Black Belt In Retail

GOOD BUYERGREAT

NEGOTIATOR......................................................

PRAKASH MENON ANDREW CAVANAGH&

Fact-Based Negotiation in Retail

........................................................................................................................

TABLE OF CONTENTS

TABLE OF CONTENTS

1. Every Negotiation is Unique ................................................................ 4

2. The Changing External Environment .................................................. 5

3. Workshop Activity (Groups) – External Environment Analysis ......... 8

4. Negotiation priorities ........................................................................... 9

5. The hallmarks of a successful negotiation ....................................... 10

6. What are the elements of effective communication? ....................... 16

7. The Process of Communication ........................................................ 18

8. Opening ............................................................................................... 20

9. Clarifying .............................................................................................. 22

10. Developing ......................................................................................... 23

11. Agreement ......................................................................................... 25

12. Closure ............................................................................................... 26

13.Process Skills ..................................................................................... 27

a. Making Procedural Suggestions ............................................. 27

b. Check for Understanding ......................................................... 27

14. Key Principles .................................................................................... 28

a. Maintain or enhance self-esteem ............................................ 28

b. Listen and respond with empathy ........................................... 29

c. Ask for help and encourage involvement ............................... 29

d. Share thoughts, feelings and rationale ................................... 30

e. Provide support without removing responsibility .................. 30

f. Workshop Activity (Pairs) ......................................................... 31

THE MEANING & IMPORTANCE OF NEGOTIATION .................................... 2

COMMUNICATION & INFLUENCING SKILLS ............................................ 14

................................................................................................................................................................................................................................................TABLE OF CONTENTS

TABLE OF CONTENTS

IDENTIFYING NEGOTIATION VARIABLES ............................................... 74

PLANNING THE NEGOTIATION ............................................................. 86

TACTICS OF EFFECTIVE NEGOTIATION ................................... 98

38. Which Negotiables Really Matter & to Whom? .............................. 76

39. Establishing Objectives .................................................................. 78

40. Establishing Your BATNA ................................................................. 80

41. Reflection Exercise ........................................................................... 84

42. Understanding your Position ............................................................ 89

43. Understanding the Supplier's Position ............................................90

44. Assessing the Economic Climate ..................................................... 91

45. Determining the Power Play ............................................................. 92

46. Sources of Power .............................................................................. 93

47. Setting up the Negotiation ............................................................... 94

48. Reflection Exercise .......................................................................... 96

49. Alternative Negotiation Approaches .................................................99

50. Effective Negotiation Tactics ...........................................................101

51. The co-operative mode .....................................................................103

52. The attitudinal mode ........................................................................ 104

53. The organisational mode .................................................................105

54. The personal mode ........................................................................... 106

55. The competitive mode ...................................................................... 107

56. Concession Trading ..........................................................................108

57. Reflection Exercise ........................................................................... 111

58.Breaking Deadlocks & Handling Objections .....................................112

59.Selling the Proposition ...................................................................... 114

THE FRAMEWORK OF SUPPLIER RELATIONSHIPS .................................. 34

THE PHASES OF A NEGOTIATION........................................................... 64

15. The Supplier Pool .............................................................................. 36

16. Selecting Suppliers ........................................................................... 37

17. Supplier Relations: Conflict or Collaboration? ................................ 39

18. The Benefits and Risks of Partnering .............................................. 41

19. Building Relationships ..................................................................... 43

20. How many Suppliers? ....................................................................... 45

21. Workshop Activity – New Supplier Selection .................................. 46

22. Supplier Management ....................................................................... 51

23. Supplier Strategy Meetings .............................................................. 52

24. What Suppliers Want ........................................................................ 52

25. What Buyers Should Do .................................................................... 53

26. Supplier Review Meetings ................................................................ 53

27. Supplier deletion ............................................................................... 54

28.Guidelines for Product Deletion ........................................................ 55

29. Ethical Considerations? .................................................................... 57

30. What needs to be put in place? ........................................................ 59

31. Conclusion ......................................................................................... 62

32. Social Phase ...................................................................................... 66

33. Framework Phase ............................................................................ 67

34. Exploratory Phase ............................................................................. 69

35. Bidding & Bargaining Phase ............................................................ 70

36. Settlement Phase ..............................................................................71

37. Closure Phase ................................................................................... 72

........................................................................................................................TABLE OF CONTENTS

60. Gaining Acceptance 115

61. Team Negotiations .............................................................................117

C

Conclusion ............................................................................................... 118

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LOSING THE DEAL ............................................................................... 118

+ THE MEANING & IMPORTANCE OF NEGOTIATION........................................................

