6 tips to increase the success rate when negotiating with Big Box retailers

Being on the buyer side of the "counter" – the retailer’s side – I have always been very critical of the suppliers and especially service providers approach and attempt of closing a sale. Here are some tips to increase their conversion success rate:

1.    Understanding the 3 columns of retail:
This is a business based on scale, product of a correct balance between the amplitude of the offer (assortment) and its depth (volume). Efficiency is an obsession and based on the following concepts: simplicity, consistency, repetition, automation and transference of activities to the customer. And finally, the third element of the tripod is control, which is manifest in the strict management of cash, margin, expenses and capex.

2.    Understanding the bases of relationship:
In a business whose essence is scale, efficiency and control, bargaining is inherent to the negotiation process. Therefore, it is natural that in a negotiation process the buyer uses its scale and purchasing power to their advantage. Of course, greater the proximity of the supplier to the end consumer, lower will be the retailer's bargaining power. Similarly, the greater the relevance (for the retailer) of the supplier in the category, lower the retailer's bargaining power.

To be successful in the negotiation process is necessary to understand the key performance indicators (KPIs) that monitor the retailer’s relationship with suppliers. These indicators are: sales growth, gross margin and invested working capital.

a)    Sales growth measured both in value (amount) and volume (units sold);
b)    Gross margin is the gross profit (selling price net of taxes less the net cost of the goods) divided by net sales;
c)    Working capital is measured by deducting from the inventory value, the amount of accounts payable. It can also calculate the stock turnover (in days) taking into account the current inventory and  dividing it by the sales at cost of the last 30 days obtaining the number of months of sales in stock and comparing it with the payment terms conditions.

3.    Understanding the positioning of your product and its role in the commercial retail strategy and also manage their numbers is essential and healthy. This means recognizing how your product or service will contribute to the retailer's business. Being it margin, a complementary/service or volume?

In the case of service providers is curious how they feel offended as they understand that their services cannot be purchased as "rice and beans". I never understood this reaction. After all, what is the real difference between buying a product or a service? The process itself is not much different. Of course, buying a service to be performed is more complex. However, in the negotiation dynamics are present the same basic elements: product specifications, price, terms, delivery time, payment term, the buyer and seller responsibilities etc. Additionally, the motive for buying a service is either to reduce costs, increase productivity or, at least, comply with regulations.

4.    The success in the aftermarket, which involves the management of returns, "rebates" price to increase the turnover at point of sale as well as the monitoring of goods receiving, is greatly dependent on the supplier's proximity to the commercial and financial areas. It should be understood that the financial area has power; however, the greatest power in regard to the relationship with the supplier lies in the commercial area. This means that problems should be, first and foremost, addressed with the commercial areas (Buying).

5.    Understanding also a basic truth: the higher the position in the hierarchy of your interlocutor, higher is their risk aversion. If in the course of closing the deal you do not notice this trait in your counterpart, you should be concerned, because you will end up losing money! So if something goes wrong, you – supplier - will be penalized!

6.    Other attributes valued by retailers:

a)    Organization and respect for the law;
b)    Ability to "explain" your industry and its biggest challenges;
c)    Availability and flexibility for emergency requests;
d)    Ability to innovate (differentiation);
e)    Being a customer of the retailer’s "financial services" area;
f)    Cultivating relationships at the top without "trampling over" the hierarchy. It can be done via Top to Top (business evaluation) meetings, events sponsored, and connecting on social networks (i.e.: LinkedIn).