Negotiating with suppliers can be an intimidating prospect for people without much experience in the area, and there is more to negotiation than just haggling about prices. In this article, Val Moore looks at how negotiations may not be as straightforward as they seem, forwards some tactics to use in these situations and explains how to work towards building strong relationships with suppliers.
Getting the best deal for your provision is not just about getting the cheapest price; it is about obtaining the best arrangement overall.
There are a range of factors to consider before purchasing goods or services. This will include some or all of the following:
value for money
Price, value for money and lifetime costs
Paying £1 for something that will last a month does not give value for money if a similar something costs £5, but will last a year. This assumes, of course, that:
there is an ongoing need for the something
sufficient money is available to spend the higher amount.
Should the something be needed only once, the £1 version represents better value for money, assuming it performs all the necessary functions of the £5 option.
Items of higher quality often last longer and can be safer (for example, toys that come with a BS standard), better for you (in the case of food) or give prestige (parents may lean towards choosing the provision that has a new minibus, decorated with the provision’s logo, over a provision that has a rusting, if reliable, minibus).
Delivery and payment terms
Should something need to be delivered regularly or at short notice, it is possible to pay a little more for the goods supplied in order to ensure delivery as required.
Payment with order may save pennies, but payment after the delivery of goods may help ease any cash flow issues. Weigh up which is the better option for your provision.
A cheap computer printer is not such a bargain if the ink cartridges are three times more expensive than those used by a more expensive printer. The more expensive printer may require a higher initial outlay, but it comes with lower cost consumables over its anticipated lifetime.
After sales service and maintenance, and training costs
Dependant upon the item purchased, inclusion of the above costs may have a higher initial price but over a period of time this may prove cost effective.
Should they need to be purchased separately, research should be undertaken before finally agreeing to a purchase.
Before the negotiations start
Negotiation is about compromise on both sides. It is also about building relationships and building goodwill, particularly if it is anticipated that the provision will need the supplier in the future.
Research potential suppliers and how valuable your business could be to them. If the supplier has a lot of competitors or is a new startup, they need your business and the buyer therefore has a stronger negotiating position. If the supplier has few competitors (such as specialist insurers, for instance), the buyer has less room for negotiation.
Identify the key members of their staff who have the authority to negotiate.
Draw up a list of factors in order of importance, then decide what you are and are not prepared to compromise on.
Think about what you could offer the supplier. For example, if the provision has a good relationship with the local press, part of your negotiation may be to offer to do a joint press release when the new piece of equipment is delivered.
State what is to be purchased and the two most important things from your list: “The provision is looking for a supplier of stationery. Value for money is important, as is a supplier that we can rely on.” Have a list of types of stationery that were purchased during the last year to hand and avoid stating the actual value of the stationery purchased last year.
Approach negotiations in a positive way but do not, at an early stage, say what you are prepared to compromise on.
Each time a point is agreed, paraphrase it to ensure that both parties understand the situation in the same way. Write the point down and be seen to be writing it down.
Never accept the first offer, which may be phrased as though there is no flexibility: “This is our best price list, which already includes our discounts.”
Make a counter-offer: “I see delivery is extra, but as your van passes by here each day delivery costs are negligible to you, so could we dispense with them?”
They will usually come back with a revised offer. Perhaps: “If you could make up your stationery order to a minimum of £100 each time, we could offer free delivery.”
Depending upon what is being purchased, other points to consider may include the following:
If the price appears too low – what is the catch? There usually is one in such instances:
is the quality compromised?
is it really value for money?
what would the customer service be like?
Is there a discount for bulk orders, or in exchange for a guarantee that they will be your preferred supplier on agreed terms for a period of time?
Does what you are buying have features you do not need? Ask for these features to be removed. If they cannot be removed, ask for a lower price anyway as the specification is more than is required.
As mentioned above, consider what can you offer them in return for concessions. Give this a value, for example: “Many of your customers will see the article (from the press release) and just think of the cost of actually buying a quarter-page article in the local paper. All this for just giving us free delivery.”
Do not be intimidated by the supplier talking about “urgent deadlines” or suggesting “this offer is only available today”. These are pressure tactics and are often not grounded in reality. Do not allow yourself to agree to anything that you are not happy with and do not be afraid to ask for a break to give yourself thinking time.
Negotiation is not about “going for the jugular”— negotiation is about seeking a result that both sides are happy with and that builds a relationship. Squeeze the supplier too tight on price and they may make cuts elsewhere – perhaps they would deliver to you only when they are delivering to another customer in the area. They may feel resentful and not provide good customer service if they feel your negotiating stance was too uncompromising.
After the negotiations
Confirm, in writing, your understanding of what has been agreed. It may be necessary to draw up a formal contract. This must cover:
any other terms agreed.
Last reviewed 30 April 2015