While effective negotiation strategies almost always directly impact companies’ bottom lines, they often take on even greater importance during tough economic times.
What negotiation strategies can be most effectively used in a challenging economy?
• Reassess your leverage.
Not too long ago, I consulted with a large organization’s purchasing department as they sought to reduce their technology costs yet still provide the premium service their internal clients required.
Their agreement with a long-term vendor was coming due and they liked its product and service but needed to substantially cut its cost. My recommendation?
Bid out the contract and find a Plan B, C and D to renewing their current deal. While they may ultimately stick with their current vendor/partner, this classic leverage move, especially in a down economy, largely ensured that they will tap into hungry and possibly desperate folks increasingly worried about their revenue and keeping good customers.
The better your Plan B, the stronger your leverage. And the stronger your leverage, the higher the likelihood you can negotiate better deals.
And if you’re on the sales or vendor side, reassess your leverage and, to the extent you can, incentivize your customers so they don’t bid out your contract.
At the same time, seek out new customers as challenging times often presents great opportunities if you can undercut your competitors’ prices.
• Tie your moves to standards.
Aggressively exercising your leverage, such as bidding out existing contracts, comes with a potential downside – it communicates a willingness to switch to someone else and signals that you may not highly value your current relationship.
To the extent you care about your relationships – and they have substantial value in most circumstances – don’t just blindside your counterparts by exploring your alternatives, or Plan Bs.
Instead, assuming it’s true, tell your current partners or vendors that you highly value your relationships with them.
Then explicitly tie your leverage and other moves to independent standards like market forces, precedent, costs, etc. Explain that “since the market for our services is down by X percent and our revenue has taken a direct hit, we must cut our costs. That’s why we are bidding out your contract (or asking for the same discount that our other vendors are providing).”
• Focus on the term.
Economic extremes tend to disproportionately advantage or disadvantage certain companies’ leverage relative to their counterparts. So, if you can develop strong leverage (for example, by bidding out a contract and developing a very good Plan B), lock it in with a long-term deal that continues your savings even when the economy improves.
Likewise, if you’re disadvantaged in this economy, negotiate shorter deals as the leverage tables may very well be turned down the road.
A few years ago, there was a fair amount of gravy to go around and it was relatively easy for our front-line negotiators to close decent deals. Today, it’s a different – and often tougher – environment.
This requires different – and often tougher – negotiation strategies.
Published November 13, 2008 The Arizona Republic