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THE MEANING & IMPORTANCE OF NEGOTIATION

3 4

No. 1+

EVERY NEGOTIATION IS UNIQUE


There are, of course, many different forms of retail negotiations. They can range

from simple one-on-one negotiations to more complex situations involving many

meetings between a number of people or groups. The form a negotiation takes is

also influenced by factors such as:

wLocal or international, requiring an understanding of other cultures;

The period of time by which negotiations must be completed;

The balance of bargaining strength;

The type of merchandise;

The length and type of relationship.

Quite apart from these factors, the way a negotiation is conducted and its

outcome also depends on:

The personalities and skills of the individuals involved in the negotiation,

and

How each of those involved sees the situation and judges the strengths

and weaknesses of the other party.

Therefore every negotiation is unique. There are no rules and there are rarely black

and white or right or wrong outcomes.

However all negotiations share some common characteristics. They all involve

some giving and taking; they reflect restraints and drives that create differences

and conflict; they concern issues of sufficient importance that both parties seek

resolution; and there is uncertainty about their outcome.

While this section focuses on negotiating in a retail commercial context, everyone

engages in negotiations in their personal lives. Even in a business context, you

will be involved with negotiations within your organisation (usually with your line

manager). There is nothing new in the process, however it is often done

unthinkingly, and as a result, individuals frequently fail to achieve their goals.

The achievement of your goals depends to a large extent on your skills and the

recognition that the outcomes will reflect the perceptions of both parties. The

ability to understand the psychology of the other participant and to react to the

knowledge gained in the course of the negotiations will improve your own

position. Successful negotiators are always good studiers of people.

w

w

w

w

w

w

Negotiation is a critical activity of every retail Buyer. Why? Because the extremely

competitive retail marketplace environment will continue to put increasing

downward pressure on margins. Most Buyers won't only be negotiating with

Suppliers, but also with their managers, stores, logistics departments and other

internal departments. For the purpose of this workbook however, we will focus on

the negotiations that take place between Buyers and Suppliers.

Retail negotiation is not just about achieving better purchasing prices; it is a

continuing activity required to resolve problems and develop new opportunities

with Suppliers. How skilful a Buyer is at negotiating has a major bearing on

Supplier relationships and merchandise profitability.

So what is the meaning of negotiation? There are actually a number of definitions.

The following points offer some useful perspectives:

wThe mutual discussion and arrangement of the terms of a transaction or

agreement.

The process where people meet together to seek agreement, providing

mutual satisfaction on issues that are of mutual interest and concern.

A process through which parties move from their initially divergent

positions to a point where mutual agreement may be reached.

However there will be no discussion or bargaining unless:

The Buyer needs what the Supplier is offering, and

The Supplier needs the Buyer to buy, or

Each is persuaded of the need for the other.

Negotiation has a lot to do with persuading, bargaining, and trading concessions

to achieve the best outcome that will satisfy both parties. Negotiation therefore

involves a degree of mutuality. Both parties must be prepared to live with the

result. Unfortunately, in many instances the mutuality element is missing and

what passes for negotiation ends up being not far removed from an ultimatum or a

form of blackmail. This situation usually happens because the Supplier (or in

some cases the retailer) has become dependent on the other party for their

survival. This sort of dependence can result in irrational decisions being made by

the dependant party.

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......................................................................................................................No. 2+

THE CHANGING EXTERNAL ENVIRONMENT

The tasks, for which the buying function is directly or partially responsible, are not

only extensive but also impact on every face of the retail business. The following

flow chart of the merchandise process illustrates the tasks involved in an easy to

understand way.

The jagged line represents the external environment, which is constantly

changing. It shapes the retail industry, creating the excitement and boundless

opportunities for Buyers. It is comprised of a variety of different factors such as

Social, Economic, Political, Technological, Competitive, Regulatory and Ecological.

The world today is often said to be a global village largely because of the

instantaneous way the media brings the world into our living rooms and the ease

with which we in the industrial world can travel to other countries and meet other

nationalities. Consequently retailing today is an international industry. The Buyer

has to recognise the critical importance of constantly monitoring and responding

to this external environment, both within their own market and in the markets with

which they trade. Off shore suppliers will be impacted by changes to the external

environment in their own country. You as the retailer will be impacted by those

changes.

