Directors’ Briefing                                                                                     PurchasingNegotiat...
Directors’ Briefing                                                                                      2•	 Find out what...
Directors’ Briefing                                                                                                       ...
Directors’ Briefing                                                                                                       ...
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Negotiating a purchase

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When you’re negotiating a purchase, thorough preparation is far more important than dazzling technique. For expert advice on how to prepare, and get the best deal possible, take a look at our free online guide.

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Negotiating a purchase

  1. 1. Directors’ Briefing PurchasingNegotiating apurchaseNegotiating a purchase can often be more • Cost out negotiable areas and consider thecritical than negotiating an individual sale. implications.Apart from price, you may need to secure • Decide whether it is more important to youstrategic essentials such as component to get the price down or get added extrasquality and continuity of supply. at the same price (see 5.3).Good preparation, clear objectives and an Making concessions to get what you wantawareness of common pitfalls are all you need. is an important part of negotiation.They will remove the need for inspiration ordazzling technique and provide the basis for It is equally important to be ready to walkpurposeful, successful negotiation. away from an unacceptable deal.This briefing covers: 2 Understand the seller• Setting your objectives.• Understanding the seller. 2.1 Find out how much the supplier needs• Making concessions. your business.• Getting the right price. • Establish how urgently your order is needed.1 Know what you want1.1 Decide how much you want the deal. For Straightforward Business Banking example, you may have a problem that you Our team of Local Business Managers are committed to need the supplier’s product to solve. understanding your needs. We offer a range of simple, interest paying business accounts offering great value which are• Calculate how much money the product or straightforward and easy to use. service may save you in the long run. Put it down to a whole new approach to business banking.1.2 Set your negotiating objectives. Join the team that shares your drive.• Define what you would see as ideal, Apply online at expected and unacceptable prices. www.santanderbusinessbanking.co.uk• Decide how much time you are prepared to spend negotiating. Contact our UK call centre team on 0845 606 0873• Work out what your response will be to Lines open Mon to Fri 8am to 7pm different proposals the supplier may make.• If you are keen to buy regularly from this Or visit us in branch supplier, you need a deal that will last. Santander Business Banking provides dedicated banking services1.3 Decide which areas are negotiable. for customers with an annual turnover of up to £250,000.England Reviewed 01/04/12
  2. 2. Directors’ Briefing 2• Find out what you can about the state of terms. the seller’s order book. For example, there may be spare capacity that the supplier Be aware that the supplier’s negotiating needs to fill. strength increases in direct proportion to• Identify the supplier’s likely objectives. your need for the product (see 1.1 and 1.2). For example, a company moving into a new market may set out to build market 2.3 Establish what the supplier will value. share initially, rather than make profits. This This may include factors such as: may give you more bargaining power on price issues. • Immediate payment. • Larger volume purchases.2.2 Determine the supplier’s negotiating • A commitment to repeat orders. strengths. Define what the supplier can offer that you value. This may include: 2.4 Be alert to clues about what the supplier cannot concede. For example, if cashflow• Availability — for example, time-sensitive or is tight, the supplier may be unable to offer immediate delivery. you the flexible credit terms you would like.• Quality — for example, a product with a track record or recognised brand name. 2.5 Anticipate the supplier’s approach.• Other factors, such as exclusivity, after-sales service or flexible payment • Assess what you think the supplier’s negotiating strategy will be. What leverage have you got? • Find out whether the supplier knows of any weaknesses in your negotiating position. The power you have in relation to the supplier will depend on the range of options each side has. 3 Your negotiating strategy A Research the possibility of using 3.1 Develop your strategy for buying. alternative suppliers. The details may only come into focus when you write it down. • Look specifically at what the supplier’s competitors are doing. • Decide on your overall approach. • What could other sources offer that • Decide the type of deal you want and the would be as good as, or better than, priority you will give it. this supplier’s product or service? • List your strengths and the ways you might • Is there anything this supplier offers that use them in the negotiations. you cannot get elsewhere? If so, how • Plan how you will defend the weaker much do you need it? aspects of your position. It is generally unwise to enter • Give a written copy of your strategy to negotiations without having alternatives. anyone who is negotiating on your behalf. B If you are a small supplier’s main Stick to your strategy till the deal is done. customer, be aware that pushing too hard may not be in your best interests. 3.2 Get the right negotiating team. • You can lose the goodwill of dependent • Where possible, match the seniority and suppliers if you squeeze the price down. style of those you are negotiating with. If they drop unprofitable products, or • Include the relevant specialists. For even go out of business, because they example, contract, commercial or cannot get a decent price, this may production. create problems for you. • Bring together complementary skills. For example, choose one team member for C Think about what you can offer that his or her ability to get on with people, and costs you little but means a lot to the another to focus on the details. other side. • Use an agent to negotiate in areas outside For example, it may suit you to collect your expertise. For example, when sourcing goods from the warehouse, and it means from overseas suppliers. the supplier does not have to organise and pay for delivery. 3.3 Aim for a deal that works for you, and keeps the seller happy (see 7).
