Notes on Negotiations
By Marty Latz, Latz Negotiation Institute
What should you do if you’re selling and your potential buyer puts you in Conference Room A and your competitors are in Rooms B, C and D? It’s a reverse auction – and it can be brutal.
Last month I detailed the first two keys to success in this environment: 1) Prepare a Strategic Plan and Write Down Your Goal; and 2) Investigate Your Counterpart’s Interests/Options and Creatively Address Them. (click here to read part 1)
Here are the final three keys.
3. Research Competition and Evaluate Incumbency Advantage
Knowing your competition sounds simple. It’s not. How much will your competitor discount to get a foot in the door with your client? Will competing bidders operate at a short-term loss – the classic loss leader – intending to make it up later?
Some contractors always bid super low to get the contract. Their profit comes from scope changes they “unexpectedly” incur later.
Companies spend billions to find out this strategic intelligence.
How can you get this information? Ask around at industry conferences. Talk with your customers who have previously worked with your competitors. Hire industry consultants who know the competitive landscape. Reach out to your social networks.
A supplier once told me how he negotiated a great deal with Walmart. He was sitting in Conference Room A and stuck his head out the door – and there was no one in Conference Rooms B or C or D.
Find out who else is bidding, before the reverse auction if you can. Then develop your strategic plan. (By the way, Walmart made a strategic mistake by giving this supplier the opportunity to see that no one else was bidding).
And if your customer is running the reverse auction, you probably don’t need to undercut your competitors’ bids to keep their business. Why not? Because changing suppliers involves risk and cost – and your customer knows this. This incumbency advantage can be significant.
4. Differentiate with Independent Standards
It’s one thing to say you’re different and/or better than the competition. It’s quite another to get a potential customer to believe it and be willing to pay more for it.
The best way to effectively differentiate on issues other than price is to provide independent, credible evidence and standards supporting your differentiation.
For example, “here are a dozen references – from companies just like yours – who will tell you about our timeliness, reliability and creative ability to solve your problems better than our competitors.”
Or, “here’s an independent study by industry experts attesting to the true quality of our product or service.”
5. Strengthen Your Pipeline/Plan B
Earlier this year a Fortune 500 company asked me to bid on training 1,000 of their employees to more effectively negotiate. At first, it sounded like a potentially significant deal. However, after analyzing their RFP and talking with their representatives, I decided not to bid.
Why? It became clear to me – despite their rhetoric – that they were looking for a low price leader. That’s not my business model.
In addition, I was already pretty booked for the time in which they wanted the training. Could I have fit them in? Sure. But already having work, and the pipeline for more work, gave me the luxury to sit this one out.
Strengthen your pipeline. You may even decide not to bid.
Latz’s Lesson: Effective differentiation from your competitors plus a solid pipeline will put you in the driver’s seat in reverse auctions
Marty Latz is the founder of Latz Negotiation Institute, a national negotiation training and consulting company, and ExpertNegotiator, a Web-based software company that helps managers and negotiators more effectively negotiate and implement best practices based on the experts’ proven research. He is also the author of Gain the Edge! Negotiating to Get What You Want (St. Martin’s Press 2004). He can be reached at 480-951-3222 or Latz@ExpertNegotiator.com