PurchTips edition #324

In business, activities that offer the most reward often come with the most risk. Negotiation is no exception.

While sometimes simply asking for a discount yields one from a supplier, many negotiations are much more difficult. In those negotiations, simple tactics do not work. You need to use more complex approaches and often those approaches have risks.

Here are three risky negotiation approaches. Each of them can work. But they can also backfire if you fail to consider the risks. Our advice: be careful if you are considering using any of these approaches.

Bundling Additional Products and/or Services Into a Deal. When you max out the discounts you can extract from a supplier for a particular set of goods and/or services, it can be tempting to expand the deal. This is where you add different goods and/or services to the contract in order to make it a bigger deal for the supplier, with the intent of getting a bigger discount in exchange. This is called “bundling” and it is a legitimate negotiation approach. But, too often, the additional goods and/or services are outside of the supplier’s core competency. This can result in you moving business from the best supplier of certain goods and/or services to a weaker one. Only bundle additional goods and/or services where you aren’t making big compromises in quality, delivery or service for the sake of a small, additional discount.

Trading Quantity Guarantees or Term Extensions for a Lower Price. Suppliers are often willing to trade a slice of their profit margin for certainty. If you can offer them certainty in the form of a quantity guarantee or longer-term contract, that’s great. But don’t promise minimum quantities or extended agreements if there is a good chance that your organization won’t be able to meet the guarantees for which you will be held accountable. Always check with management on these things as they may have “secrets” – like a planned product line discontinuation – that may affect the organization’s ability to honor such commitments.

Threatening to Walk Away. One of the most powerful negotiation approaches is to tell a supplier that you are going to take your business elsewhere if your terms aren’t agreed upon. However, if the supplier calls your bluff and you continue negotiating, the supplier will feel a sense of certainty of getting your business on their terms. Additional requests and threats will likely be rebuffed. Only threaten to walk away when you can afford to do so.