Leverage Points for Vendor Negotiations June 28, 2007
Posted by Darth Sidious in Vendor Management.
Let’s face it, running an organization the size of The Empire is extremely costly – so one way of achieving the financial feasibility of running an Empire is to lower your vendor costs.
Our primary vehicle for this is to utilize electrocution on sales reps to submit to our will, or hang them upside down in a Wampa Snow Monster’s cave until they give us the discount we want (or unless the Wampa eats them).
For those of you who are still weak in the dark side you’ll have to resort to other means.
As with any kind of negotiation, the key is leverage, key points that give you an upper or collaborative hand.
Here are leverage points that we teach to our Officers and Sith Sigma students:
1) Use brute force.
Having a battalion of Star Cruisers or a single Death Star pointed at the Vendor’s home planet is leverage.
Often we can get the product for free by doing this.
2) Wait for the end of quarter, and end of year.
Sales Rep commissions are tied on their quarterly and annual results – waiting to seal the deal to the end of a fiscal milestone let’s you leverage this as Sales Reps are more likely to offer the biggest discounts so that they can book the sale.
3) Use your size.
If you’re a member of a large organization, such as The Empire, Vendor’s can be manipulated into being more flexible with their pricing.
For example you can entice them with the possibility that if you get the product for near free, and if it gains traction, then other departments may want it (or the free installation will eventually exceed capacity) – and hence result in lucrative future sales.
4) Form partnerships.
You’re not a customer at this point, but part of a strategic joint effort to prosper from each other.
E.g. if you can get the product at cost, and provide it as an add-on option to your customers.
Or similar to the above tip, if you’re big you can say for a huge discount you’ll post a “Powered By [Vendor Name]” logo on your organizations Web Site. Or vice versa, allow them to brag that they have you as a customer (and even go so far as to offer referrals to their potential clients).
Or offer your services and products in return. If you’re a hardware company, and they’e a software company and need each other’s offerings – you can do a cashless exchange.
5) Know their product and organization inside and out, and their competitors.
Find out their financials, their products strengths and weakness, as well the competitors.
Leverage their weaknesses as ways to get discounts with the Sales Rep, “we like the product, but it’s missing xyz key features… But for the right price it’ll be worth it to use it anyways.”
As well as leveraging their competitors strengths against them, “your competitors can do this. So if drop the price, it would still be worth it for us to stay with you…”
6) Maintain a Knowledge Base on all your actual and potential vendors.
You want to be able to store and look up all past contracts and see what kinds of deals you’ve gotten before, and what leverage points worked.
Be able to spot trends such as noticing that the best deals were made during a certain time of the year, or that a particular Sales Rep caves in easily.
Leverage past sales for future contracts. E.g. “we’ve spent $9B so far, you have to provide a massive discount to continue our relationship…”
Keep track of all issues you’ve had with the vendor. Problems with the product, support, sales, etc… Leverage that information on future deals.
7) Many Vendors or a Select Few.
There are pros and cons to each of these.
Having a select few will results in larger deals, which gives more leverage for volume discounts. But gives them leverage knowing that they’ve locked you in (especially when it comes to technology).
Having many Vendors let’s them all know that you’re willing to use any Vendor for the right price and that you have no hesitation to switch platform. But the drawback is that you’ll have fewer deals with each for probably smaller amounts.