If you have not yet mastered the art of skillful vendor negotiations, you are surely missing out on gaining top notch deals and impressive profit margins. There are no set rules that apply to every negotiation discussion, but there are some important points to consider for more effective meetings with vendors.
Communication is the Key to Successful Negotiations
Successful profit margins depend on the rate you get from your suppliers. The quality of the relationship you develop with your providers depends greatly on how well you communicate with them. More precisely, it banks on how effectively you present yourself and express your wants and needs during the initial negotiation phase. In addition, the extent of your vendor negotiation skills will contribute to the success of your supplier relationship management.
Take the Appropriate Steps Beforehand and Always Enter Meetings Well Prepared
The negotiation stage can be both a tricky and a scary time. If you start the process off right, it may be the beginning of a long-lasting and mutually profitable connection. If you step off on the wrong foot, you may have difficulty securing an alternate supplier.
Utilize the following tips to take control of your negations with vendors and achieve better deals:
- Learn Industry Lingo: Understand and utilize the jargon of the trade while discussing negotiations with various suppliers. You will appear very knowledgeable and experienced in the industry. This will help you gain control because your suppliers will treat you with respect.
- Know Actual Product Costs: Research exactly how much your supplier pays in manufacturing costs. This knowledge is invaluable when it comes to vendor negotiations. It gives you a good idea of how low you can price your stock.
- Discuss Mutual Gains: Establish trust by showing interest in your supplier’s long-term goals. If they show no interest in lowering their price, redirect your focus to other parts of the agreement, such as bulk purchase discounts, payment terms, maintenance arrangements and after-sales services, to ultimately achieve mutual gains. Also, discuss other alternatives of interest and make use of areas besides pricing to achieve bigger benefits for both parties.
- Get Multiple Quotes: Regardless of how enticing your first quote may be, always seek out more options from multiple industry sources. The standard rule is to obtain a minimum of three quotes before scheduling a meeting with a single vendor. It is even a good idea to inform your prospective suppliers of the quotes their competitors have offered to give them the opportunity to put forth an even more enticing rate.
- Gather Customer References: Always practice due diligence prior to approaching a new supplier. Determine their quality of service by talking to previous customers. A reputable supplier will be happy to provide a list of contacts because they are proud of the level of service they offer. But, keep in mind, it is highly unlikely that list will include any dissatisfied contacts. Also, review past performance with their retailers. If you take the time to do a little research you will be better prepared for vendor negotiations.
- Don’t Be Afraid to Walk Away: Prior to entering any vendor negotiation, map out all the factors that are up for compromise and those that are absolute deal breakers. Take control by standing firm on your terms and never be afraid to walk away from a proposed deal. In addition, don’t let on that you are willing to concede on certain areas too early during the process of negotiation. Approach the situation confidently and positively, without giving away too much.
- Build Unwavering Confidence: Every chance you get, practice your bargaining pitch to help boost your confidence. Always remember, practice makes perfect. The overused mantra is very cliché, but absolutely holds true. It might be helpful to practice your delivery by role playing with team mates. Make it a habit of preparing an agenda before each performance that covers possible objections and effective ways to counter them. Make a strong impression so you can gain bargaining control and build leverage.
- Have a Deposit Available: You will get your supplier’s attention very quickly if you make it clear you are ready and able to seal the deal on the spot. This will fuel the vendor’s efforts to secure you as a customer and adds to your appearance as a no-nonsense negotiator. Supplier’s appreciate decisiveness and will respect you for it.
- Get Acquainted with Common Negotiating Tactics: Learn them all, verbal and non-verbal and use them during meetings with vendors. Here are some useful examples:
Make a Counter Offer
It is taboo to accept the first offer you receive. Instead, come back with a ridiculously low sum and begin the bargaining match back and forth, until you reach an agreement on the final figure. Don’t be so bold as to insist on a drastically low amount and threaten to decline; this may leave you with a poor deal. The supplier may need to cut costs in areas that need more attention, like customer service.
This is a very old school method of trickery. It is simply making visible reactions to a suggested price or offer that intentionally makes the other party feel uneasy. This strategy also brings with it expressions of shock or astonishment at the foolishness of the figure being presented. The goal of flinching is to prompt the supplier to offer a much better deal or at least explain the reasoning behind the initial ludicrous price.
As a sidebar, it is best to avoid manipulative tactics and threats that may negatively affect your credibility and undermine your ability to negotiate well. Besides, the vendor may read through it and end up very annoyed. This is no way to develop a trusting relationship. If you don’t follow through you may leave a bad impression and establish a bad reputation for you and your business.
- Never Lose Your Cool: No matter what, always maintain control of your emotions. An outward display of strong negative emotions such as greed, pride, anger or embarrassment, will end negotiation discussions faster than anything else. This applies to body language, facial gestures and tone of voice while negotiating. An open expression of anger demonstrates fear and a lack of ability to achieve what you want without throwing a tantrum. This will backfire, beyond a shadow of a doubt. Angry outbursts often escalate into irreconcilable conflicts and disagreements never get resolved.