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B2B Purchasing Negotiation: Five Strategies to Reduce Vendor Prices
I have worked in sales and marketing for over 20 years. During that time, I have come face-to-face with procurement professionals who were excellent and naturals at negotiation, and then I have come across those who were less than stellar. However, all of them focused on improving their negotiation skill set.
Today, I decide to put forth a list of the most successful strategies that I have been exposed to by procurement professionals, ones who know exactly how to conduct a cost-cutting, price-slashing negotiation. Here are five simple and easy-to-use purchasing negotiation strategies that help to lower vendor pricing and your company's costs.
1. Stop Tipping Your Hand: Don’t Broadcast Your Needs too Soon
Far too often I come across purchasing managers who ask for concessions too soon in the process. For instance, at the outset of a new relationship, it was common for a customer to ask me for a 1 percent discount on net-10 day terms. Or, in other instances, they would request 45, 60 or even 90 day payment terms well in advance of any price negotiations.
Asking for this too early allowed me to adjust the price and offer accordingly. However, those procurement professionals who excel at negotiation don’t make this mistake.
First, they nail down a price and then they use concessions to reduce that price even further. For instance, the best purchasing agents would agree on a price and then ask for a reduction for prompt payments and or prepayments of invoices. After that, they’d reaffirm the price and then use another concession to drive down pricing even further.
Don’t tip your hand too early in the process. Save your concessions to reduce pricing after the salesperson thinks the negotiation is finished. Once the salesperson has offered what they believe is the final price, that's when you start to use your best concessions to drive down pricing even further.
2. Avoid Using Veiled Threats
Nothing is worse that a corporate buyer who constantly tries to use threats when they have no intention of following through on any of them. The worst of these don’t even know that they do it over and over again. Ultimately, if you make a veiled threat often enough, then serious threats will be hard to differentiate for the salesperson.
Make it a point to follow through on a couple of threats. However, be sure those actions don’t end the relationship. Instead, use the follow-through as a consequence so that the salesperson can never claim you didn't give them a warning. It's a way to keep them honest, which is one of the more important tips on this list.
3. Match High-Value Concession with a High-Value Concession
The best purchasing agents I negotiated with always followed up a high-value concession request of mine with one of their own. As soon as they did, I knew I was dealing with someone who understood the intricacies of negotiation.
First, come up with a list of high-value concessions you want as part of the negotiation. When the salesperson puts forth a concession request of high-value, be sure to match one of equal value. Don’t end the negotiation if the salesperson isn't able to grant a higher concession. Be persistent, but be willing to move onto the next high-value concession on your list.
Understanding-Customer-Concessions-In-Negotiation
Coming up with your own list of concessions should be focused around a simple "what if" strategy.
Purchasing Negotiation five Tips4. Add a Personal Touch
It’s far too easy for both sides to vilify the other. It’s common for salespeople to lump purchasing agents together as nothing more than price-sensitive hawks, while purchasing agents see salespeople as nothing more than liars and deceivers. Ultimately, both have a job to do.
Be willing to tell the salesperson that you have strategic initiatives and objectives to attain. Discuss your particular situation as it pertains to the goals you have been given and the everyday pressures you are under. Adding a personal touch brings the negotiation down to a level where both of you can have a free-exchange of ideas and strategies. When both of you are unwilling, or unable, to engage the other on a level playing field, then it makes it that much more difficult to come to an agreement.
Every time I have brought the discussion down to a level where I can clearly express what I can and can’t do, I have typically found a willing participant on the other side, one who is able to grant certain concessions in return for me granting theirs.
5. Keep Your Vendors Honest
Yes, you may have the best vendor who has given you the best pricing, best quality, best payment terms and best delivery. However, it is still essential that you keep abreast of market pricing. Go out for other competitive bids - if nothing more than to keep that all-important vendor honest.
It’s natural for companies to become somewhat complacent – and not intentionally. Ultimately, every company wants to grow its market share. It looks at its current share of the market and what remains to be closed.
When it has had a company’s business for an extended period of time, then it’s natural for them to slot that business in as expected outcome for the upcoming year. In essence, management wants salespeople to focus on other opportunities, ones that help the company narrow its market share gap.
Your job in procurement is to make sure that these vendors remain honest. It’s critical that you stay up-to-date with market pricing by continually updating yourself on recent competitive offers. When salespeople know you know as much about the market as they do, then they are more likely to be proactive instead of reactive. Keep them aware and let them know you know where the market is at.
In the end, the best procurement professionals focused on improving their negotiation skills. For some, it was natural, but for others, it required time and effort. Some of them were former salespeople who were able to better understand how to approach salespeople in order to get the best contract and pricing. Take the time to understand the other side. It is perhaps the single most important part of a successful negotiation.
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