| Case Study (Pure Fiction!) The Customer letter started out nicely enough. Over the past decade, this Retailer had established leadership and a dominant brand presence in a $40bn market based on solid supplier relations. However, they were bracing for the entry of a major new player, who was underpinned by overseas expertise and significant supply chain advantages, and they needed to lift their game. | "We are undertaking a complete review of our range to cement our leadership position. A significant opportunity presents itself to suppliers who can build strong and profitable partnerships with us now and in the future. We invite you to submit your recommendations" |
OK we thought. So far, so good. The customer seems to want to continue to operate under a cooperative or "win-win" paradigm. As an established Category leading supplier with a good record for support and brand innovation, we should be in a strong position to negotiate for preferred supplier status or to be seen as the "Category Captain".
The letter went on to lay out the Retailer's objectives in terms of range, price points, value propositions, financial performance and overall Category growth targets. Challenging, sure, but nothing we hadn't grappled with before. We were told our submission needed to cover the following points:
Normally speaking, we would have been given the opportunity to work through the finer points in discussion with the Retailer's Category Management team. Perhaps we assumed that this dialogue would be allowed here. Perhaps we should have been more attentive to the closing paragraph...
The letter went on to lay out the Retailer's objectives in terms of range, price points, value propositions, financial performance and overall Category growth targets. Challenging, sure, but nothing we hadn't grappled with before. We were told our submission needed to cover the following points:
- Our ideal range that would best meet their objective
- Recommendations for deletions of items in our current range
- Features and Benefits of our range in comparison to the Retailer's existing range
- An exit strategy for deleted and displaced ranges
- Our marketing program and associated details
Normally speaking, we would have been given the opportunity to work through the finer points in discussion with the Retailer's Category Management team. Perhaps we assumed that this dialogue would be allowed here. Perhaps we should have been more attentive to the closing paragraph...
"Please note that for this review process we require you to submit your best offer. Our aim is to ensure our review process is timely and as such there will be no right of reply or further opportunities to submit for this review."
To cut a long story short, we "gave it our best shot" and within a short time we were no longer a supplier to this large and influential channel! Along with a number of well known brands, we were not chosen to go forward. There were many factors involved in the Customer's decision and, since this is a fictional case study, it would be inappropriate to speculate further on those.
However, it is useful to use the case to illustrate the extremes of negotiating style - if you believe there actually was any negotiation in the above example!
Competitive Negotiating Style
The traditional buyer-seller negotiation revolves around an adversarial approach with both parties treating each other as opposition. This occurs despite a stated win-win goal, since many negotiators pay lip service to the win-win approach. Such negotiations involve a clear concern for one's own needs but little concern for the other party's needs.
Emphasis is almost always on short-term gain at the other's expense. This short-term focus is reinforced by appraisal systems and KPIs for buyers that judge their performance based on short-term gain. Such negotiation usually focuses on:
This style does little to foster a relationship between supplier and customer, and has little or no consideration of long term consequences for the relationship. Interestingly though, there is still plenty of this type of negotiation around.
Cooperative Negotiating Style
Many companies have recognised that one of the untapped factors in increasing their competitive advantage is their relationship with suppliers. The basis of this relationship is the belief that continuous, long-term cooperative associations between supply chain partners produces improvements in productivity and profitability for both parties.
At the same time, the parties re-focus their "adversarial" instincts onto their own competition. The two parties then work together to make their product more attractive to the consumer or end-user. And somewhat obviously, this partnering philosophy usually delivers most traction in channel management or distributive situations, whether B2C or B2B.
In the case study we used to open this post, many suppliers had flourished in symbiotic relationships with the Retailer in question, as their large-scale business model swept all before them in a decade of success. The choice of suppliers was largely based on the ability of those suppliers to help the Retailer satisfy its consumers. Negotiation, under this background philosophy, had become more of a cooperative problem solving exercise.
Under this paradigm, the key factors which need to be aligned include:
Principled Negotiation - Extending the Win-Win Paradigm
Steven Covey has broadened our understanding of the Win-Win paradigm in his seminal book "The Seven Habits of Highly Effective people". The diagram shown here is an adaptation of his work, indicating that there are in fact different versions of "Win-Win" according to the views of the participants in the process. See reference 1 at the end of this post.
Roger Fisher and William Ury published their benchmark text "Getting to Yes" based on their work at Harvard, and introduced the key concept of the "BATNA", or best alternative to a negotiated outcome. Please see reference 2 at the end of this post, and our separate blog post based on Fisher's work.