This external environment has been referred to as the P.E.S.T. Model:

Political

The regulatory environment comprising Government laws and regulations at all

levels governing; trade practices, trading hours, industrial relations, locations,

product information, labelling, packaging, pricing and increasingly, ecological

issues.

Economic

The economic environment comprising consumer spending, disposable income

distribution, Government fiscal and monetary policies and spending priorities, and

other factors, many of which are determined by political policies and philosophies.

Social

The social environment comprising population trends, distribution, household

size, education, occupations and lifestyles.

Technological

The technological environment comprising the technological advances constantly

impacting on both industry and domestic life including distribution, data

processing, and point-of-sale as well as communication.

5

The Retail

Business Plan

Merchandise

Planning

Merchandise

Procurement

Merchandise

Distribution

Merchandise

Presentation and

Promotion

Merchandise

Controll and

Replanning

......................................................................................................................THE CHANGING EXTERNAL ENVIRONMENT

THE MEANING & IMPORTANCE OF NEGOTIATION THE MEANING & IMPORTANCE OF NEGOTIATION 6

............................................................................................................................................................................................................................................+

This is the critical stage for all salespeople. Indeed everything that happens

beforehand in a negotiation comes to nought if a deal cannot be closed. However

it is equally important that Buyers develop their persuasive skills to counter

unsatisfactory proposals or to 'sell' their own solutions or proposals if the need

arises.

Throughout every stage of a negotiation there are occasions when agreement

needs to be made on particular aspects, or even just on the way the negotiation

should be handled. Given a collaborative environment, consensus is normally

relatively easy to achieve. Having said that, thorny problems or sticking points will

still invariably arise. Further more, when the actual final deal is nearing conclusion,

it is natural for both parties to become more cautious, be more reluctant to commit

or call for more time to consider. This is because we feel vulnerable - we do not

want to be seen to have made a poor deal or to have failed to get a better one. A

well prepared negotiator can be more positive at this time and not feel as exposed

as one who has not thought through and planned the process right through to the

end.

At this stage it is absolutely crucial that we ask the right questions. Some

examples of appropriate questions to ask the other party are:

wPerhaps you could explain your reasons?

wHelp me understand your priorities.

wWhat aspect of that factor is important to you?

wIf I give you that, then how can you help me meet my objectives?

wAre there situations where you might change your position on that issue?

wWhat exactly are you having difficulty accepting?

wHow could I make my proposal more acceptable to your organisation?

Examples of inappropriate questions are:

wWhat sort of idiot do you take me for?

wAre you listening?

wHow do you justify that?

wIs that your final offer?

No. 60

GAINING ACCEPTANCE

We also need to ask ourselves some questions. These will fine-tune the work we

did in the preparation stage.

wWhat are the issues – ours and theirs?

wWhat are the concerns – ours and theirs?

wWhat are the pros and cons – ours and theirs?

wWhat are the consequences of agreement/failure to reach agreement?

wWhat are the hidden agendas – ours and theirs?

wWhat are the time constraints – ours and theirs?

wWhat is our plan B?

We then need to ask ourselves WHY? Why is this an issue; why have they got this

agenda; why is this important? It isn't enough to simply address these questions

in the planning stage or even just once during the negotiation.. Instead we must

keep readdressing them. This will help us adjust our strategy as we work through

the negotiation.

GAINING ACCEPTANCE

116115 TACTICS OF EFFECTIVE NEGOTIATIONTACTICS OF EFFECTIVE NEGOTIATION

......................................................................................................................+

Often Buyers limit their effectiveness by negotiating one-on-one or sometimes

one-on-many. While this is often a case of expediency, it is also commonly a sign

of inappropriate independence, poor planning or lack of confidence in your

colleagues.

There are several issues that need to be addressed if team negotiations are to be

successfully executed. Some of these are:

wEstablish roles within the team. These can be as simple as:

ªLeader – conducts negotiation, gives information, expresses opinions,

trades concessions, makes proposals. The leader doesn't have to be

the most senior person on the team; just the most persuasive.

ªSummariser – asks questions to clarify issues or test own or other

party's understanding, clarifies, keeps discussions on task,

summarises to buy thinking time for others. This person doesn't need

to give opinions or information.

