In my sales career, I have come across hundreds of buyers who excelled at negotiation. Some of these procurement professionals were naturals, while others had to work on their negotiation skills. Ultimately, the best negotiators combined an innate ability to reduce prices with a relentless drive to secure the best terms.
Here are five cost-cutting negotiation strategies purchasing has used against me in my business development career. These negotiation strategies are simple to understand, easy to use, and guaranteed to lower your company's costs.
1. Don’t Broadcast Your Needs too Soon
Purchasing managers who ask for concessions too soon in the negotiation are guaranteed to lose. Asking for a discount at the outset only allows the salesperson to adjust their offer later on. The best procurement professionals don’t make this mistake. They know how and when to use their concessions and they never broadcast their needs too early in the process.
Focus on identifying the initial price and save your concessions for later. The best purchasing agents secure an initial price and then stagger their requests, each time chipping away at the pricing or offer.
Don't tip your hand too early in the process. Only after the salesperson thinks the negotiation is finished do you start to use your best concessions to drive down pricing even further.
2. Don't Make a Threat You Can't Back Up
Never make a threat you have no intention of backing up. It's easy for a salesperson to spot a buyer who isn't serious. Some procurement professionals are completely unaware of how many threats they actually make. Some do it constantly throughout the same negotiation, while others use it repeatedly throughout the buyer-seller relationship.
Making threats you aren't serious about only makes the salesperson complacent. Your goal is to ensure that the salesperson is constantly fighting for your business. You want the salesperson to continually secure below-market pricing in order to win the next order.
Be ready to follow through as a consequence of a salesperson's inaction. The salesperson will not only take your threats more seriously, but they will be more willing to offer better pricing next time. Keeping them honest won't allow the salesperson to take your business for granted.
3. Match High-Value Concession with a High-Value Concession
Be sure to prioritize your concessions well in advance of any negotiation. This enables you to match a high-value request from the salesperson with one of your own.
Create your own list of high-value concessions. When the salesperson puts forth a request of high value, be sure to request one of equal value. Don’t end the negotiation if the salesperson isn't able to grant a specific concession. Be persistent and simply move to the next high-value concession on your list. One is guaranteed to be accepted.
Coming up with your own list of concessions should be focused around a simple "what if" strategy.
It's common for purchasing and sales to vilify one another. After all, sales and purchasing have conflicting goals and objectives. It's that conflict that can sometimes make a negotiation confrontational. Do not allow this to happen.
Explain to the salesperson that you have strategic initiatives to attain. Outline your goals and objectives and be willing to explain your everyday pressures.
Adding a personal touch to the negotiation makes it easier to have a free exchange of ideas. It is extremely difficult - if not impossible - to come to a successful agreement if both parties are unwilling to engage each other on a level playing field.
Take a less adversarial approach to negotiation. Be straightforward by explaining exactly what you need and why. Understand the job the salesperson has and ask them to understand yours. Like you, there are constraints the salesperson is working under. There are things they can and cannot do. Adding a personal touch to the negotiation may just disarm the salesperson and make them more willing to grant your requests.
5. Keep Your Vendors Honest
Complacency is as much a problem for purchasing as it is for sales. You may think you have the ideal vendor. Their price may be extremely competitive, their terms may be excellent and they may always deliver on time. However, if you're not up-to-date on market pricing, or not aware of the latest offers within your market, then how can you know for certain that you're getting the best possible deal? You can't. That's why it's essential you keep your vendors honest by letting them know you're aware of where the market is at.
Market pricing is never static. Salespeople will always be more proactive when they know you know as much about the market as they do. Let them know you're in tune with the market. It may just force the salesperson to offer up a price concession early in the negotiation.
You don't have to be a natural at negotiation in order to secure the best deal. You just need to be willing to learn. Define the constraints you work under. Outline what you expect as an acceptable outcome in the negotiation and always be prepared with a list of concessions you need and some you're willing to grant. Having a clearer picture of your ideal outcome will simplify the negotiation.