I’m told one of the world’s largest retailers used to invite potential suppliers to its headquarters and sit them in adjacent conference rooms. Potential supplier A would go in conference room A, potential supplier B in room B, etc.
The retailer would first ask supplier A for its bid. It would then go to conference room B, tell supplier B what A bid and ask B to bid. It would then go to conference room C, and work the suppliers off against each other until the bidding stopped.
Since the suppliers had pre-qualified and the retailer at that point really only cared about price, it was a brutally effective strategy for the retailer.
So what can you do if you’re one of those suppliers or a little guy in that environment?
• Leverage is not based on size or financial strength.
It’s based on how much the parties need a deal (the more desperate you are, the weaker your leverage, and the more desperate your counterpart, the stronger your leverage); and your best alternative to a deal with your counterpart – your best Plan B – relative to your counterpart’s alternative to a deal with you (the better your Plan B and the worse your counterpart’s, the stronger your leverage).
• Know your market and competitors.
Some companies provide super high-quality products and don’t want to be the low-price leader. Others distinguish themselves with amazing customer service.
Here’s the deal: The better you know your market and competitors, the better you can strategically determine your and their moves if you’re in conference room A and they are in B and C.
• Build your long-term relationships.
Long-term relationships matter. And while it may not overcome a significant price difference with your competitors, you will likely get the deals if you’re in the ballpark.
And if you know your partners might bid out your contract and are particularly price sensitive now, consider offering a special discount as an incentive to prevent them from getting your competitors into conference rooms B and C.
• Focus on your total-value proposition.
Finally, while large corporations definitely care about price, most also appreciate the value of efficiency, going the extra mile in customer service, a higher quality product, a trustworthy relationship, and your total value proposition.
So assuming you’re price competitive, highlight your other characteristics. They may help you close the deal.
Published April 2, 2009 The Arizona Republic