When it comes to sales, firms that successfully differentiate themselves are rewarded for their uniqueness--whether it's in their products, their delivery system, or their quality of service.
The question of how to stay ahead of customers always wanting a better price has been at the top of my mind for my entire business career. Even the other night, I was having dinner with one of my good friends and mentors, Marty Hanaka, and we were talking about competition in business. Marty was the President of Staples and went on to become the CEO of Sports Authority. He was on my board of directors back when my first company, Wilmar, went public. One of the things I always appreciated about Marty was that he would challenge me with the tough questions. To this day, one of those tough questions is how to negotiate the best possible deal.
Over the years, I've learned it's the company that does things differently that usually stands out.
Most of the time, people think of sales in terms of selling to consumers or other businesses. But sales isn't just about selling to the individual. Depending on what kind of company you're building, you will probably have to negotiate with vendors and suppliers at some point in time too.
And how you negotiate with them directly affects your profitability.
The key to running a successful company, and effectively managing a variety of vendors, is to never let a vendor get too comfortable with your relationship. Your business is important to them. So, never stop exploring alternatives.
This is something I feel we did incredibly well at Wilmar, a company that was exceedingly reliant upon vendors in order to satisfy our customers. I share more about how we built Wilmar in my book, All In, but these were lessons I've carried with me and applied to every company I've been involved in since. These vendor negotiating skills are known as "guerrilla negotiation tactics." And when you are "guerrilla negotiating," you should approach all your vendor relationships from a win-win perspective.
You don't want to nickel and dime them. Because if you are killing vendors on every deal, they will go out of business--or take their business elsewhere. You need them, just as much as they need you.
I've found negotiations come in three categories, with each one requiring a different tactic. So, in order to negotiate a good deal, these are the three rules you should live by:
1. Commodity Product (or Service) Negotiations
This will be your easiest type of negotiation because the vendor knows you have a lot of options.
Why? Well, commodity products can be made by any number of suppliers. Your customers do not care where they come from. There are no brand names attached: think screws, nuts, or bolts.
At Wilmar, when we needed some type of generic widget, negotiations were not difficult because I could choose from a wide variety of suppliers--domestic and abroad.
If you can't settle on a price, you have to remember you have all the leverage. You can move on to another supplier or, if you have the means, even create your own generic widget brand. At the end of the day, what's more important than price is product quality and ease of doing business. What kind of relationship you have with a vendor or manufacturer is just as important as how much it's going to cost you.
2. Brand Name with Options
Now, let's say you only need to offer one specific product, but your customers want to know that product comes from a strong brand.
You have think you don't have any leverage, but the truth is, you do.
I remember back at Wilmar, we could have stocked light bulbs from every well-known high quality brand out there, but we only needed one. I knew our customers would buy any one of them, so I negotiated with all the best brands (Sylvania, GE, and Philips) and leveraged them against each other until I got the best price. And if I didn't find a vendor I liked? Then I would also have a generic in-house brand to compete for our business. This way, our customers had options.
The day we decided as a company which lightbulb companies we were going to carry in stock each year was a big deal at Wilmar--because it would either mean millions of wins or losses in sales for one of the bidding companies.
Trust me, you have options.
3. Brand-Name Negotiations
We all know big brand names are extremely important to a lot of customers (think Coke, Disney, and Apple).
That's why they're huge companies--because people swear by them. So, how do you negotiate in the big leagues?
The first rule is to realize, in this scenario, you no longer have leverage. You can't play hardball. Instead, you should try to negotiate a win-win partnership. You may not get the lowest possible price per unit (you never do when buying name brands), but you can offset the higher buy cost by adding value to your relationship. Maybe you can help your brand-name vendor enter a new market--they love doing that. Or maybe you can improve your buying patterns, doing things like buying in bulk to help your vendor offset costs of doing business with you.
These little things help save the vendor money, which allow more of those savings to be passed on to you.