economy all represent options because they give you the confidence to walk away from a bad deal. Each of these external variables is discoverable by your opponent (and trust me on this: they are doing their homework on you) and listed in their assessment of your BATNA. Their assessments, however, do not account for internal factors.
Confidence is the X Factor of Leverage
Your opponent’s calculation of your leverage is missing a vital coefficient: your confidence.
Your self-belief.
Your belief that there is a better opportunity just over the horizon.
Your faith that things will be okay if you do walk away. (“Everything always works out in the end. If it hasn’t worked out, it isn’t the end.”)
Your sense of self-worth. (“Why would we work with someone who doesn’t value what we do?”)
Your commitment to yourself that you’re not going to impair your team with a client relationship that has no room for error, no time for unscheduled proactive ideation, no possibility for the type of creativity and innovation on which you committed to building your business.
Your willingness to say fuck it, we’re outta here.
The shorter you are on confidence, the more money you will need in the bank and the more opportunities you will need in the pipeline before you consider walking away. Strategic Coach founder Dan Sullivan maintains that the most valuable asset of an entrepreneurial organization is the confidence of the entrepreneur. Few wiser words have been written about entrepreneurship, but that foundational importance of confidence also applies in negotiating. It is the magical coefficient of leverage.
4. We See the Client as the Prize
Two concepts I have borrowed from Oren Klaff’s wonderful book Pitch Anything, are the idea of “frame control” and the mantra “I Am The Prize.”
Frame control is a conceptual model that says people enter any social interaction viewing that interaction and the larger relationship through a frame, or point of view. Each party enters looking through their frame, and if the frames don’t align, says Klaff, they clash. One frame destroys the other, causing both parties, ultimately, to view the relationship through the same lens. The common shared frame in a typical sales negotiation is the view that the client is the prize to be won.
Why do we call it “winning” new business? Why isn’t the client “winning” a new agency?
Some highly specialized firms are able to reverse the standard dynamics, effectively saying in the sale, “Here’s how our unique program works. Here’s how it would work for you. Here are the outcomes you can expect and the value that will be created. Here is our price, our terms and our next available start date. If you don’t want it, that’s okay because others are stacked up behind you.” In such an example the shared frame at the end of the first meeting is that the agency is the prize, even though it’s likely the client came into that meeting seeing themselves as the prize. How confident do you think the salesperson is in that scenario? Do you think the client has any negotiating leverage at all?
That’s an example of a meaningfully differentiated firm that can demonstrate a high likelihood of economic value creation, with the addition of a real or self-imposed capacity constraint. The same I-Am-The-Prize attitude, however, can be had even without such backing. (See confidence, above.)
A Failure to Leverage
For over twenty years now I have watched the “hot shop” ad agencies rise and fall. At their peaks, Fallon, Goodby, Chiat, Martin, Crispin, Mother and others truly have been the prize many clients would have loved to win, but while that I-Am-The-Prize frame was surely pervasive in the creative department, it was usually destroyed at the negotiating table*, with the client negotiating team’s frame of “we have the money therefore we are the prize” dominating. Many of these firms could have leveraged their status to effectively say, “If you want to do business with us, it’s going to be at our price, on our terms.” That commercial rigor could have been codified and then applied even when the status of these firms inevitably reverted toward the mean and they were seen as just another very good agency.**
Be the prize.
Expert or Vendor
In Win Without Pitching training we point out that the job of new business isn’t just to “win” the business but to do so with the firm being viewed as the expert rather than a vendor. These are frames in Klaff’s parlance. Your new business team should view every opportunity through this frame of “we are the experts, we are the prize.” By the time you get to the negotiating table that frame should dominate. Procurement will then bring their own I-Am-The-Prize frame to the table, of course, and so the clash resets.
Now, however, you have the economic buyer in marketing viewing things through your frame. Remember that, as much as procurement implies otherwise, the decision to hire you is not theirs. They can only take the best deal they can negotiate back to the economic buyer with a recommendation. Be the prize.
