PurchTips edition #360

Allow me to share a story of my first $100,000 procurement negotiation, 20 years ago this month. I had just finished negotiating with a supplier. After weeks of back-and-forth, I got the supplier to agree to several favorable terms, including a price that was 20% below its original offer. I was excited to tell my boss about how effectively I negotiated.

When I told him my news, I expected him to be pretty happy. But he looked up at me, stone-faced, and asked: “Is that as low as they will go?” I replied, “Well, yeah.” And he said, “How do you know?” And I stumbled through my response, saying “Well…that’s the price we ended up at…when we concluded negotiations.” And he probed further with “How do you know that they wouldn’t be willing to go even lower if you continued the negotiation?” I probably looked like a deer in headlights, because I didn’t have a good answer for him! Maybe I didn’t negotiate so effectively after all!

So, how can you rate a buyer’s negotiation effectiveness, to know when maximum value has been extracted from a negotiation? Here are two clues:

• The supplier will say “no” to a request of yours at least twice. Suppliers know that today’s buyers have a “if you don’t ask, you won’t get” mentality. So, they think that buyers ask for everything, knowing that they’ll have to settle for less. Suppliers counter that with an initial refusal of a request to test the buyer’s seriousness and figuring that “If it’s important, they’ll ask again.” Therefore, giving up after one rejection is not advisable. However, if a supplier says it cannot honor a request over and over, they may actually mean it.
• The supplier will submit a “best and final offer.” Negotiations can wear suppliers down and make them feel like they’ll never be able to improve their offers enough to win your business. In these cases, they will often “leave it all out there” and provide a proposal labeled “best and final offer” that contains another concession or two. While there’s no guarantee that the supplier truly couldn’t move more, submitting a best and final offer is a risky and gutsy move by suppliers and provides some evidence that you may have pushed them as far as you can without killing the deal.