Friday, April 8, 2011

Communication - Setting and Managing Expectations

In selling Suppliers try to set Buyer’s expectations through a number of legitimacy tactics such as standard agreements, standard prices, standard discounts etc.  A very important part of negotiations for the Buyer is the setting and management of expectations. Expectations can be established by what is said or provided to the supplier regarding your requirement such as volumes, schedules, preferences, desired functionality, competition, opinions of other suppliers and their products. Expectations can also be set in other manners such as what is not said in response a supplier inquiry, or non-verbal responses to supplier’s comments. Expectations, once set, are very difficult to change. They are especially difficult change if the sales person has set their own expectations with their management on what they could achieve. Changing positions would then require them to do the undesirable task of re-setting their management's expectations.

The reason why setting expectations is important is because as part of the sales process Sales people will report back to their management on what’s in their sales pipeline, what’s their probability of winning and what they think it will take to win the Business. Their sales managers will be doing the same with their management. If you set the right expectations early, the Supplier’s sales management will know what it may take to win the business. If you don’t set the expectations early, the sales person will still have set expectations with their management. If the two are substantially different, (what you need, versus what they expected) you have placed them and their sales management in the position of having to go back through their levels of management to say that they misread the client and more will be needed to win the business. No one likes to go back to their management to tell them misread the situation. If the sales person doesn’t need to make they sale, they may not want to take it back to their management. The same applies to their sales management. I’ve run into situations where discussing with a Supplier’s management why they didn’t get certain business I identified certain point where we could not reach agreement and they were surprised by the issues. Obviously they would have agreed to them if it was brought to them, but their negotiators chose not to. Nobody likes surprises, so its best to set expectations early. It can also save you from wasting substantial time negotiating with a Supplier that simply won’t agree to what you need.

How do you manage expectations?
Start as early as possible in the process to set their expectations low.
Identify what you want, not what they want to provide.
Identify any areas or requirements that would not be acceptable (e.g. ownership, exclusivity, process, etc.).
Use meetings to re-affirm those expectations.

When you have competition, the most important expectation to convey to a supplier is that it is a competitive activity. The supplier wants to know information that can help them determine their competitive position. Don't tell them anything that will help them understand their competitive position such as the competition, their status, acceptance of their solution, the value placed on any features or benefits their product or service has. Each of these can give an indication of whether there is real competition. If there isn't competition the supplier will price their work accordingly.

Provide information that will keep them perceiving that there is strong competition (even if there isn't). Use every meeting to probe for useful information that will help in the future negotiations. The supplier also wants to know information that can help with their negotiation such as: the budget, the timing of the requirements, critical requirements, value of features, etc. A combination of budget knowledge and perceived lack of competition will usually provide you with a price close to your budget, but possibly far more than the job is worth. Information regarding schedules and volumes can be used to determine competitive position. If they can deliver and they know their competition can't meet the dates or volumes, they will know it's really not a competitive situation as long as the dates are important to you.

Critical requirements can also be used to determine competitive position. They will know that only they can meet those requirements or, if there are other suppliers who can meet the critical requirements, they will know where they traditionally stand from a cost perspective.  Every company tries to make their product of service offering slightly different from their competitors. They will do this by adding features that others may not have. If they know that those features are important to you, they know it won't be a true competitive procurement or they will assume that you will pay more for those features which allows you them to avoid discounting their product substantially to win the business.

The more information you provide a supplier, the more a supplier can determine if a feature is of value to you and provides you with a benefit. The more they know about whether their features are benefits to you, the more they understand the real competitive position. The more of their features they feel are benefits to you, the more they will assume they can charge.

It is important to remember that Suppliers will know more about their market than you. They compete in the market daily. They know their competition, and understand the differences between their products and services and those of their competition. They also know the competition's recent sales wins (as they were their losses) and their backlog. If you tell them who the competition will be they can quickly size up whether someone will truly be competition. If you want to set the expectation that it will be competitive, they either shouldn't know anything about their competition or, you should include a competitor who you know will set that expectation.

If you can't properly set expectations or, if only 1 supplier can meet your needs, you shouldn't bid the work.

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