ARE YOU NEGOTIATING TOO EARLY AND EATING INTO YOUR MARGINS?June 1, 2020
AN INTRODUCTION TO NEGOTIATING SKILLS
WHAT IS SELLING?The relationship between supplier and buyer where the need to supply significantly exceeds the need to buy. Thus selling is a persuasive process by which the supplier aims to convince a buyer of their need for the supplier's product or service and the buyer acts upon that need.
WHAT IS A NEGOTIATION?The relationship between supplier and buyer where the need to supply is largely in balance with the need to buy.
THE COMMERCIAL ROLE OF THE NEGOTIATIONGiven a commonality of needs over a period of time, it does not automatically follow that a customer will buy on every occasion, or to a level that the supplier would like.
Whether or not the supplier actively features a product and promotes its sale will depend largely upon the terms and conditions of the "deal" under consideration. Negotiation, then, is the give and take process whereby the actual conditions of a transaction are agreed. It is the process where the agreement is reached on product/service range and volume, technical advice, prices, promotional support, delivery, payment terms, and where mutual satisfaction is achieved.
THE BUYER'S PERSPECTIVEIn looking at the nature of negotiation it is important to understand the needs and perspectives of the buyer. The nature of negotiation from the buyers perspective has been well defined in instructions issued to United States Air Force buying personnel:-
"Procurement by negotiation is the art of arriving at a common understanding through bargaining on the essentials of a contract such as delivery, specifications, prices and terms. Because of the interrelation of these factors with many others, it is a difficult art and requires the exercise of judgement, tact and commonness. The effective negotiator must be a real shopper, alive to the possibilities of bargaining with the seller. Only through the awareness of relative bargaining strength can a negotiator know where to be firm or where he may make permissive concessions in prices or terms."
The ingredients of the buyer's negotiation needs will be a combination of :-
- Profit margins
- Price, but rarely in isolation
- Quality in their terms
- Product range/specification
- Costs, not just initial price
- Brand name - theirs or yours
- Proof of value
- The outputs (e.g. of a machine)
Negotiation should therefore be seen by both parties as the process of working out a procurement and sales problem together to reach a mutually satisfactory agreement. Knowledge and skill in negotiation is an important asset to the negotiator. It must include a knowledge of:-
- Cost/value assessment
- Ability to marshal facts logically and convincingly and to deal with people effectively under pressure
- At the same time the buyer must be helped to understand your position. No major purchasing programme can be stronger than the sources of supply - ultimately both parties are mutually dependent.
PRICE PERSPECTIVEIn particular it is useful to examine the professional buyer's view of the price in relation to other factors. Their aim is to get their company into the best position in the buying hierarchy. It gives them a competitive advantage. Price obviously is of importance to the buyer but rarely in isolation.
It is important for them to relate price to value because typically their investment in the deal is less important than the return from that deal. Paradoxically, however, a buyer is often judged by their management on their price negotiating skills, yet even they will talk of "price buyers" in derogatory terms. They must, therefore, achieve the best balance for their company
Good buyers are trained to resist questionably low prices because of the inherent risks, for example, of quality, reliability, delivery and service. Where industry pricing is common, or is influenced by limited competition when a market is shared by a small number of manufacturers or suppliers, buyers seek to negotiate the conditions of purchase.
10 COMMANDMENTS OF NEGOTITAION
1. Never give a concession - trade it reluctantly.
2. Leave the buyer feeling that he/she has done a good deal too.
3. Watch for the danger phrases - "fairer to both sides", "a few small details".
4. Once you have started backing down it is difficult to climb up again.
5. Maintain neutrality at the early stages of the negotiation.
6. Absorb an attack by taking notes.
7. If you need time to think, read over your notes or make a telephone call.
8. Never make an offer until you have a list of everything he/she intends to argue about.
9. There has not been a deadline in history that was not negotiable.
10. Anything the other accepts as a constant can nearly always be made into a variable.