Monday 11 May 2009

Keeping Check in Negotiation: Size of the Deal on the Table

Bearing in mind the need to avoid ‘piece-meal’ exchange of concessions in negotiation, it is essential to place all moves within a financial context at the planning stage.

Key preparation points include:
Calculating our share of the customer’s business (£ and %). This sobering exercise can help us to appreciate who needs whom, in the balance of power.
Calculating our share of the category can help to restore some of our self confidence – it can help if our category-definition corresponds with that of the buyer!

Calculating the customer’s share of our business (£ and %) can help us to explore the downside – a quick risk-analysis incorporating the impact and chance of delisting can help to moderate our attempts at devaluing the buyer’s concessions...
Calculating the results of a ‘perfect world’ scenario in terms of the buyer accepting our recommended quantities at list price can provide a base for assessing the impact of concessions on each side.

We can thus calculate the size of the deal on the table by working out the retailer’s sales of our offering in terms of R.S.P and gross margin, resulting in a potential pool of money (gross profit) for the retailer. i.e. If we want to supply 1,000 cases at £50 per case, before concessions, giving the customer a margin of 25%, then he could sell at £67,000, making a gross profit of £17,000 – his potential pool of money.

This same volume, at our sale price and gross margin of 50%, provides us with a corresponding pool of £25,000.
As the negotiation progresses, each party draws from their pool of potential money as they make a concession to the other party.
Accepting a concession obviously allows us to add to our money-pool and helps us to ensure the concessions exchanged are of comparable value. Any ‘shortfalls’ can be made up via adding value and devaluing techniques.
This process helps to measure each concession and facilitates the give-and-take of concession matching and trading.
Knowing the size of our potential pool allows us to establish negotiation limits and encourages us to add value in order to preserve and improve our bargaining power.
By the same token, our knowledge of the size of the customer’s ‘pool’ helps us to gauge the pressure on the buyer and thus the scope for devaluing the concessions with minimum risk.
In addition, keeping the overall size of the deal in mind throughout the session enables us to re-examine progress in financial terms and maintain overall control of the interview.
Negotiating by instinct without the figures means walking out on the ice with no knowledge of its thickness and relying upon the buyer as a source of ‘heat’.
Which would you prefer, numbness or numbers?

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