Thursday, April 7, 2011

Competition - How to you get and maintain competition.

The most important factors in ensuring that you get the best price and terms in a negotiation is the ability to maintain the competitive process or the illusion of competition. If the supplier believes that there is really no true competition, they will see little need to make further concessions. Even the most skilled negotiator with all the tactics may not be successful if the competitive process of the illusion of competition is lost. Here are some thought on getting and maintaining competition.

From the earliest stages of selling the salesperson will be looking for information which will help them assess what, if any, competition they have. They may simply ask whom else you are considering. They may try to understand your problems and needs to see if they will be the only supplier who can meet your exact needs or solve your problem. They may ask for information about your budget to see who would be eliminated based on cost. They may ask for information about your schedule to see who would be eliminated based on availability. They will want to understand the quantity required to see who would be eliminated. They will want to talk with managers and operators to understand their preferences, not just on the product but all associated issues with the product such as installation, service, repairs, etc. They may ask them about how they feel about the other suppliers, their performance, and their reputation. They will want to understand what the motivating factors are for the decision and who the key decision makers will be. Their main goal in asking all these questions is to determine who the real competition is, if any, who to focus their sales efforts on, and what selling approach to take.

They will look at your history to see if there are any trends in your selection process. While you can't change the past, you can make a point of explaining why the future will be different (e.g. different management, different focus, different needs, different philosophy). For example, your current cost challenges is forcing you to make different sourcing decision, seek lower cost alternatives, etc.

The plain and simple fact is the more they know about you and your preferences, the more they will know whether there is really competition. Once competition or the appearance of competition is lost, it is extremely difficult to get back, and it will always cost you more in the end.

Everyone who talks with the salesperson from the secretary and operator up need to be coached about what they should or shouldn't say. You may even use them as a shill to plant seeds of doubt with the salesperson, just to enhance the appearance of competition. For example, you could point out all the areas where their product is less than the competition (even though you may not need or want that functionality) or where it doesn't fully meet your needs or where it will require you to do things or make investments that others won't. You might agree to disclose who the completion is, if that can be used to your advantage. For example, having some low priced suppliers in the mix may cause some suppliers to want to withdraw from the process unless you explain to them that you will select based upon total value. The higher priced supplier will still be aware that value has to include a competitive price. The more competitive the marketplace and the more doubt they have about their standing, the more they are forced to consider discounting as the means to try to win the business.

Sometimes maintaining competition may require you to "bring in a ringer" or outsider. Many businesses are traditionally locally based and become non-competitive because of informal arrangements, or sometimes-illegal arrangements such as collusion or price fixing. An outsider who is not part of the group may be required to keep them honest.

The team should guard against providing the supplier preferences unless you want to use them as a shill to note that they have preferences for the competitor's machine (even if they don't) so the supplier has to overcome those preferences with a better price.

Discussion on features should be neutral unless you want to use them to be a shill to note that they see value in features that the competition has that they don't so the supplier has to overcome those feature preferences with a better price.

Discussion on schedule or volume should be avoided if you feel that it will give one supplier a clear advantage. Once you have the price where you want it, you can usually leverage them for schedule and volume improvements as the final factor to close the deal.

Discussion on budget amounts should be avoided unless it can be used to your advantage. The budget amount may eliminate some potential competition. You may, however, want to use a budget to establish a target for negotiation (this is all I have to spend).

The one caution I have maintaining competition or the illusion of competition is if you plan to have suppliers know who else is in the running, because of activities like pre-bid conferences, you need to make sure that all the suppliers will be acceptable to you. The reason is different suppliers have different characteristics and ways they prefer to consider themselves. The appearance of a supplier who has a significantly lesser reputation, skill or quality, may cause the better suppliers to not bid or only submit a courtesy bid. When you need to include suppliers of different profiles and want to keep them in the process, the best way is to let them know that the selection will be based upon value. It will still force them to aggressively consider their pricing.    

Ninety percent of the time when competition or the illusion of competition has been lost, it was the result of well meaning people making the wrong comment at the wrong time. To get the best pricing they all need to be part of the negotiating team and be educated on what they should or shouldn't say.

No comments:

Post a Comment