Setting the Negotiation Tone
Depending on who opens the negotiation, the history of the relationship, and the urgency, the head ramming begins. If the buyer goes first, they could set the tone by stating, “This is the price I need,” or “I can’t pay more than this price.” If the seller goes first, they may inquire as to the price the buyer is looking for. Sellers usually don’t like to anchor the price range by stating a price. They may also ask, “How many units would you require?” and “When would you expect delivery?” If the unit price varies based on volume, the seller may be able to offer a lower price if the buyer can commit to more units. As you can see, this is a multi-variable negotiation. We are not just talking price but also volume, a delivery schedule, and potential long-term agreements. Effective sales negotiation skills are crucial in navigating these complexities.
When I was a director of purchasing at a major New York department store, we tried to have as many annual agreements as possible to guard against price increases. In fact, our agreements stated that if there was a price increase, we could release one last shipment at the contracted price. This permitted a better accounting of expenses. Our largest annual agreement was for gift boxes. Almost 90% of the order was consumed in the weeks between Thanksgiving and Christmas. It took our three vendors all year to produce the quantity we required. Due to fashion trends and hot gift items, no doubt, you would run out of a size and require a reorder. That was always a separate negotiation.
Keys to Achieving the Best Price
I learned from my vendors the keys to achieving the best price. Considering setup time for each size, volume was the major driver of the lowest price. The longer the run, the less the setup cost impacted the final price. Sizes were added over the years that were similar, so we combined sizes and extended the runs, thereby lowering the price per unit. We used the same strategy with merchandise bags, our second largest expense. Delivery was the next challenge; we always wanted to aim for a full truckload to each location to minimize freight costs. Lastly, our annual gift box requirements were sent out to a number of local manufacturers for bid, thus elevating the level of competition in the market. We also made it known that we were open to any suggestion that would maintain quality but reduce our costs.
Rather than being the ram in the commercial, we chose to work collaboratively with our suppliers to find ways to reduce their costs and, ultimately, our price. There was no butting of heads; we were determined to find win-win solutions while maintaining strong business relationships. This approach required sales negotiation skills to ensure both parties benefitted from the agreement, and developing these sales negotiation skills was essential for achieving the best outcomes.