ªObserver – watches, listens and records details. Will often calculate

numerical implications. Does not talk much so they can focus on

REALLY listening. Tries to understand the motivation, priorities and

concerns of the other party.

wTeam roles may also be based around function or expertise. If there is a

planning function, the planner will handle the planning related issues,

while the Buyer will handle the product related issues. You may also

need to have experts (logistics, accounts payable, finance) on hand to

address specific problems and maintain momentum.

wMake sure you have a consistent understanding of the desired outcomes,

proposed strategy and the tactics you are going to use. Nothing plays

into the hands of the other party more than a team that fights amongst

themselves.

wListen to each other as well as the other party. This may require you to

develop some predetermined, discrete signals to assist communication

within the team.

wChanges in the negotiation mode may require a change in team roles.

No. 61

TEAM NEGOTIATIONS CLOSING THE DEAL

In concluding negotiations, negotiators must always be mindful that their job

should be to open a supportive long-term relationship from which both parties will

benefit. Unethical strategies like excessive use of pressure tactics or bargaining

power will invite negative counteraction when conditions allow it.

There are well-documented persuasion techniques in selling manuals on how to

close sales that are worth studying. The most constructive techniques are those

that demonstrate the logic or values of the proposed final deal in contrast to those

that force the desired outcome through threat or offensive argument.

There may be times when negotiations are more rapidly advanced to the closure

stage by declaring the price very early in the procedure. This is the case with

competitive specials or promotions that have to be specifically price-pointed. If

the Supplier accepts the price because of non-negotiable reasoning, there could

still be issues of quantity, quality, timing, and terms to be settled. However as

price is usually the key issue of most negotiations, much of the tension will have

been removed. This means that Suppliers have made the decision.

118117 TACTICS OF EFFECTIVE NEGOTIATIONTACTICS OF EFFECTIVE NEGOTIATION

By now you will have a clear understanding of why negotiation plays such acrucial

part in the running of any retail business. While the focus of this book has been on

how Buyers conduct effective negotiations with Suppliers, negotiations also take

place between Buyers and their managers, between stores, between logistics

departments and between other internal departments, to name just a few of the

situations where negotiations take place in retail. In fact, to be a strong negotiator

who always strives for a win-win result will stand anyone in good stead in

business and in life.

At the end of the day, effective negotiation is more about establishing mutually

beneficial relationships, resolving problems and creating opportunities than it is

about money. Once the money is put behind the other benefits, the business will

be rewarded handsomely in terms of profitability.

CONCLUSION

PRAKASH ‘PK’ MENON

ANDREW CAVANAGH

AUTHOR BIOGRAPHIES

Prakash ‘PK’ Menon is a globally renowned Retail,

Supply Chain & Logistics & Leadership authority. A

regular contributor to several UAE and international

retail publications, PK is also the author of three other

books - Driven - accelerate your career with smart

transitioning; Supply Chain is Sexy - Harnessing the

Retail Revolution; and Fail Smart - The Undeniable

Link Between Failure and Success. As Executive

Director of Thought Leaders Middle East, PK’s passion

and expertise is to help retailers transform their

organisations into global powerhouses and add

signifcant dollars to their proft lines.

Andrew Cavanagh brings more than 20 year’s retail

buying, merchandise planning and IT experience with

Myer and Coles Myer and more than 6 year’s national

and international teaching experience at the

Australian Centre for Retail Studies to the table. Today

he focuses on his true passion, which is to develop the

skills and competencies of Buyers and Planners

around the world as an international facilitator.

MORE BOOKS IN THE RETAIL MASTERY SERIES:

OTHER BOOKS BY PK MENON:

Fail Smart (TM)

PK's book on Failure

Intelligence. About the

undeniable link between

Failure and Success.

Supply Chain is Sexy

Transform your supply

chain fromweak link to

core strength with PK

Menon

Driven...whatever it takes!

A memoir highlighting PK

Menon's journey - an

inspiring combination of

humble beginnings to an

even more humble yet

awe-inspiring present.

PUMP UP YOUR ROI

From Good to Great Buying in Retail

A guide to managing your retail business by measuring what matters.

ROCKETING RETAIL PROFITS

With Excellence in Merchandise Planning

A guide to optimising inventory and retail profits.

POWER UP YOUR RETAIL

Powerful Financial Excellence for Retail Store Managers

A guide to driving outstanding retail store profits in the 21st century.

CHECKMATE IN RETAIL

Dynamic Strategy for Retailers in a Volatile Retail Environment

A retail buyer's guide to driving outstanding profitability using effective

merchandise strategy.

WINNING FORMULAS IN RETAIL

108 Retail Formulas for Retail Mastery

108 formulae that every Retail Manager needs to know.

Black Belt In Retail

Retail

Transcript of Black Belt In Retail