Insights For Success

Strategy, Innovation, Leadership and Security

Negotiation

10 Tips for Successful Vendor Negotiations

GeneralEdward Kiledjian

Gain the upper hand in your next vendor negotiation with these 10 proven tips for success.

  1. Do your homework: Before entering into a negotiation, it is important to do your research. This means understanding your needs, your budget, and the market rate for the goods or services you are seeking. It also means understanding the other party's needs, their budget, and their negotiation style.

  2. Set your goals: Clearly define what you want to achieve in the negotiation and be prepared to stand your ground. Don't be afraid to ask for what you want, but also be willing to compromise and find a mutually beneficial solution.

  3. Build a relationship: Building a strong relationship with the other party can go a long way in a successful negotiation. Take the time to get to know the other party and try to find common ground.

  4. Be prepared to walk away: It is important to have a backup plan in case the negotiation does not go as planned. Be prepared to walk away if the other party is not willing to meet your needs or if the deal is not in your best interests.

  5. Use a win-win approach: Try to find a solution that benefits both parties. This can help create a long-term, mutually beneficial relationship.

  6. Use leverage: Leverage can come in many forms, such as the ability to walk away from the deal, the ability to offer a large volume of business, or the ability to offer unique value to the other party. Use your leverage wisely to achieve your goals.

  7. Use silence to your advantage: Don't be afraid to use silence as a negotiating tactic. If the other party is making an unreasonable demand, try not responding and see if they are willing to compromise.

  8. Be flexible: Be open to different solutions and be willing to compromise. This can help move the negotiation forward and find a mutually beneficial solution.

  9. Use objective criteria: Use objective criteria, such as market rates or industry standards, to support your position and make it harder for the other party to argue against your demands.

  10. Bring in a mediator: If the negotiation is not making progress, consider bringing in a mediator to help facilitate the discussion and find a solution.

Keywords: Vendor negotiation: Commercial negotiation, Negotiation tips, Negotiation strategies, Negotiation techniques, Negotiating with vendors, Negotiating for goods or services, Win-win negotiation, Building relationships in negotiations, Flexibility in negotiations, Leverage in negotiations, Using silence as a negotiating tactic, Bringing in a mediator, Objectively critiquing a deal, Walking away from a deal, Compromise in negotiations

Body language secrets of top negotiators

GeneralEdward Kiledjian
Image by US department of agriculture used under creative commons license

Image by US department of agriculture used under creative commons license

Communication isn’t only about carefully crafted words. Negotiations aren’t about arguments and leverage. A good experienced negotiator will marry strong arguments & leverage to carefully practised body language.

There have been dozens of studies and research papers on the power of body language during negotiations. An MIT one measured a negotiator’s ability to convince a jury (body language was accurately measured using a body worn device). It turns out that the right body language can significantly improve the negotiators chances of closing a deal (or convincing a jury in this case). The key takeaways were standing upright, facing the jury and speaking in a lower tone.

So clearly there is something to this body language mumbo-jumbo and it is worth studying and practising. To get you started, here are some tips:

  • While your partner is talking, don’t look down, shuffle papers or mentally start thinking about your next argument. Actively listen to what your partner is saying. Show genuine interest.
  • Try to measure your partner’s general modality and body responses. How do they typically sit. How do they talk (modality). How much eye contact do they typically make. How much do they move around. Do your homework and prepare. Know the baseline body language cues of your partner and you will be able to spot variations. You can also use this information to mirror them and more easily build rapport.
  • Look for gesture clusters. Some movements are nothing too complex but sometimes a person will exhibit a series of body gestures together that happen during specific situations. As an example, maybe your partner crosses his arms regularly and you shouldn’t read too much into this. But if he crosses his arms, taps his foot and does XYZ then it means ABC. Look for these cluster gestures, try to figure out what they mean and record it for future negotiations.
  • Last but not least, feet. Look at the feet. They can show impatience, boredom, etc. If you want to come across as strong and trustworthy, feet your feet still.

How to deal with stupid negotiators in business and life

GeneralEdward Kiledjian

In addition to Information Security, I have negotiated hundreds of contracts over the last 20 years totalling in the billions of dollars.

There are many schools teaching different “techniques” but the worst of the worst are those that have a win/lose strategy. These dinosaurs negotiations models believe in “winning at all costs” and are very easy to spot in the wild.

Techniques of the stupid negotiator

The win/lose strategy negotiators are the stupidest of the bunch. As previously mentioned, the techniques are easy to spot and I wanted to share some of them with you here:

  • lowballing They typically start the negotiations with unreasonably low bids and then never make significant concessions. They make small insignificant moves. Any flexibility on your part is seen as a sign of weakness and will fuel their “cheapness”.

  • no authority negotiators They typically send low-level henchmen into the negotiations and do not give them any authority to make concessions. This means every request has to be sent back to the home base for analysis making the process painfully slow.

  • Emotional attacks They typically see emotions as a weakness and will use it against you. This means they may try to bully you. Walk out of the talks at various points in the negotiations infuriated by something you requested. In extreme cases they may use someone of the opposite sex who will break down (often crying) during the negotiations to “win” the negotiations.

