winning strategies

“We must cut our costs and tighten our belts.” That’s the new mantra of our investors, boards, bosses and the markets. In this period of sustained economic distress, money is especially tight. Companies must go back to their suppliers and vendors and strategic partners and negotiate—or renegotiate—better deals.

While effective negotiation strategies almost always directly impact companies’ bottom lines, they often take on even greater importance during tough economic times. Which negotiation strategies can be used most effectively in a challenging economy?

1. BE ESPECIALLY STRATEGIC.

The key to effective negotiations is to strategize based on the experts’ proven research, not instinctively or off the cuff.

It’s often easier to negotiate in good times. Profits are up, parties on both sides of the table generally are doing well and feeling good, and there’s relatively low pressure to generate the absolute best possible deal. Sure, it’s nice to achieve all your goals, but it’s not a make-or-break situation.

This environment allows more latitude to those negotiating instinctively. So while they will probably make some strategic errors, they may still close most of their deals and appear to achieve success. A struggling economy often makes the negotiation environment more competitive, aggressive and bottom line–oriented. This leaves less room for error and places more value on making the right strategic moves at the right times.


2. CREATE NEGOTIATION BEST PRACTICES.

It’s also critical to ensure that everyone on your team negotiates strategically—and that means creating, implementing and managing negotiation best practices. Negotiation is one of the last significant areas in the corporate world that remains largely unmanaged.

The vast majority of professionals don’t consistently and systematically use proven, research-based negotiation strategies. Instead, they largely rely on their instincts when they reach the negotiation stage – and this often leads to a) money left on the table, b) bad habits and inefficiencies and c) failure to capture critical intelligence that your company can use in future negotiations.

“But wait a second,” I can hear you say. “We’ve spent a lot of time and money on negotiation training. Was that a waste?” No. Negotiation training can be very helpful. But to maximize your teams’ effectiveness, you also need negotiation best practices. In a challenging economy, focus specifically on the following:

Reassess your leverage.

Not long ago, I consulted with a large organization’s purchasing department as it sought to reduce technology costs while still providing the premium service its internal clients required. The staff’s agreement with a long-term vendor was coming up for renewal. They liked the vendor’s product and service, but they needed to cut costs substantially.

My recommendation? Bid out the contract and come up with several alternate plans to renewing the current deal. While the department may ultimately stick with its current vendor, this classic leverage move—especially in a down economy—largely ensures that the company will tap into hungry and possibly desperate vendors increasingly worried about revenue and keeping good customers. The better your plan B, the stronger your leverage; and the stronger your leverage, the higher the likelihood that you can negotiate better deals.

If you’re on the sales or vendor side, reassess your leverage and, as much as you are able, incentivize your customers so they don’t bid out your contract. At the same time, seek out new customers. Challenging times often present great opportunities if you can undercut your competitors’ prices.

Tie your moves to standards.

Aggressively exercising your leverage, such as bidding out existing contracts, comes with a potential downside: It communicates your willingness to switch to someone else and signals that you may not highly value your current relationship.

To the extent that you care about your relationships—and in most circumstances, they have substantial value—don’t just blindside your counterparts by exploring your alternative plans.

Instead, tell your current partners or vendors that you highly value your relationships with them (assuming that’s true). Then explicitly tie your leverage and other moves to independent standards like market forces, precedent, costs, etc. Explain that “since the market for our services is down by X percent and our revenue has taken a direct hit, we must cut our costs. That’s why we are bidding out your contract [or asking for the same discount that our other vendors are providing].”

Focus on the term.

Economic extremes tend to give a disproportionate advantage or disadvantage to the leverage of certain companies, relative to their counterparts. If you can develop strong leverage (for example, by bidding out a contract and developing a very good plan B), then lock it in with a long-term deal that continues your savings even when the economy improves.

Likewise, if you’re disadvantaged in this economy, negotiate shorter deals, as the leverage tables may very well turn around in the future.


3. IMPLEMENT AND MANAGE NEGOTIATION BEST PRACTICES.

The next step is to ensure that your team implements—and that you manage—these best practices.

First, require each of your front-line negotiators to complete a best practices–based strategic negotiation plan prior to significant negotiations.

Second, ensure that they update their plans during their negotiations and regularly report their progress.

And third, track and retain all their strategic plans and the crucial intelligence that has been gathered.

You can do some of this with the word processing and spreadsheet programs available in common customer resource management (CRM) solutions.

Bottom line: Get your teams to negotiate strategically based on proven, research-based methods. That’s the best way to maximize your likelihood of negotiation success—in this economy and the next.
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MARTY LATZ is the founder of Latz Negotiation Institute, a national training and consulting company.