Price and Payments
The notion that price is the only issue in negotiation is not entirely logical. The competition and the complexity of most business deals require finding ways to create additional value and to move negotiation from positional bargaining to synergistic and creative joint problem-solving. Professional buyers are not charged with buying the cheapest solution available but rather with providing their organisations with the cheapest total cost of ownership. It means that besides our company, product and salespeople attributes we can differentiate ourselves from our competition by using the TCO – Total Cost of Ownership approach that is composed of:
- Acquisition costs: includes price, freight, legal fees, warehousing costs, initial training costs etc.
- Maintenance costs – repair labour, loss of productivity or revenue during maintenance – The cost of use – fuel or energy costs, safety costs, performance monitoring costs.
- Support costs – insurance, taxes, management fees etc.
- Supplier performance metrics – financial stability, cost improvement ideas –
- Delivery costs can be imposed either on the buyer or the supplier and may include: customs taxes, fuel, loading goods etc.
- Quality – testing, defect management, costs and losses associated with potential external failure.
- Customer Support – how many people involved, for what period of time etc. Bear in mind that happy customers will tell others of their positive experience.
If you are able to minimize the other side’s costs involved in the whole life cycle of our product, solution or service and at the same time offer value for money you will be in a better position to differentiate your value proposition, influence key decision makers and reach an agreement.
Additionally, it is necessary to clearly define the payment terms and conditions. If you buy, make sure you know what is included in the price, when you have to pay, and what happens if you don’t pay on time.
What work the supplier will do and what the buyer will do in return. Make sure your product and services are clearly defined and reflect your priorities. Include all the relevant quantities and specifications. As a supplier make sure you can live with all the specifications stated by the buyer.
When and where are the goods or services to be supplied? Is there any extra charge for delivery? How important are the delivery timelines and what happens if the delivery doesn’t take place on time?
A promise that the products or services will meet a required standard. As a supplier don’t expect to sign a deal with no warranties at all and make sure you know the limits on what you are offering. In order to maintain trust and credibility make sure that you can live with any promises you are making.
Difficulties in negotiating IP ownership can lead to delays in implementing an agreement.
Carefully negotiate IP ownership rights and consider the following factors:
- What party is paying for the R&D?
- Could the development be used by the competitors to your loss if you don’t own the IP? – How can you prevent competitors to use the same IP?
Intellectual Property can become a key differentiator in a highly competitive market place.
The best way to manage risks in negotiation is to include the elements that carry any risk in a written contract. Cultural consideration is critical. In Asian countries like China the goal of negotiation is not a signed contract. In China – unexpected circumstances, whenever they arise, are resolved through the relationship and therefore all the risk involved needs to be managed through the relationship as well. Explore the risk aversion of the other side as the value in negotiation can be created by shifting risk to the party that is more able to bear it, in exchange for greater potential returns.
Analysing the above elements are crucial in planning Concession Strategies that will assist you to leverage maximum value from trades and in planning meetings optimally. Always map out all your negotiation goals as fully as you can and for each Goal, capture your own and your counterparty’s view of the Goal with the best information you have.