Reverse Differentiation: Achieving Most Favored Customer Status
“The skills for becoming a champion caliber negotiator are acquired skills. Nobody is born with great negotiating skills. You are born with the skills of crying and breathing, all other skills you acquire throughout your life.” – Soheila Lunney
On September 20th, My Purchasing Center hosted an event on ‘Championship-Caliber Negotiation’ featuring two of BMP’s favorite procurement thought leaders and authors: Charles Dominick and Soheila Lunney. They recently co-authored The Procurement Game Plan, a book that combines their two perspectives into one seamless text covering a range of topics including entrepreneurial spirit, negotiation, and talent management. In this event, they discussed the negotiation strategies, techniques, and tips applied by successful negotiators to achieve competitive pricing but also a collaborative approach to build a foundation for longer-term competitive success.
You can listen to the event on demand on MyPurchasingCenter.com.
Some of the advice Charles and Soheila offered up was based on tactics or behaviors they see in sales negotiators that procurement and purchasing professionals should emulate. Two weeks ago we looked at how learn about your suppliers and their interests by making purposeful small talk and asking open ended questions to uncover the personal and professional motivations of your sales person.
Another technique procurement can employ in a negotiation is what Charles described as ‘reverse differentiation’. Also known as ‘most favored customer’ status, reverse differentiation allows a buying organization to position themselves as an attractive customer to suppliers, hopefully having a positive impact on the prices and terms secured in the negotiation.
Reverse differentiation is less about relationship building than demonstrating that you will not be an expensive customer. All suppliers face common problems with their customers that they expend time and resources trying to eliminate. As buyers, we want them to know they have wiggle room in their contract pricing because we will not do the things that cut into their margins.
Here are some examples:
- Suppliers hate: slow decision making and late payments,
- Suppliers love: evangelistic customers (references and testimonials), low maintenance customers (in terms of customizations)
When we asked more about what suppliers love and hate (so we can position ourselves well where possible), The Sales Guy had this to say:
“Using open ended questions with sales people can provide insight to the ‘suppliers love …’ and ‘suppliers hate …’ topics. Without exposing the reasons for asking, you will get a shopping list of topics for both categories. It is worthwhile to capture the care-abouts and use them later. When the negotiations are coming to the final stage, the customer can create a compelling event by saying things like:
‘John, I remember you telling me how hard it is for you to get approval for extended payment terms and testimonials. I will commit to net XX day payment terms right now and offer to have my exec contribute to a press release for your latest product introduction IF you agree to a XX% discount and deliver in a timeframe that meets my schedule.’
Sales people love to engage in give and take. All too often the sales person makes an offer and the answer is either silence or “No!” By using items that are known to be important to the sales person and supplier, procurement has more leverage and sets the bar for negotiation.”
To The Sales Guy’s point, it is easy to overlook the value of countering in a negotiation. When a supplier presents a term that is unacceptable or less than desired, make a counter or alternative offer. Keep the ball moving back and forth. It may be that you are closer in position than you realize, but you’ll never know if you don’t explore the entire range of positions available to you.