“It’s tough out there, and it’s getting tougher. This economic slump is really affecting our business. We need to be especially focused on our bottom line in our negotiations with vendors, customers and everyone else. So how should we negotiate differently in this economic environment, if at all?”
This challenge requires a slightly different negotiation approach than if we were in the midst of a robust economy.
1. Be especially strategic.
The key to effective negotiations is to negotiate strategically based on the experts’ research, not instinctively or off the cuff. This is especially critical in challenging economic times.
Frankly, it’s often easier to negotiate in good times. Profits are up. Parties on both sides of the table generally are doing well and feeling good. And there’s relatively low pressure to generate the absolute best possible deal, especially if there’s a lot of gravy to go around. Sure, it’s nice to achieve all your goals, but it’s not make-or-break.
This environment allows more latitude to those negotiating instinctively. So while they probably will make some strategic errors, they may still close most of their deals and appear to achieve success.
Tough economic times often change this atmosphere by making the negotiation environment more competitive, aggressive and bottom-line oriented.
This leaves less room for error and places more value on making the right strategic moves at the right times.
In short, it’s especially important to get up to speed on the research and start negotiating more strategically.
2. Focus on your leverage.
Your Plan B — what you will do if you don’t get the deal done — takes on added significance in down economies.
Let’s say you just moved into a new house. You put your old house on the market three months ago, but you haven’t received any serious interest, despite lowering the price to 10 percent below what comparable homes sold for last year.
There also are two comparable houses on your street for sale in the same price range.
This week, you get a lowball offer. It’s more than you paid three years ago for the house, but less than what you really wanted. Your Plan B is paying two mortgages — and your monthly payment on your old house is about to increase by 25 percent. Bottom line: You’re desperate and can’t afford to carry two houses.
My advice in negotiating with the “lowball” buyer: Seriously engage and concede if necessary to get the deal done. While it may not seem fair based on your comparables, those comparables are less important than your very bad Plan B.
Likewise, if you’re negotiating with a regular supplier and need to cut your costs because business is down, consider more aggressively exercising your leverage by bidding out the contract and setting up a reverse auction.
In essence, develop a Plan B, C and D by getting additional qualified suppliers into the mix and letting them bid against each other for your business.
In an up economy, it’s not always productive to do this — especially if suppliers in your industry are close to capacity and doing well. If the economy is hitting on all cylinders, you may not even get enough suppliers to bid.
But in a down economy, you’ll likely get hungrier suppliers, and more of them. This process may lead to significant savings and boost your bottom line.
3. Negotiate your time frames.
Very up or very down economies tend to accentuate the relative advantages and disadvantages parties have in negotiations. And your relative strength or weakness may very well change in the future.
For instance, if you’re doing great in a down economy, you may have extremely strong leverage in negotiations with those doing poorly.
If so, lock in your strength by negotiating longer-term deals than you might otherwise consider.
And if the shoe is on the other foot, consider negotiating shorter-term deals that would allow you to renegotiate when your leverage improves.
Of course, we can’t predict the future with great certainty. And economics is far from an exact science. But one thing is fairly predictable: Our economy is cyclical.
So plan for the future by negotiating differently now.
Published February 1, 2008 The Business Journal