Parker and Carlisle have proposed a process for "redeeming customer-supplier relationships" in their well-researched book "Beyond Negotiation" - reference 3 below.
See also our Two-Part White Paper, "Negotiation and Consultative Selling" which you can download by clicking here.
Case Study Wash Up
So what happened to the mutual cooperation which evaporated in the short time frame covered by our case study? Well, it's fictional of course, but my guess is that the Buyer's KPIs suffered something of a seismic shift. The advent of new and worthy competition looming on the horizon caused the Retailer to shift its strategy, and to issue new directives to its purchasing and Category Management teams.
However, it is useful to use the case to illustrate the extremes of negotiating style - if you believe there actually was any negotiation in the above example!
Competitive Negotiating Style
The traditional buyer-seller negotiation revolves around an adversarial approach with both parties treating each other as opposition. This occurs despite a stated win-win goal, since many negotiators pay lip service to the win-win approach. Such negotiations involve a clear concern for one's own needs but little concern for the other party's needs.
Emphasis is almost always on short-term gain at the other's expense. This short-term focus is reinforced by appraisal systems and KPIs for buyers that judge their performance based on short-term gain. Such negotiation usually focuses on:
- the knowledge and use of competitive tactics
- the use of perceived power over the seller
- the use of competitive threats
This style does little to foster a relationship between supplier and customer, and has little or no consideration of long term consequences for the relationship. Interestingly though, there is still plenty of this type of negotiation around.
Cooperative Negotiating Style
Many companies have recognised that one of the untapped factors in increasing their competitive advantage is their relationship with suppliers. The basis of this relationship is the belief that continuous, long-term cooperative associations between supply chain partners produces improvements in productivity and profitability for both parties.
At the same time, the parties re-focus their "adversarial" instincts onto their own competition. The two parties then work together to make their product more attractive to the consumer or end-user. And somewhat obviously, this partnering philosophy usually delivers most traction in channel management or distributive situations, whether B2C or B2B.
In the case study we used to open this post, many suppliers had flourished in symbiotic relationships with the Retailer in question, as their large-scale business model swept all before them in a decade of success. The choice of suppliers was largely based on the ability of those suppliers to help the Retailer satisfy its consumers. Negotiation, under this background philosophy, had become more of a cooperative problem solving exercise.
Under this paradigm, the key factors which need to be aligned include:
- the authority to negotiate
- the appraisal criteria and KPIs for buyers
- the levels of mutual trust between the parties
- creativity, innovation and flexibility on both sides
- the coordination of other resources and value streams in the parties' organisations
Principled Negotiation - Extending the Win-Win Paradigm
Steven Covey has broadened our understanding of the Win-Win paradigm in his seminal book "The Seven Habits of Highly Effective people". The diagram shown here is an adaptation of his work, indicating that there are in fact different versions of "Win-Win" according to the views of the participants in the process. See reference 1 at the end of this post.
Roger Fisher and William Ury published their benchmark text "Getting to Yes" based on their work at Harvard, and introduced the key concept of the "BATNA", or best alternative to a negotiated outcome. Please see reference 2 at the end of this post, and our separate blog post based on Fisher's work.
Parker and Carlisle have proposed a process for "redeeming customer-supplier relationships" in their well-researched book "Beyond Negotiation" - reference 3 below.
See also our Two-Part White Paper, "Negotiation and Consultative Selling" which you can download by clicking here.
Case Study Wash Up
So what happened to the mutual cooperation which evaporated in the short time frame covered by our case study? Well, it's fictional of course, but my guess is that the Buyer's KPIs suffered something of a seismic shift. The advent of new and worthy competition looming on the horizon caused the Retailer to shift its strategy, and to issue new directives to its purchasing and Category Management teams.
References
1. “The Seven Habits of Highly Effective People”, Stephen R. Covey, Simon and Schuster.
2. “Getting to Yes”, Roger Fisher, William Ury and Bruce Patton, Century..
3. “Beyond Negotiation”, John A. Carlisle and Robert C. Parker, Wiley.
1. “The Seven Habits of Highly Effective People”, Stephen R. Covey, Simon and Schuster.
2. “Getting to Yes”, Roger Fisher, William Ury and Bruce Patton, Century..
3. “Beyond Negotiation”, John A. Carlisle and Robert C. Parker, Wiley.
