Avid fans know, at the end of this season’s Game of Thrones, we find House Lannister having killed or alienated all of its allies, just as the final battle for dominance of Westeros looms ahead. A smart strategy? It certainly allowed them to consolidate power for the short-term. We will find out next season if it works in the long-term.
Likewise, in the battle to win shopper dominance, many retailers are using an arrow in their quiver aimed directly at potentially important allies – their suppliers. The rationale goes: During negotiations, if we can beat up our suppliers on the cost of goods, and demand more investments to fund omnichannel upgrades, we will beat out our competitors. But will they?
There are certainly huge margin pressures across retail due to price transparency spurred by the age of online retailing. There is also an urgent need for investments to quickly upgrade consumers’ retail experiences. Many retailers are therefore turning to negotiations practices that include:
Extreme demands using outdated (and often combative) tactics
Trading long-term success for short-term (and usually unsustainable) gain
At one un-named large U.S. retailer, it has become best practice in negotiations to target the supplier with an extreme demand and then make slow, incremental concessions, no matter how important the supplier or the opportunity to create new value. Merchants are taught to give a fake “flinch” at any supplier proposal, instead of asking questions, gaining new information and working with suppliers to expand the pie. These tactics surely put the “game” in the Game of Thrones.
Several suppliers have shared it has now become a joke to start each negotiation by asking this retailer if they will be “playing the game” so they know whether there will be a serious conversation or not. This retailer is being childish at best, leaving great value on the table and doing substantial damage to itself at worst. Naturally this has caused tensions to soar and suppliers are rethinking how to engage this retailer and others.
WINTER IS COMING
In response to combative retail negotiators, some suppliers are increasingly using their own strategies and leverage to fight back – and winning. Hostile retailers are seeing a substantial reduction in the investments made by their suppliers in time, resources, innovation and dollars. Retailers taking a win/lose approach are also losing any advantage they may have had in exclusives, information sharing, joint innovation, quick problem-solving or other favorable treatment received in the past. Several suppliers are making bolder choices about where to sell (and not sell) their products, particularly as new avenues of distribution proliferate such as their own ecommerce sites. In many instances, they are simply telling retailers NO.
At the retailer cited above, suppliers shared that they used to put their best and brightest talent on the account. Today, their best account executives no longer want to work with this retailer, so the retailer is getting a different level of talent. Suppliers also shared this retailer is no longer getting the investments previously made and suppliers are treating the retailer as a simple transactional customer. All of this has long-term consequences.
On the other hand, strategic retail negotiators know win/lose approaches with a narrow focus on the single issue of cost never grow value for either party in the long term. It simply becomes a painful and drawn-out exercise in dividing the pie. Whoever is perceived to have more leverage wins the round (note to suppliers).
Strategic negotiators also know that a “one-size-fits-all” approach to negotiation severely limits potential outcomes. A broad spectrum of competitive and collaborative approaches should be considered. Unfortunately, many retailers are failing to train their merchants to be strategic negotiators, focusing instead on training that only widens the gap between the parties.
LET IT SNOW
As the final season of Thrones approaches, we watch Jon Snow of House Stark looking to win the hearts and minds of Westeros using a different approach – collaboration with potential allies. For him, collaboration is about sharing information and listening to the concerns and needs of others. It is about finding creative ways to meet needs and bring people together for a common purpose. It is about being tough, but fair.
Retailers might take note of this approach. At a crucial time when many are struggling to remain relevant, exploring more collaborative approaches to engaging suppliers may make more sense. Suppliers can be extremely valuable allies with great resources and insights in developing the products and experiences consumers are demanding. Moreover, years of studies and negotiation results have proven that a certain amount of collaboration, mutual understanding, cooperation and joint problem-solving yields out-sized results and greater mutual value-creation over time.
Collaborative negotiation, often employed by Snow, is one tool retailers and suppliers might consider in order to create winning outcomes. Here, both sides approach the negotiation as a problem-solving exercise, where working together, they can produce a better outcome than fighting over limited resources. This means sharing more information about what each side needs, listening, being open to new ways of doing things, addressing concerns and innovating together.
Another un-named national retailer is using this collaborative approach with great success. By doing so they are not only reducing product costs, but have become the go-to retailer to introduce new product innovation to the market. Working together with its suppliers, they are taking costs out of the entire supply chain for both sides and reducing prices at shelf.
Strategic Partnerships and Joint Business Planning
Strategic partnerships and joint business planning are additional collaborative tools retailers and suppliers might consider. In genuine partnerships, retailers and important strategic suppliers align on a joint vision and goals for the longer term, and innovate together to accomplish those goals, holding each other accountable along the way. Each side brings their unique assets to the partnership, that when combined, create a competitive advantage. At a time when product and in-store experience are especially important, partnerships with suppliers can create long-term competitive advantage.
In Joint Business Planning (JBP), the parties agree to annual sales and profit goals and together brainstorm opportunities to meet or surpass those goals. By being nimble and building trust, they are able to regularly review the plan and make quick adjustments in tactics when the goals are in danger of being missed.