Now that you know some of their tactics, you will quickly realize you are negotiating with the “stupid” negotiator and typically you may want to simply walk away and find other options. If other options are not available, ensure you clearly set your negotiation parameters ahead of time (minimum price, volume, important terms, etc.) and ensure you stick to them. Don’t allow yourself to be played.

There is no pie

In this 1980’s style of negotiation (the stupid win/lose style), participants believe that there is a finite amount of pie and that you must fight to win the biggest piece.

The problem is that with this style of negotiations, both parties typically end up with sub-optimal results regardless of who actually “won” the negotiations.

Modern negotiations

The modern negotiator understands that the best outcome is a win/win scenario where the needs of each party are met as much as possible. A good healthy negotiation means everyone wins and everyone is optimally satisfied.

Let’s say you need to acquire outsource IT services and you manage to beat a vendor over the head and “convince” them to accept an unreasonably low rate. You may think you won because you got a “good price” but the reality the vendor will now do everything to cut corners to control costs. This means they will spend all their energy cutting, negotiating and arguing instead of figuring out how to help optimize service delivery.

The secret to modern negotiation

There is one undeniable secret weapon in the modern negotiators arsenal : trust. Without trust, there cannot be a win/win negotiation.

This means that even before you start “negotiating”, it is important to build a relationship with the other party. Spend the time to learn about each participants goals and needs. Figure out what brings them to the table and what the ideal outcome would be for them. You need to trust them and they need to trust you.

Let’s get back to stupid

I want to share with you some of the most used techniques by these badly trained old age stupid negotiators. My hope is by knowing their techniques, you will be better able to react and ultimately win.

Power of the negotiator

Every participant has different sources of power available to them during the negotiation.

In your office life, when negotiating with your boss, he/she has the power to reward or punish you. But often the levers of power are much more subtle and not always known (there is rarely perfect information).

Power can come from desperation, power of precedents (knowing someone else that got a specific deal), power of expertise, power of credentials, etc.

The message here is that you should ensure you have prepared all possible power sources. Additionally it is important to remember that power is perceived power and not absolute. You may think you are entitled to the same deal as another similar company (power of precedents) but may not realize they bought twice as much as you or that they brought another deal to the table.

Get the other party to invest

Every economics student learns about the concept of sunk costs. Wikipedia defines it as “In economics and business decision-making, a sunk cost is a cost that has already been incurred and cannot be recovered.” In Economics 101 we learn that sunk costs should not impact our analysis of continuing or killing a project.

Unprepared investors often make this mistake. They sink thousands into a stock whose price keeps dropping. Instead of limiting their losses and “getting out”, they keep adding to their losing position hoping it will turn around. They are using the sunk cost (all the investments up to this point) as a major deciding factor, whereas they should make a clear analytical decision on the chances the stock will actually appreciate from this point on regardless of these sunk costs.

One technique is to get the other party to invest heavily in the negotiations process. When buying a car, this could be “forcing” the sales rep to show you every car in the dealership, then test drive everyone, give you a detailed walk-through of every car, etc. When you finally are ready to make a decision a couple of days later, he will likely bend over backwards because of all the time he has already invested.

In a corporate environment, if you extend the negotiation process and the sales team has flown in from out of town, they may be more inclined to be “flexible” because they don’t want to walk away empty-handed.

This means that before you start the negotiations, you have an honest discussion with all stakeholders in your company and you agree on a common set of goals before ever walking into that boardroom. Know exactly what you want, what you are willing to invest, what you are willing to concede and agree that you will walk away if those conditions can’t be met.

Chance favours the prepared

The negotiation process starts much earlier than your first face to face meeting. Know the situation of your counterpart (aka do your homework). The more you know the better the outcome will be.

When negotiating a salary increase with your boss, the negotiation starts much earlier than the meeting where you ask for more money. It starts weeks before where you try to determine next year’s budget. You try to figure out how the company is doing and how that performance will exert pressure (if any) on your boss. You should check out the salary range for others doing your job in similar companies. You should figure out when your boss is more likely to be “happy and agreeable”. etc.. etc.. etc…

In a corporate negotiation scenario, some of this information collection may happen during the formal meetings. You should determine how much information you are willing to divulge, at what rate, when, how and to whom. Typically the counter-party will divulge some information but will then expect you to reciprocate accordingly. Are you willing to play ball? Make sure you determine this with your team before the counter-party ever shows up.

Time may be your friend

Any deadlines your counter-party may have could be used as an advantage. If you are negotiating with a supplier and know their end of quarter/end of year is in 2 weeks, but you have no such deadline, you come from a position of power. They may be willing to negotiate much more to ensure a deal closes within that window.

On the other hand, you may have a subscription licence with a fixed expiry date for a product critical to your business. If you wait too long and negotiate too close to that deadline, the OEM may not be flexible because they know you are working against the clock. And because time is tight, they may also assume alternatives are out of the question.

If you are working against a fixed deadline, start the negotiation as early as possible to ensure you are not bullied into a bad deal. If possible, prepare a plan B (alternative solution) that can be implemented if a reasonable deal cannot be reached. If the alternative is reasonable then the counter-party loses their position of authority and will likely be fairer.