  3. 3. Directors’ Briefing 3• Be firm but fair. You may need to deal with the supplier, insist on your own terms and this supplier again. conditions of purchase (see 8).• Even if negotiations are going your way, • During negotiations, keep key facts and keep drawing attention to the specific figures from competitors’ quotes to hand. benefits for the other side. • Keep a suppliers file, containing all the information you hold on them. Log any3.4 Negotiate at the right time. problems you have had in the past. For example, renegotiate a tenancy when other tenants have moved out and the 4.3 Do not reveal your negotiating position. landlord needs you to stay, or negotiate the purchase of a new copier before your old • Answers like “We are keen to do the deal” one breaks down. give the other side no useful information, sound positive and allow you to go on• Find out what time constraints affect the asking questions yourself. seller. For example, sales people’s bonuses often depend on meeting quarterly quotas. 4.4 Confirm understanding each time a key You can use this type of information to help point is agreed. you get a better deal. • Summarise the state of negotiations before “ and after each meeting.4 Controlling the negotiation • Ask for a break if you need time to think before agreeing a point. Don’t agree to4.1 Establish negotiating points. separate parts. 4.5 Be aware of common negotiating tactics. Never agree to• Try to get the supplier to state a starting anything until you price before discussing other points. • If the seller keeps referring to urgent ” are in a position to• For important purchases, suggest written deadlines or abruptly raises the emotional agree the whole heads of agreement, setting out the key temperature, there may be some deal. points of the deal you are proposing. gamesmanship involved. Maggie Stonor, For instance, when buying database MS Training software, detail what you want from the If both sides know what is going on, supplier, eg functional requirements, negotiating manoeuvres are effectively installation procedures and training for your cancelled out. But if you use tactical ploys staff. Set out the timescales involved. that the seller becomes aware of, this may make it harder to get the deal you want.4.2 Work with the right information.• Get the seller to restate the spec in the 5 Looking for trade-offs offer to supply and include specific details of discounts and payment terms. Do not indicate at the start that you are ready• If you have enough power in relation to to concede. Make concessions only if they are necessary to help you get the things you want. Protecting yourself 5.1 Make any concessions real, and insist on A Shift legal responsibility onto the seller. real trade-offs from the other side. • Tell the supplier in writing how you intend • Standard terms are sometimes dressed up to use the product and get written as concessions. Expose them. confirmation that the product is suitable. • Keep a record of all assurances offered 5.2 Offer concessions the supplier values. by the seller. • Ask for explicit statements about hidden • For example, agree long-term supply dangers, limitations or quality changes. contracts or guarantee a minimum annual volume, in return for lower prices or other B Make sure you get what you wanted. factors that are important to you. • Insist that the product supplied must 5.3 Restructure the deal. If the supplier will not match the specification. budge on price, ask for other improvements. • Ask who will supply the service. For example, you may find that training is to • Ask for better payment terms, delivery or be provided by inexperienced tutors. extra features. Any of these may bring you better value than a slightly lower price.
  4. 4. Directors’ Briefing 4• If appropriate, suggest paying with your 7.2 Build partnerships with regular suppliers. Expert product instead of cash. contributors • Visit suppliers and get to know the people5.4 Link the deal. who deal with your account. Thanks to Maggie • Invite regular suppliers to meetings and Stonor (MS Training,• For example, “I will pay your price if it keep them informed. London, includes delivery” or “I will drop my claim for • Give regular suppliers direct telephone 01249 740 477). the faulty goods you supplied last month if numbers for their key contacts. you give me a 5% discount.” 8 Contract issues6 Lowering the price A contract exists whenever two parties agree to6.1 Do not accept the supplier’s first offer. a deal. So it is vital to discuss all the key issues before you agree to buy.• Make a low counter-offer.• Ask “What can we add in at this price, to 8.1 Document the negotiations in writing. make it easier to sell to my boss?”• Do not be tempted by offers of a long • Verbal contracts are legally binding but payment period. difficult to prove in court.• Beware of ‘bargains’. Ask the supplier why • When a key point has been agreed, always the price is so low. Work out whether this is put it down in writing. Write afterwards to the real reason. confirm what was agreed.6.2 Undermine the asking price. 8.2 At the start, agree with the supplier what type of contract will be used.• Ask what-if questions. For example, “What The contract may refer to the terms and if you go bust and I have no-one to support conditions of either side, or a mixture of the the machinery?” two. Standard terms may include:• Lower the price by focusing on features you do not need. • Details of price, payment date, payment• Expose the total cost of ownership. Ask method and delivery. about expenses and consumables, service • Guarantees covering a specified period. and repairs, including parts. • A clause giving the seller the right to retain• Query the price by putting it into a wider legal ownership of the goods until fully paid context. For example, “Is this reasonable for, or to delay delivery when hold-ups when the market price is falling?” occur due to circumstances beyond his or her control.6.3 Use your negotiating power to get what • Clauses limiting the seller’s liability (taking you want. For example, ask for discounts in into account the buyer’s statutory rights). return for making a larger order. 8.3 Agree payment terms.• In some industries, such as the building trade, prices are 15% higher because trade • Avoid advance payments, unless you have buyers expect discounts. a relationship of trust with the supplier.Everyone wants to get a cheaper deal. But you 8.4 Agree what will happen if problems arise.should never buy on price alone. For example, if goods are faulty, agree whether the supplier will replace individual © BHP Information Solutions Ltd 2012.7 Building a relationship faulty items or the whole batch. ISSN 1369-1996. All rights reserved. No • Agree whether replacement supplies will be part of this publicationBeing straight, pleasant and easy to deal with delivered immediately or whether you will may be reproduced orcan be a critical factor in getting a good result. be given a credit note. transmitted without the written permission of the • Establish if replacement goods will be free, publisher. This publication7.1 Build rapport with the seller. and who must pay for delivery. is for general guidance • Agree penalties for infringements of critical only. The publisher, expert contributors and distributor• Where possible, get to know someone delivery dates or quality standards. disclaim all liability for before serious negotiations start. any errors or omissions.• Make it easy for your opposite number. Consult your local business support organisation or your Find out what information he or she needs professional adviser for help to be able to justify the deal. and advice.Published by BHP Information Solutions Ltd, 6 Grove Road, Redland, Bristol, BS6 6UJTel: 0117 904 2224, www.bhpinfosolutions.co.uk

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