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Part of being a successful entrepreneur is negotiating. Of course, negotiating is important when you're dealing with clients and customers, as well as employees, but negotiation skills will not only benefit you in those situations. Running a business means you'll also be working with other businesses – consultants, suppliers, and vendors to name a few - that means you need to master business to business negotiations. Further, with most B2B transactions, everything is negotiable, a common mistake by new entrepreneurs is buying business services at “rack rate”.
Differences Between Retail & B2B Negotiations
Negotiating, in general, has some essential rules that apply to almost any situation, regardless of who is involved. For example, you have to be patient with the other person. Pushing too hard to force a quick decision is a great way to make a potential deal disappear. You also need to set limits in your mind as to what price you are willing to pay and stick to that price. Without these limits, you can get so involved in winning the deal, you make a non-profitable arrangement.
However, all negotiations are not the same. The way you would negotiate with retail customers is not the same way you should negotiate with other businesses. Here are some examples:
1. Retail negotiations usually revolve around a single purchase. B2B negotiations generally involve a long-term commitment. While every business wants its retail customers to be loyal, each purchase they make represents a separate successful negotiation. With B2B negotiations, you are trying to sell them on developing a relationship, not just closing a single deal.
2. Retail negotiations often revolve around relationship selling. That means the customer makes the deal because he or she feels good about the salesperson. For example, if you go to a showroom to buy a new car and the salesperson makes you feel comfortable, liked, and happy then you're more likely to buy that car.
3. With B2B negotiations, relationship selling doesn't make the same impact, usually because you're dealing with people who are just as experienced in that type of selling as you are. Other businesses don't close deals to forge temporary friendships; they close deals only when they make good business sense. No amount of playing golf or having dinner together will change that simple fact.
4. A final, inescapable difference is that the negotiation cycle for a B2B deal is longer than for a retail deal. While retail customers may make a decision in minutes or hours – maybe a day or two, B2B clients or suppliers are going to take their time, weigh their options, and come back with a decision or a different offer when they feel comfortable doing so, even if it takes a week or more. That is why patience is even more critical in B2B negotiations.
Negotiating the Best Business to Business Deal
Before you begin negotiating, you need to have preset limits. In this way, it's like going to an auction. You go in, usually wanting something specific, but if you do not have a maximum spending limit you could end up bidding more than you can legitimately afford or even more than the object is worth. What happens is you become so fixated with the competition that you lose sight of the bigger picture – that's why you need those mental limits in place before negotiations ever begin.
Clearly, price is going to be a major factor in the negotiations. One of you will want to earn as much money as possible while the other wants to spend the least possible on the transaction. That's the nature of business. However, price is not the only feature of a good deal.
Service, for example, may be another element. Let's say you're negotiating with another business to purchase a copier. You may be able to secure a low price, but if the final deal does not include servicing for that copier then your low price may not be such a good investment down the road after several costly breakdowns.
Another element may be the length of the agreement. A six month deal may seem great, but not compared to a three year deal. From the sellers perspective, you may sacrifice some of the revemue by lowering the price for the security of a long-term business relationship. The opposite is true for negotiating a lease agreement for commercial space for your new business where you would vie for a shorter lease.
These are examples of the types of trade-offs you should be ready to make. While it's important to go into the B2B negotiations with dollar amounts in mind, you also need to know what else you want and what you'd be willing to sacrifice in order to close the deal. Remember that negotiation is about giving and taking. The best deal may not be the most profitable, but it should represent the best compromise between the parties.
Business to Business Negotiation Tactics
To ensure the most positive responses from your negotiations, you need to build an arsenal of proven-effective B2B negotiation tactics. Below are a few you should begin incorporating.
1. Silence – While we usually view negotiations as talking, the more we speak the more vulnerable we make ourselves, generally. We're more likely to give away our leverage, sound anxious, or show weakness. In Japan, silence has always been an effective part of their negotiations – that's why, historically, Japanese business people have excelled in this field. By not speaking, you'll have a chance to listen for vulnerabilities in the other business's offer, and you'll be able to think carefully about the deal instead of about what you want to say next. Often times you silence will make the other party feel the need to speak, causing them to reveal more than they wish.
2. Alternatives – Retail customers who understand negotiations learned long ago that having alternatives gives them leverage at the bargaining table. For example, a potential car buyer who claims to have found a similar car at another lot for $1500 less can usually secure a better deal fairly easily. So why don't B2B negotiations include alternatives, too? Having back-up plans in case negotiations go bad gives you an incredible amount of leverage and confidence. Never go into business to business negotiations without having at least one alternative.
3. Information – Another way to get a “yes” during negotiations is to do the other business's homework for them. Maybe they need information on the expected market growth in a given area before making a decision. Leaving them to do the footwork can drag out negotiations indefinitely. Instead, have the information prepared for them in advance so it is easy to review. Not only have you made their jobs easier but you will have demonstrated your professionalism and your sincere desire to see both parties benefit from the negotiations.
Summary
Knowing how to negotiate with retail customers is one thing, knowing how to negotiate with other businesses is something else. The best rule of thumb is to go in knowing what you want and what you can afford to give up during the bargaining process. Using effective tactics and appreciating the differences between retail and B2B negotiations can be your best assets. |