I am the expert, I am the prize
I am on a mission to help
I can only do that if you let me lead
All will not follow, and that’s okay
5. We’re Not Trained
Training equals preparation. You will not encounter a procurement professional who is not trained in negotiating. None. It’s part of the job. What is the agency equivalent? What is the position in the firm the title of which suggests a near 100% likelihood that this person has been trained in negotiating?
At larger firms it is (or should be!) the finance and/or commercial director and perhaps some of their reports. At smaller firms there is no easy answer because the role—if it’s formally assigned at all—tends to be assigned on the basis of aptitude rather than title.
But if the negotiating function is assigned to someone—anyone—that someone should be trained. They have to be. Let’s look at the list of disadvantages we’ve discussed:
- The client is emotionally detached from the work
- The have the right person leading the negotiation
- They have a keen understanding of the objective leverage both parties have
- They see themselves as the prize to be won, the ones in control
- They are trained and prepared
At its best, negotiation is a considerate and polite exchange of two parties trying to maximize value in an agreement approximating win-win. At its worst, it’s war. It’s games and lies and ridiculous-but-often-successful tactics drawn from a playbook written by 20th century labor negotiators. Your negotiator should be prepared for every scenario. They should be trained.
6. We Still Think This Is a Relationship
In a forthcoming episode of 20%, Leah and I speak with Rory Sutherland, who is Vice Chair of Ogilvy UK and author of Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life. Alchemy, to me, is the legitimate heir to Ogilvy on Advertising. It’s the book the profession has been waiting for since 1983.
In the episode (likely dropping on May 17 or 24, 2023—you can subscribe here) Rory makes the distinction between what he calls relationship capitalism and its counterpart, transactional capitalism. In relationship-styled capitalism, both trading partners play the long game, recognizing that the balance of accounts doesn’t have to be settled after each interaction. Sometimes the client overpays, other times the agency over delivers. Both parties are generally aware of trade imbalances without resorting to ledger entries, and the relationship continues with the normal give and take that is evident in any successful marriage.
Where relationship capitalism might be analogous to a marriage, transactional capitalism, according to Sutherland, is like paying for sex. It is the settling of accounts on every single transaction.
When procurement first breached the wall into marketing just over 20 years ago they brought with them their direct goods mindset and negotiating tactics. They got transactional. Negotiating was a battle to claim as much value back from the agencies as possible. Procurement didn’t understand the value of that agency relationship to their colleagues in marketing, and if they did understand it, it was subordinated by the incentives—bonuses and promotions—to cut costs.
Clients started to ask their agencies more directly for concessions. And we granted them. We heard, “I need you to do this for me.” We said okay, you need something? We got you. We heard them ask on price. We heard them ask on terms. We heard it on the need to see our costs. When it was our turn to ask there was no reciprocity.
Leah points out in the podcast that we said yes, initially, because we thought we were still in a relationship long after the client had decided they were paying for sex.
So what now? Do we get transactional, too? We can. But we can also push back. We can point out what has been lost to both parties by playing the short game, and we can stand up for ourselves and only enter into relationships with those who are interested in the types of relationships we’re looking for.
The good news on this front is that the marketing procurement profession has come a long way in recent years and there are many senior, respected people who are advocating for a return to what Rory calls relationship capitalism. They’re still in the minority, and old habits die hard, but the direction of travel is encouraging.
From This Day Forward
Reading the reasons for our historically poor negotiating performance listed above can be depressing, but in each of the six areas there is a path to improvement.
You create tremendous value for clients and you deserve your fair share of that value. Map out your plan to go get it. Let us know if you need help.
*The I-Am-The-Prize frame was actually destroyed earlier—in the pitch—when the star agency agreed to audition. Everyone knows stars don’t audition.
**Maybe some have—I have no inside knowledge of any of the firms mentioned.