Make it personal

Good negotiators know that making it personal generally helps your cause. Making it personal means being friendly and likeable. Make sure the counter-party sees you as human and not a big unfriendly grey corporation.

In extreme American jury based court cases, defendants have been declared not guilty, even though there is enough evidence to clearly assign blame. In these cases the jury sometimes sees the prosecutor as arrogant, mean, vindictive and “on a mission”.

Don’t be a prick. Always be kind and caring. Remain cool, calm and in control.

Negotiating with a "bad" counterpart

Behavior, Partnerships, StrategyEdward Kiledjian

Most of our negotiations with vendors should be amicable and balanced. Once in a while though, you come across a vendor that simply does not want to partner and only sees you as an additional revenue stream. For these rare cases, you sometimes may need to resort to extra-ordinary measures to regain control of the situation.


Take a Step Back

In most situations, if a vendor “feels” that they have won the business even before the official terms are negotiated, they may decide to take a hardline stance. Often times, this is a direct result of a business unit deciding on a product before final terms [with the vendor or reseller] are negotiated.

  1. The first step is to take a step back and re-assess the decision. Can another product or products meet this requirement? If the vendor realizes that you are considering other options, their position may soften.
  2. Another option related to the above point is to work with your internal teams and determine if the requirement can be pushed back or changed. If the vendor sees that the opportunity may be indefinitely delayed or lost, their position may soften.
  3. You may want to go back to the RFI/RFP step. This will give potential vendors a chance to propose alternatives you may not have considered. It also shows the problematic vendor that you are willing to “play ball”. It is important to clearly communicate your requirements. If none of the vendors met the minimum requirements, it is important to let them know this and what they must meet to be considered. Vendors can be very creative.


Use standards to your advantage


Most products or services can be procured from various sources. In an effort to drive up revenues and create differentiation, some manufacturers/resellers try to convince customers to start using the customs features of their products. Commoditization is a customer’s biggest ally. Any time a customer accepts to use and implement vendor specific features, they strengthen the vendors stronghold and may allow it to charge higher prices or force less than optimal terms.


Customers should always try to use standard commoditized products as much as possible. If something has already been implemented and is preventing a commoditized comparison leading to fair competition, the customer should ask themselves whether they can move to the standard feature sets (accepting a slight drop in performance or features).


Another part of this exercise is to work with the operational staff to determine the switching cost of various alternatives. This exercise sometimes shows that the additional cost of switching to another product is better than locking the company into a less than favorable agreement. Other times the company may accept a slight reduction in performance in exchange for removing a product from the IT portfolio.
 
When working on RFI/RFPs, it is important to always provide your exact requirements (functional, operational, etc) and then ask the vendors to find the least-expensive (TCO not only ICA) way to meet these. Often times this will allow the vendor to propose a better solution that also is mutually beneficial.  In line with this approach, it is good practice to force vendors to provide TCO estimates and challenge them to find ways of reducing it. You can make them financially accountable for reducing TCO by offering them more business as a reward.


Cancel the contract


Unfortunately you will encounter situations where the previous recommendations simply do not work. Although these situations should be rare, you may be forced to take more drastic measures.
If the vendor continually negotiates in bad faith and every other avenue has failed, you may be forced to simply terminate all contracts with that vendor. [It is important to ensure that all contracts allow for termination for vendor underperformance].

This sends a very strong signal to the other party.
In addition to the above, you may want to terminate all maintenance contracts. These are extremely lucrative for most manufacturers and losing this sends a very strong message. You may want to move from a maintenance contract to a T&M agreement. You may also switch from maintenance from one provider to another until the original vendor comes back to the table or you find an alternative solution.

Use competition
Fierce vendor competition always benefits the customer. Often times, vendors will come up with creative ways to meet your requirements. Remember that competition can be re-introduced at any step in the negotiation process. But do not bluff. Make sure you are prepared to follow though on your thread if the vendor calls your bluff.
 
Sometimes it may be worthwhile to investigate Software as a service if your issues are with a traditional software provider. SaaS is often a very price competitive approach since:

  • There is little to no upfront CAPex investment
  • SaaS providers are competing with the traditional server based vendors and are otten prepared to go the extra mile to win business.
  • Moving to a highly standardized SaaS offering may force you to re-evaluate you  true absolute requirements and may lead you to save tones of money by dropping custom modules.

 
Use their weakness

Our only goal is to secure the best possible outcome for your company and as such, you may want to use this approach with existing vendors. Go through a vendors complete performance record and determine if there is “unsatisfactory performance” which could lead to termination of contract, activation of penalties or loss of goodwill.  Often times this may serve as a good wake-up call to the vendor.

Do some homework and determine the vendors weak points and or pain factors. This may be the loss of a key logo ( account), bad press, loss of important revenue at the end of a month/quarter/year, etc. It is important to constantly check-up on your vendors market position and financial status. All of these can be strong negotiation points.

Conclusion
All negotiations should be performed in good faith. The techniques described above are measures of last resort and they may harm the long term feeling of partnership.