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Negotiation Practices In The Commodity World

May 8, 2008

The UK’s Sunday Telegraph has done the world a great service by revealing the hidden tactics of retail negotiation. In a hard-hitting article, it exposes the techniques of retail buyers in their efforts to drive down prices.

As a lesson in negotiation principles and practices, this article has great value.  The behavior it outlines is self-evidently destructive of relationships or meaningful commitment. Indeed, the article highlights that many supermarkets follow a policy where “Buyers’ lives are often short-lived and they are shuttled from pet food to beer to toiletries. The goal is to ensure they never build up close relationships which might tempt them to treat suppliers more kindly”.

The guidebook acquired by the Telegraph sets out a wide range of ‘psychological’ pressure points used by retailers to grind down their supplier. And in the context of the UK market, they can always resort to the threat of ‘de-listing’, which for many local suppliers may mean going out of business.

For any of us who have dealt with retailers – whether in the UK or elsewhere – we will recognize these traits. Certainly, for higher value goods and services such tactics are destructive and lead to a culture of blame, rather than collaboration. But for all the excitement of the story, is it actually wrong for the supermarkets to behave this way?

Most retailers deal in perishable commodities. They interface with a public that demands low prices. How would they benefit from ‘principled’ negotiation? A recent advert in ‘The Grocer’ magazine sums it up: “Honesty, fairness and truthfulness …. can lead to you being punished during negotiation … This is where behaviour such as being inconsiderate, selfish and unfair can be required .. During the negotiation you take on a new persona, someone who wants to get the best deals possible, who will not back down, will be aggressive, selfish, even rejecting.”

In my opinion, the real risk of these behaviors is that they carry through more generally into entrenched buyer behavior – or the image of buyer behavior – and therefore sabotage business dealings in higher value transactions, where relationships really can matter.

The challenge for the Procurement profession is to determine how it avoids being tarnished by the perception that the ‘unprincipled’ behavior described in this article is in fact fairly generic to all buyers. That image lies at the heart of much buyer /supplier mistrust – and often also clouds internal business relationships.

 

3 Comments
  1. The facts outlined in the article seem almost absurd. The sad part is that they are all reality. Reminds me of all the good practices highlighted by business books about suppliers being business partners. I guess the supermarket buyers mentioned in the article never had those lessons. On a serious note, relationship and partnership building are the cornerstones of supplier-buyer interactions. You may threaten and coax a supplier, and he / she may yield to all your whims, but the moment better customer is in sight,the supplier would have no qualms about dumping you.
    The article speaks about cost cutting as an absolute requisite for supermarkets.I would suggest that better management of the supply chain in collaboration with the suppliers can be much more cost efficient compared to negotiations to chip off the prices of supplies and compromising the service levels and committment of a supplier.

  2. There are many issues connected with how UK supermarkets behave in negotiations. The essence seems to be a short term view that aggressive, borderline unethical behaviour will deliver the right results. This ignores (a) how such an attitude spills over into, or is indicative of, other forms of corporate behaviour, as seen in the Office of Fair Trading investigations into supermarket price fixing, (b) what happens when market dynamics shift with production shortages, as we have been starting to see, for instance with cereals, and (c) the effect on the supermarkets’ customer relationships – it is interesting to note that the UK supermarket with the best customer relationships has an ethical approach as a fundamental business principle.

  3. A recent White Paper offers some useful tips to manufacturers on ways to raise – or protect – margins in the face of the unrelenting pressure on prices. http://cdcsoftwareinc.com/mk/get/ROSS-WP-MARGIN-PROTECTION-FB-SDCHAIN-EDM-MAY2008

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