Why price isn’t the most important thing anymore

May 28, 2020

How many times have you been in a negotiation and it suddenly dawns on you that all your counterpart wants to do is haggle on price? They have a figure in mind and they’re not going to budge. It can be a frustrating feeling to realize that the person on the other end of the phone—or, nowadays, across from you on Zoom—isn’t trying to help you or come to a mutually beneficial agreement. They just want what they want at the price they want. Sound familiar

Well, these days, those types of negotiators may increasingly find themselves on the losing end of deals.

Last week we hosted a webinar on negotiation skills (you can watch it here). Listening to the speakers, it struck me how much price is becoming less important in the negotiations between suppliers and procurement professionals. Of course, price will always be a big consideration. But one of the lessons we’re learning from the supply-chain issues stemming from the coronavirus pandemic is that there are other more important factors to consider if your ultimate goal is to source products and services for your organization.

If and when

More than ever, surety of supply is becoming a critical factor in negotiations. More than price, buyers want to know that their orders will actually show up. They want assurances and they want back-up plans if transport links falter or supplies wane.

Other factors that have become bones of contention in negotiations during the coronavirus pandemic include implementation timelines, service level agreements and payment plans. Each of these might end up being much more important for many negotiations these days than price. So if you’re in the middle of a negotiation, and your supplier just wants to talk about price—and downplay your questions about risk—that’s a red flag. Is this the type of supplier you want to work with?

Perhaps unsurprisingly, since the onset of the pandemic, cash flow has been one of the biggest considerations for suppliers and buyers alike. The old adage “cash is king” couldn't be more true today. Many organizations with long histories and strong financials have been very seriously affected by cash flow issues in the last few months. All of those companies—buyers and sellers alike—are trying to protect themselves. And that is likely to show itself in any negotiations they enter.

For instance, many companies are now trying to push out payment terms as far as they can. If you’re one of them, it’s worth spending time considering some of the concessions you could give to your suppliers in return for stretching billing cycles. One popular idea right now is longer-term commitments as it tends to work out for both parties. The promise of a continued relationship is a good concession to propose to a supplier. If your organization happens to be lucky enough to be liquid in today’s environment, then this will be a strong negotiating point when speaking with suppliers.

Be prepared

Our webinar last week also touched on overall preparedness when it comes to procurement. Each of the experts on the panel cautioned that procurement professionals should think carefully about what they’re trying to achieve. No matter how good you are at negotiations, gone are the days when you just get on a call and make a deal by shooting from the hip.

Today, you need to do your research on your counterparty and its people. Start with the outcomes you’re trying to meet and work your way back from there. This isn’t just the amount of product you want to order and when you want to receive it. How much do you want to spend on shipping? How often do you need to reorder the product? Where do you sit on quality? Whatever your criteria, make sure you know your priorities and timelines as well as your budgets.

Also, think about what you can give up if you need a bargaining chip. Think of the one or two things you may not be able to agree on and try to determine beforehand what you can use to bargain away. The point is to go into every negotiation loaded with the information you need to help your supplier understand your requirements and keep the conversation focused.

And even in this age of electronic markets and fast-paced transactions, negotiations are often still ultimately about people and relationships. When you’re preparing for a negotiation—especially if you’re speaking on the phone or videocall—research the people you’ll be speaking to. Make sure you understand how to talk to them as people who are more than just their job function. If you can build a good relationship with your counterpart, the chances are more likely that you’ll have a mutually successful negotiation.

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