Sales Negotiations: Don’t Let Them Slice Your Margins!
Shrewd buyers have learned that negotiation is like salami – the best way to get what you want is slice by slice. Achieving the lowest supplier prices requires an aggressive and sustained approach over time. This presents new challenges for sellers.
Negotiations have traditionally always been intensive, but once over that was it – normality was resumed. Agreements had a relatively long lifespan meaning that the seller had time to catch his, or her breath before it was time to negotiate again. The buyer mode of negotiation is changing however.
Here you will find a summary of the new trends in negotiation – it has been taken from a whitepaper on the subject which you can find here.
The New Mode Of Negotiation
Today’s negotiations are more pro-longed and the agreements reached short-lived. The ink is no sooner dry, before the contract has expired and a new round of negotiation must begin. The seller is continually ‘kept on his, or her feet’.
Today’s negotiations are more pro-longed and the agreements reached short-lived…
Buyers are continuously looking for more but willing to pay less. They are eating into supplier margins directly by looking for price concessions, but also indirectly by altering contract terms; such as service level agreement levels, or payment terms (e.g. from 35 to 45 and to 50 days!).
Negotiations can seem unending with downward negotiation of the tender price by the manager-buyer, followed up by a round of further negotiation by procurement. This might even be followed by finance reneging on special payment terms (e.g. 30 days) offered in return for a few extra percent off the price.
The Perils Of Salami
The Salami Technique poses real challenges for sellers, including:
- Suppliers who face the shifting sands of price, will find it difficult to plan ahead, or to budget for the future. It is difficult for them to ‘know where they stand’.
- The seller who underestimates how protracted the negotiation is going to be, runs the risk of giving away too much too soon. Instead of cutting in many thin slices the seller concedes in steak size cuts and ends up with little or no room to manoeuvre as the negotiation is prolonged.
Instead of cutting in many thin slices the seller concedes in steak size cuts…
- The seller is easily taken off guard by the buyer’s apparently premature demands for more. It is as if the buyer had a short memory and has forgotten that a deal has already been struck.
- The seller can be worn down by what seems like in-terminal negotiations. The seller must fight against attrition or fatalism setting in. It is vital that the seller keeps his, or her cool.
How To Tackle Salami Negotiations
Here are some tips on how sellers can cope with the Salami approach to negotiations – you will find the rest in the whitepaper.
- The buyer has to slice the salami! So be ready for it. Understand the buyer’s motives and the expectation that he, or she will negotiate aggressively. Develop scenarios and explore their implications for your business model and how you define your key accounts or sweet spot customers.
- Be clear on how the salami is going to be weighed, or measured. Price is only one variable so position your goods in terms of the total cost of ownership, the return on investment and so on. Make sure the economics for both parties are understood. Show the buyer that there are better ways of getting the results required than cutting the supplier’s price.
- Help the buyer to make a real meal of it. That is to get the real result that he, or she needs. For the seller that means considering all the ingredients costs – benefits, risk, strategic fit, compliance and so on. In this way the seller is moving the conversation off price and onto value.