The 8 Negotiation Essentials
You know what you want. But do you know how to go about getting it? Before you start to negotiate, our handy checklist will ensure you have the maximum ammunition at your disposal.
1. Know yourself. You’re not just buying widgets. You’re buying components for a product that will solve your own customers’ needs. Even finished goods need to fit into your own downstream supply chain and will have packaging, marketing and logistics applied to them.
Think about all these elements – then factor in your own sales cycle, your cash flow considerations and any broader market trends. All this information is vital to unearthing potential variables and knowing what flexibility you have when it comes to dealing with suppliers.
Write down the strengths and weaknesses of your own position.
2. Arm yourself. The secret to negotiation is knowing what you can trade with a supplier and what you can’t. There are several obvious categories to consider.
Quantity: what do you need now, and when will you need more? How much capital can you tie up in the stock? What are the automatic discounts for bulk?
Quality: what are the tolerances for the product? What about the finish level? Packaging? How about the certifications? How valuable are guarantees?
Timing: when do you need the goods? Can you schedule deliveries? Do you need fast turnaround on some items?
Price: how sensitive are your margins? Do you have ready access to finance? What’s your own cost of capital (what you borrow at)?
Information: is it valuable for you to have support from the supplier? What about training? And what innovations are they working on that you might exploit later on?
Have a clear idea of the variables at your disposal in each category. Then set red lines – limits you won’t go beyond – on the key criteria. There’s no point discussing bulk discounts if you don’t have the working capital or the sales outlet for the extra stock.
And have a BATNA – a best alternative to a negotiated agreement. Knowing you can walk away and do business a different way is a big confidence booster.
3. Know your counter-party. The supplier will have their own stresses and strains. Do your homework on them – and their markets. Ideally you’d be able to have an educated guess about the kinds of variables they have at their disposal – and how they might react to yours.
Sometimes the variables you consider important are the easiest for them to accommodate – or things you can easily accede to are valuable to them. If you know what these asymmetric variables might be, your negotiation will be a lot more productive.
“A lot of our suppliers are really hungry for cash – and it’s really valuable for them to be paid up front,” says Anthony Hogarth, Director at games wholesaler Creative Distribution. “So they do see a benefit in wooing customers, like us, who can pay earlier and help them with their own cash flow.”
4. Plan your approach. Last-minute negotiations are risky and limit the variables the supplier can bring to the table. Work through the different scenarios. Figure out how you might respond to a new variable from the other side. Then envisage how the conversation might proceed. Role-play it with a colleague.
When you’re going to negotiate with people from different cultures, research the best approaches. If you don’t speak the language, find an adviser who does – and who also knows the market and local business culture.
Think about the actual process, too. If you’re going to visit and inspect facilities or scope out the local market in any case, face-to-face negotiations are the obvious, and best, choice. Plenty of people can negotiate over the phone. But it’s hard to constructively build a deal just using email.
“I got the clear impression [our Taiwanese suppliers] felt honoured that I’d taken the trouble to visit,” says Steve Ashton, Director at Fred Balls Fastenings. “We certainly saw the relationship go to a new level after we started to make the effort. They’re much more responsive, they’re quicker to help.”
5. Open up the supplier. Your first chat shouldn’t be a detailed deal-making session. Help them articulate their own pressures and variables. Are they cash constrained? Do they have excess inventory? Are they working around a big order from another customer? Which of your variables will be most valuable to them?
Then it’s important to build rapport. As a rule of thumb, the further east you go, the more beneficial you’ll find relationship-building. You might be able to walk in off the street and negotiate immediately with a business in San Francisco. By the time you hit Paris, people like to get to know you over lunch. In Tokyo, it can take many dinners to really build an effective relationship.
Suppliers will feel more confident in offering more concessions to customers they warm to and trust.
“My best tip is to offer predictable plans to your suppliers,” says Brendon Bester, Operations Manager at The Import House, which helps western clients do business in China. “If we can go in with a schedule for 12 month’s-worth of orders, they can plan their own production lines and raw materials. That makes a big difference when you’re negotiating prices.”
6. Trade variables. When you sit down to hammer out a deal, you need to be firm, but flexible. (That’s why the previous points are all so important: they’re a foundation for your own confidence.) Listen and watch carefully: what’s the supplier’s body language like? What topics interest them most, and which are they bored by?
Variables are your ammunition, so don’t spend them lightly. The “if I could… would you…?” question is a classic for a reason. It reinforces the notion that you’re only going to change your position in exchange for some benefits. (It’s also a great trial close – one of the classic RATAID group: rebound, assumptive, trial, alternative, indirect and direct closes. Don’t make the mistake of thinking closing techniques are only for the salesperson.)
“We like to be seen as a fast-response company,” says Kervin Maconochie-Labrosse, Director of systems integrator Communication Specialists. “If we need a two-week turnaround on a batch of radios for a customer, the manufacturer tends to be a lot more responsive if we’re offering 50% payment up front.”
7. Seal the deal. Clarify exactly what was discussed and gain agreement on all points. A negotiation can’t be considered successful until the order has been filled at the terms everyone agreed. So be specific – every detail should be part of the negotiation. Avoid agreeing headline terms with the key contact who then passes you onto a subordinate to finalise the detail. If you’re not talking to a decision-maker, you shouldn’t be negotiating with them in any case.
“The EU is pretty rigorous with its certifications for imports, but many buyers don’t take the time to hunt down the latest regulations – and the overseas manufacturers could well be working to old specs, or might not even know about the EU’s certification rules,” warns Brendon Bester.
8. Review. You’ve set some important precedents and learned valuable intelligence about the supplier – capture that knowledge for future deals. Even a feisty or dull negotiation is a relationship-building exercise, so don’t let it go to waste. Stay in touch! then, when your deal is in progress, keep an eye on pinch-points – for you and your supplier – that might become valuable areas for negotiation the next time round. “Keep your ear to the ground for new product opportunities – when you’re a reliable and co-operative customer, factories are keen to keep you in the loop,” says Bester. “But there’s other value to be had from keeping an eye out. For example, if you have visibility into input costs for your manufacturers, that can help you time your orders to make the most of lower prices.”