As a buyer or a seller, one of the most difficult negotiations is a price increase request. Despite the difficulty, there appears to be a lot of it going on in the marketplace. Whichever side of the negotiation table you are on, we are seeing success from the side that outperforms the other in two key aspects of negotiation:
- Active Listening
Preparation – Successful negotiations are built upon Preparation, Power and Aspiration. Preparation is the most important because it is directly and positively correlated to Power and Aspiration. The more you prepare, the more Power you have. The combination of Preparation and increased Power raises your Aspiration levels for the negotiation. Here are four key preparations we have seen buyers and sellers using to improve negotiation results for economics increase requests:
- Understand the power dynamics between the companies. Negotiation power occurs at the company; product/commodity, issue, and personal levels. Successful negotiators evaluate power at each level and take actions to improve their negotiation position.
- Identify the shared and conflicting interests of both parties. What are the long-term interests of both parties that can be improved in the negotiation? Sellers who are in a powerful position to “demand” an economics increase request may have interests in new programs or sales in a different geographic region. Buyers (and sellers) may have interests in improved quality and delivery performance.
- Do the math and build the case. Most economics increase requests we are currently seeing in the marketplace are based upon increased material costs. Each side needs to understand commodity pricing and product availability trends that are happening in the market and be able to model the impact to the part level.
- Identify the questions you have for the other party (see section on Active Listening below).
APD’s On-line Strategic Negotiation Program provides the knowledge, tools and skills for buyers and sellers to win the negotiation battle over rising prices.
Active Listening – Whether negotiating competitively or collaboratively the first step when the parties meet to negotiate is to shut up and listen to the other side. Active listening requires asking questions to make sure you fully understand the positions and interests of the other party.
- Instead of presenting the price increase request first, a seller requesting a price increase request should have questions for the buyer regarding what they are seeing in the marketplace. Are there customers allowing price increases? How do they handle such requests?
- When presented with a price increase request the programmed buyer response is to not say “no” but “hell no”. Using an active approach, buyers faced with an increase request would ask questions to understand the supplier interests including why the supplier wants the request, what alternatives they considered and, most importantly, how they did the math that justifies the request.
Will preparation and active listening guarantee you to get the results you want from economics negotiations? No. But they will improve your negotiation outcomes.