The Art of the Procurement Negotiation Offer
PurchTips edition #278
By Charles Dominick, SPSM, SPSM2, SPSM3
How Should Buyers Make Negotiation Offers?
When requesting/demanding a price reduction from a supplier, there may come a time when the supplier will ask for your target price. That request is often phrased like "How much are you willing to pay?" or "Where do we need to be to get this deal?" or "Make me an offer."
Sometimes, it's smart to withhold your target price while, other times, it's good to make an offer. If you're not careful with responding, however, you may not get the best deal possible. Here are three tips for making offers in a procurement negotiation...
Tip #1: Don't make your offer seem like a predictable negotiation tactic. Suppliers aren't dummies. They know that it is your job to ask for price reductions. So, they try to determine whether you truly need one or if you're just following protocol. A friend of mine once suggested in a seminar to not ask for a predictable 10% price reduction, but instead ask for an "odd" number like 11.2%. This would make your demand seem more realistic and less like a familiar tactic that suppliers can easily identify and dismiss.
Tip #2: Be prepared for the supplier to suggest "splitting the difference." "Splitting the difference" is a sales negotiation tactic where a supplier will respond to a price reduction offer by counter-offering half of the discount. For example, if you are asking for a 10% discount, the supplier will suggest splitting the difference and will make a counter-offer of a 5% discount. Be prepared for your supplier to use this tactic and determine, in advance, whether getting half of your desired discount would be acceptable or if (and how) you want to continue negotiating for a bigger discount.
Tip #3: Predict the likelihood of scaring the supplier away. Some suppliers can be so insulted by how a procurement professional negotiates, they may decide to end the negotiation and decline the opportunity to do business. So, before making an offer, evaluate the likelihood of insulting the supplier to the point that the supplier would walk away. Assess the degree of sacrifice involved in going with the next best alternative. Then, make an offer appropriate for the risk involved.
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