Leveraging Market Intelligence and Benchmarking
Negotiating pricing and terms with a supplier is nearly impossible if you don't know what a "good deal" looks like. In sole-source negotiations, suppliers typically open discussions with offers that are priced considerably higher than those they would deliver in competitive situations. So, simply targeting to negotiate a certain percentage reduction from the opening offer is unlikely to result in a competitive price. Indeed, suppliers expect to be asked for improved pricing and will often price that into a bloated opening offer.
But don't make the opposite mistake: requesting pricing and terms that are unrealistically aggressive and not in line with the market. This type of customer overreach undermines your credibility in the negotiation and what the supplier thinks you know about the market for the services you're sourcing. Unrealistic customer demands embolden the supplier to withhold and deny concessions.
Thus, obtaining market intelligence and benchmark data is a key tool to level the playing field for the negotiation. You can find such data from a variety of sources, including industry reports on pricing trends, directional input via relationships with peer companies, internal benchmarks from other supplier contracts, and analysis from market research firms. But for large enterprises that have complex, multifaceted supplier relationships, which makes benchmarking a complicated exercise, most of these sources are of little actual value. Ultimately, a bespoke benchmark analysis from a specialized advisor that leverages real data applicable to similarly sized enterprises will provide the most effective and accurate market intelligence to guide your negotiations.
Suppliers generally react positively to external benchmarking input. They realize that it helps expedite the negotiations, and that a good advisor will help manage the customer's expectations in line with the market, making sure that needless negotiation cycles aren't wasted on customer requests that are unrealistic or unfulfillable. Of course, the supplier may try to undermine the benchmarking input as part of the negotiation and sometimes even try to exclude the advisor from your negotiation, all because it knows that customers that engage external support gain a significant advantage over those that don't. If that happens, consider yourself successful in getting a real negotiation with your supplier underway.
Don't Neglect Contract Terms
Suppliers prey on customers willing to sacrifice flexible commercial terms that protect long-term negotiation leverage and deliver future pricing improvements for short-term cost reductions. For instance, suppliers often present new contract documents or confusing amendments that remove rate review provisions, extend contract terms, and impose inappropriately large, inflexible commitments or sub-commitments.
As a matter of tactic, suppliers often don't present any commercial or legal terms until after pricing has been agreed, presenting onerous conditions late in the discussions at a point when you've already used up most of your negotiation capital. Suppliers often meet any attempt to push-back on the conditions with a vague threat to revisit all the agreed-upon pricing or further delay the negotiation because it supposedly built the original offer around inclusion of those conditions or removal of those customer-advantageous contract terms.
To avoid that distraction, make sure to address contract terms with your supplier early in the negotiation process. Do this both by setting out the basis upon which you're prepared to do business at the start of the negotiation, and by insisting that at the time of the offer the supplier transparently present all terms and conditions upon which it bases that offer. This is equally true when negotiating for new services, and when negotiating term extensions for existing services.
Continue to next page: Anticipating your supplier's negotiation tactics, and more
