Negotiation and Persuasion:
Persuade with partnership and a “long view” of value
Persuasion is a key part of almost any negotiation, and we can incorporate the latest behavioral science into our own “best practices” to support our organizations. But much of the focus on negotiation tactics misses the big picture.
The most effective negotiation technique I use everyday is being a good partner.
Here’s how it works.
By definition, negotiations are agreements that provide mutual value to all parties, but they also form the foundation for long-term relationships. We are most successful in persuasion when we are “partners” working towards a benefit for both parties.
Negotiations generally fall into two broad categories — integrative bargaining or “win-win”, versus adversarial or “zero sum” in nature. For most organizations the goal is a “win-win” negotiation and the start of a long-term relationship.
Think of a manufacturing business and their component suppliers. Each party’s success is dependent on the other. Both “win” when the manufacturer sells more goods, then purchases more components from their suppliers. Suppliers who recognize the value of this relationship realize their growth depends on the success they offer their customers (the manufacturer). We say they both “create” and “capture” value for the other party.
There are two types of value– it’s either immediate value or long-term value which is created or captured over time.
Immediate value is easier to quantify and understand. Imagine a price negotiation with an extra 10% cost reduction achieved at the negotiating table. The cost reduction’s value is apparent.
Long-term value can be more subjective, but not less impactful.
It simply requires strong commitment to partnership, through preparation, and understanding the value created over time by you and your organization.
In my experience managing a global supply chain, I see firsthand the importance of laying a foundation for future negotiations with our supplier partners.
If we think short-term we demand immediate results only and we lose the opportunity for future successes.
Take the real-world example of a manufacturer, who is a smaller to mid-size business in a competitive market segment. This segment has many larger competitors, who constantly move from component supplier to component supplier. They use their size to extract price concessions, with no thought for how value is created or captured for the other party. When suppliers can no longer support their demands, the larger manufacturer simply moves to another supplier. In the past, the US auto industry had a reputation for this exact practice.
This “zero sum” approach is transactional in nature because it doesn’t develop long-term relationships and doesn’t measure value on a longer time horizon.
Smaller manufacturers in any industry don’t have the same volume of business and must consider a more comprehensive view of value. They need to persuade suppliers of the value their relationship offers.
A successful approach I use is to understand the future value of a current advantage, but also to remain aware of when it creates actual value to leverage. This may sound complex, but it’s a simple concept. Know your strengths, but also understand when to play them.
In one case, I had experience with a firm who understood their small size prevented them from offering the largest most lucrative orders to components suppliers. But they also managed supplier relationships with a foundational principle of “partnership.” They recognized the value of being a good customer, and created an aggressive culture of on-time payment– in full, for every single invoice. This mantra of being a good customer and respecting the partnership can seem like an empty promise at the start of a new supplier relationship. Everyone says they want to “partner,” but few follow through.
After you have proven this commitment, it creates significant value. Paying on time, every time conveys commitment and stability. When you sit down in year two to negotiate your next contract, you become a customer of choice, creating value for both parties. This value is eventually leveraged, but it takes patience and a long-term view.
Being a good partner can even extend some strategic relationships from one supplier to another. In one case, our firm was engaged in a long-term development project which struggled to achieve cost targets. The main supplier was a long-time partner, who had seen the value of our firm as a customer and was committed to working together in new ways to achieve our cost goals.
Because our project was run transparently, we learned one specific component was driving the cost increase. Meanwhile, our firm purchased large quantities of this specific component (for other products) from a third supplier, with significant discount in place. With some simple strategic thinking, we leveraged one supplier relationship into the other. But it was only possible because we had a trusted partnership with both suppliers.
The supplier developing our project ultimately used the new relationship we offered to achieve a lower cost (and better quality) for this project. But it also created a new opportunities to lower costs to their other customers by using the new supplier partner.
This didn’t happen by accident. We persuaded them to use this third component supplier only because we created a foundation of “partnership” and a view of value beyond what could be achieved in a single moment.
Conclusion
Persuasion in negotiation can take many forms and there are lots of tactics out there. But the most effective long-term persuasion tactic we use is to be a great partner with your supplier. Take a long-term view and find ways to create value for them. It’s worth it.
